If you are thinking about buying an investment property, you might be wondering:
I’ve invested in both houses and apartments over the years, and each have their pros and cons. So, what are they and what do you need to consider before investing in a house or an apartment?
What makes a better investment ‒ a house or an apartment?
Investing in a house
While investing in a house may offer capital growth, it can also come with drawbacks. Here are some of the major pros and cons.
Investing in an apartment
Apartments are an attractive option for investors as they are usually more affordable than houses. However, there are many factors to consider when buying an apartment.
Rental yield explained
Rental yield is the profit you generate each year from your investment property as a percentage of its value. To calculate a rental yield, the weekly rent is multiplied by 52 weeks and then divided by the purchase price.
Choosing an investment property based on high rental yield alone isn’t always the best option as there’s a range of factors that impact profitability. For example, some high-yielding properties can have no capital growth, little cash flow or increased risk depending on factors like location, property prices, infrastructure, economy, employment and vacancy rate.
For example, there are incredibly high-yielding houses in many mining towns across Australia. However, most of those properties come with high risk, thanks to a volatile market that’s heavily reliant on employment within the area.
Whereas, inner-city apartments tend to offer relatively high rental yields (though not usually as high as mining towns) but have less associated risk.
How did rental yields compare over the last 12 months?
Recent market trends continue to position units (which include apartments) higher than houses in terms of rental yields. The CoreLogic Market Trends Report, for example, shows the gross national rental yield from units (including apartments) from December 2019 to December 2020 was 0.9% more than that from houses. The combined capitals data also revealed the same trend.
Source: CoreLogic Market Trends Report, 10 December 2020
However, as mentioned, there are many factors aside from rental yield to consider to help you work out the best-value property investment option that may suit you personally.
Should I invest in a house or an apartment?
Ultimately, there’s no ‘one size fits all’ answer to this question. It really depends on your overall investment objectives and strategy, the housing demand and supply trends in the market, the location of the property and what you can afford.
The most important thing is to do your research and consider speaking to as many people with relevant experience and expertise, such as real estate agents, accountants and seasoned property investors, as you can.
You may also want to ensure your finances are in order. Steps such as doing a budget and checking your credit score, as well as considering home loan pre-approval, may help you to make your investment dreams a reality. If you need advice, it could be a good idea to speak with a financial adviser.
This advice is general and has not taken into account your objectives, financial situation, or needs. It is not personal advice. Consider whether this advice is right for you, having regard to your own objectives, financial situation and needs. You may need financial advice from a suitably qualified adviser. Consider the product disclosure statement (PDS) before making any financial decision.
All information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall or rise.
This article is intended as general information only and has been prepared without taking into account the personal financial situation, objectives or needs of the reader. Before acting on this information, you should consider its appropriateness, having regard to your objectives, financial situation and needs.