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Which Is A Better Investment Property: House or Apartment?

4/6/2019

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apartments vs houses investment property - carnelian newcastle property management

With the noticeable increase in apartments and townhouse complexes in and around Newcastle and Lake Macquarie in recent years, many investors are considering which is a better investment opportunity: a house or an apartment.

Just looking at the way the skyline has changed around suburbs such as Wickham, Charlestown and Warners Bay, there are seemingly never-ending opportunities to invest in apartments. But should you? In this article we take a look at the pros and cons of both houses and apartments as investment properties.

Benefits Of An Apartment As An Investment Property

The top 3 benefits of an apartment as an investment property include:

Often a lower purchase price than a house making it more affordable for first-time investors or those wishing to build a portfolio quickly
Building maintenance is generally managed by strata, rather than responsibility falling directly to the owner of a house
Apartments are often centrally located to business, retail and lifestyle hotspots, broadening appeal to professionals and couples without children

Benefits Of A House As An Investment Property

The top 3 benefits of a house as an investment property include:

Owning the land on which the property is built, which generally offers significantly greater capital growth over time
Renovations and structural improvements are easier to make, given no requirement for strata approval as in apartment complexes
Tenants (especially families) prefer properties with multiple parking spaces, backyards, and greater number of living spaces than are offered by most apartments

Stick To Your Investment Strategy

The pros and cons of apartments and houses outlined above provide a starting point for considering which option best fits your investment strategy.

If your strategy is one of higher cashflow, an apartment or house offering strong rental yields could be equally suitable for your objective. However if your strategy is one of higher capital growth, a house in a well-performing suburb is likely to be more suitable.

Consider Market Demand vs Supply

In new apartment complexes, where many near-identical properties become available to the market at the same time, supply can outweigh demand leading to a "race to the bottom" as landlords lower asking rents to minimize vacancy. These lower asking rents can take time to recover as the market settles.

Remember that supply in the rental market is competition - competition by way of alternatives for your prospective tenant to consider. If supply of apartments in an area is high, and demand for those properties does not match the supply (evidenced by long vacancy periods and decreasing rents), a high cashflow investment strategy could stall.

However, in researching your investment options, there are many instances where a high cashflow strategy favours apartment properties. For example, in areas such as Warners Bay, Charlestown and Toronto, median rent for units has overtaken houses offering the same number of bedrooms.

In Conclusion

Once you have determined your investment strategy and shortlisted areas of interest to invest in, a professional property manager can assist greatly. A realistic rental appraisal (not inflated to secure your business!) based on recent comparable rentals on the market, coupled with an understanding of trends in supply and demand for similar properties in the area can be of great help in working out which investment option may be a better fit for you.