Choosing an investment property – Units Outperform Houses
The decision over what type of property is the most beneficial, when it comes to investment properties, is one that has been debated for many years. Levels of capital growth, purchase prices and the amount of rent the property is expected to bring in are all things that need to be taken into account. A recent study has shown that units and apartments have delivered better capital and rental growth than houses throughout the last 5 years.
In major cities the average unit has a capital growth of around 42 per cent for the same period, whereas a house has 40.5 per cent growth. This proves to be a substantial amount of money, which is helped by the fact that rental rates have increased by 47 per cent for units; this is a significant 6 per cent higher than the increase for houses.
One of the main forces behind the growth of investment units is that they are more affordable than houses; units are generally $60,000-$70,000 cheaper than a house. This attribute, along with the fact that people can usually live in a more desirable location at a lower cost if they opt for a unit rather than a house, is likely the reason why we’ve seen units outperforming houses. However, while units may be less expensive to buy, the average rent for them is now just 2.8 per cent below that for houses. This clearly demonstrates a higher return for money when comparing the two property types to one another.
When purchasing an investment property it is important to consider which type of property will perform best in your ideal price range. Properties around the $500,000 mark, or those within $100,000 of a city’s median price, are often considered to be the best investments. Generally these properties have more consistent growth and the ability to gear higher with a smaller deposit,
It is important to factor in land value and quality as this will also be a major contributor to your level of investment success. There is a great difference between physical land size and land value; quality, not size, is what determines the value of the land. Factors which influence this include:
• Proximity to employment, infrastructure and transport
• Access to schools, shops & amenities
• Point of difference features such as views or beaches
A house with high land value and quality is hard to come by in capital cities (especially if you are after something affordable.) For this reason, units or townhouses are a more viable option for an investment property; they can feature all of the above characteristics at a much lower cost. Some benefits other than affordability can include:
• Higher rent and depreciation benefits
• Availability of purchases ‘off the plan’ over a relatively long term
• Lower maintenance. This means less stress for you, since you wont have to worry (or spend money) on things such as yard maintenance.
Before purchasing an investment property it is recommended that you seek the advice of accountants and financial planners that can assess your individual situation and provide tailored advice to suit your specific needs. The accountants and financial planners here at The Quinn Group can assist you in all of your capital and investment queries. For more information submit an online enquiry or call us on 1300 QUINNS (784 667) or on +61 2 9223 9166 to book an appointment.