Buying an apartment vs a house as an investment

Do you want to jump into the property market but don’t have the budget to buy a house? A unit or apartment could be a great way to get your leg up on the property ladder.

According to CoreLogic data, unit values are now rising at a faster rate than houses in more than half of all suburbs across Australia.

Aside from being more affordable than a house, there are other benefits of apartment investing to consider. Let’s look at some of the pros and cons of investing in an apartment versus a house.

Pros of investing in an apartment

A more affordable entry point

The median house price in Australia’s capital cities is now $975,592. Compare that to the median unit price of $669,434 and that’s a big difference at the checkout.

With apartments generally being more affordable than houses, it means you’ll need to save up less of a deposit (usually around 20% of the purchase price), and you may find servicing the loan on an apartment easier too.

Fewer maintenance responsibilities

When you own a house, you have to foot the bill for all of the repairs and maintenance. With an apartment or unit, the costs of any repairs or maintenance in common areas is split with other unit owners, usually through a body corporate scheme.

Generally speaking, there’s usually less maintenance required on a unit compared to a house. There may not be a lawn to mow, for example.

Certain expenses can be more affordable

Some expenses can be cheaper when you own a unit. Council rates, for example, are usually higher for houses and may even include land taxes in some states.

If you’re paying smaller fees on an investment apartment, the returns on your investment can potentially be higher.

Potentially higher rental yield

Units often have higher rental yields than houses because you’re able to outlay less money to potentially acquire a similar rental income. This may mean you are in a better position to cover your mortgage repayments and other expenses.

Cons of investing in an apartment

You may need to pay strata fees

In a strata scheme, you’ll need to pay body corporate fees and factor these into your ongoing budget. Strata fees can be pricey and increase over time.

If there’s an onsite manager, pool, tennis courts, barbecue area, and gym, expect higher fees than an apartment block with fewer facilities.

There may be restrictions

If you want to renovate your apartment, you may need to run the changes by the strata committee for approval, particularly if it affects the exterior of your apartment or any shared utilities.

There may also be restrictions around having pets, too, which could reduce your tenancy pool.

Oversupply can affect your investment

If you buy an apartment in an area where loads of high-rise apartment blocks are being built, it can affect your property’s capital growth, rental yield, and demand from tenants.

Generally speaking, experts recommend seeking low-rise or boutique apartments in areas where planning rules cap the number of apartment buildings allowed.

Want to discuss your finance options?

Whether you’re looking to buy a small studio apartment, a bigger unit, or a house, we can help you explore your finance options.

We’ll run you through the investment loans available to you and explain which may suit you, based on your individual financial situation and goals.

Please contact us for assistance.