Investors often focus on apartments, not recognising some of the benefits houses can offer in an investment portfolio. Here are the pros and cons of houses and apartments for investment properties.
Many investors focus on apartments when considering properties to add to their portfolio, but some don’t know that houses also have a range of benefits when it comes to investment returns. If you’re thinking of buying an investment property, here’s what you need to know about the pros and cons of houses and apartments.
Houses Vs Apartments: Pros And Cons For Investments
Houses and apartments both offer return on investment and rental opportunities, but they have different benefits that work for different investment strategies and investor needs.
Benefits For Apartments Include:
- They typically sell at a lower price point due to space and the absence of land (though there are exceptions). As well as making apartments more affordable investments, this also offers an easier entry point for first-time investors or those looking to build a portfolio quickly.
- The owners’ corporation manages building maintenance as part of the strata scheme, whereas this falls directly to the owner in houses.
- Apartments in some areas tend to have higher rental yields than houses for instance, Darling Point, Waverley and Bondi.
Benefits Of Houses Include:
- Owning the land which will increase in value over time.
- It can be easier to renovate houses and make structural improvements, which would require strata approval in apartment buildings.
- There is demand for properties with garages, backyards and more space, so houses with these features can be easier to tenant.
- Houses generally provide higher capital growth than apartments and have more potential to be negatively geared.
- In some areas houses can have higher rental yields than apartments - for instance, Potts Point, Bellevue Hill or Kensington.
Differences In Rates And Fees For Apartments And Houses
Both apartments and houses have ongoing costs that you should factor in to your decision, as they differ for both property types.
With an apartment or townhouse in a strata scheme, you’ll be required to pay ongoing quarterly strata fees, as well as any one off special levies that arise. These fees are used to maintain or upgrade the property’s common spaces.
For all property types you will need to pay council rates and water rates. However, if the property is individually metered and water efficient, the tenant can be charged for water usage. If you are unsure if the property is water efficient, arrange for a plumber to inspect it and have it noted on the invoice. If the property is not individually metered, water usage will be included with your strata fees.
Investment Strategy And Property Demand
There’s no one-size-fits-all answer for every investor. Choosing between a house and an apartment depends on your preferred investment strategy and a strong knowledge of the local market, including supply and demand.
If your investment strategy focuses on a higher cashflow, you’ll be looking for a house or apartment with higher rental yields, whereas an investment strategy focused on capital growth may benefit from adding houses to your portfolio.
In both cases, the level of demand in your desired suburb will influence how easy it is to rent your property. For example, according to REA Group data, demand for houses is high in Kensington but average for apartments, indicating it may be easier to find tenants for a house in this suburb over others in Sydney’s east.
How To Choose The Right Property For Your Needs
When you know the type of property you want to add to your portfolio, support from quality agents and property managers is key in choosing the right property to maximise your return. Our team knows what tenants are looking for and what properties command a higher price in the market.
Get in touch with our team of specialists today to find out more about renting houses and apartments in the Eastern Suburbs.