Houses vs units: pros and cons for investors
A lot of people come to us wanting to invest in property, with one idea firmly implanted in their heads: investors invest in units. Is this really the way that property investment does – and should – work, however?
Historically speaking, a lot of property investors have bought units rather than house and land packages not because they weighed the pros and cons and decided that units would fit their investment profile better, but because… a lot of companies find units an easier sell. In other words, some investors get the idea that units are a better investment not because that meets their needs better, but because it suits their advisor better.
We’d like to turn this around, and ensure that our clients are buying the investment property that best suits their portfolio needs. With that in mind, we’ve put together a list of the pros and cons of house-and-land packages vs units.
House and land
|Pros||50% stamp duty savings possible if you buy land and then build – this could save you up to $10,000.Land appreciates in value, providing more opportunity for capital growth.Higher market share – most people (especially families) seek to buy a house for their primary abode.
Higher capital growth, on average, than units.
|Easier maintenance and upkeep.Lower price point on high-demand suburbs than houses.Higher yield, on average, than houses.
Higher income, on average, than houses.
|Cons||Construction time creates dead money paid on mortgage with no rental income to offset.Lower annual yield, on average, than units.||Full stamp duty on purchase price.Body corporate fees.‘Off the plan’ purchases can introduce financial risk – building delays can cause your finance application to lapse, and reapplying opens you to the possibility of your finance being declined – and you being sued by the builder for breach of contract.
High-rise buildings often have large numbers of units finished and available for investor owners to rent out all at once – can cause gluts in the rental market. Fixed-term rent guarantees may just delay the problem for the length of the guarantee.
Lower capital growth, on average, than houses.
You can probably see from the table above that your investment needs will play a large part in determining your choice between a house and land, or a unit. For example, if your main objective was to achieve the highest annual yield possible, you might buy a unit in a suburb that’s currently in high demand. If, however, your main object was to achieve a high capital growth over a number of years, you might buy land in a newer suburb that is forecast to experience property price increases in the next five years. If in doubt, talk to a property investment specialist who can analyse your needs and advise you on the right investment property for you.