Houses and units both represent a strong, long-term investment opportunity, but underlying market factors and investment strategy considerations will often dictate which way to go, writes Richard Sheppard.
Which delivers the best returns for investors – houses or units?
In a land where the great Australian dream is to own a home, the gut feeling for many people is that houses outshine units.
However, a large portion of this difference is not attributable to extra growth, but rather to renovations and extension work on the homes. So the truth is that homes and units can be a good investment, but investors need to think about a range of factors which are ultimately more important.
Depending on how quickly the market is growing, it could take four to eight years or more to build up this amount of additional equity to safely invest in a house. Compounding the issue, a $1.6 million house on the northern beaches is usually quite old, so there is unlikely to be significant depreciation tax benefits, while the maintenance costs and land tax would be very high. So the monthly cost to hold an old house would be significantly higher than a newer unit or townhouse.
Right strategy, right time, right place
Market cycles are the other big issue for investors. Sydney is at the top of the cycle, which means it may not be the right time to buy houses or units. The Brisbane market, on the other hand, has been flat for years and is now poised for significant growth, according to leading property forecaster BIS Shrapnel. The growth prediction for the Queensland capital is more than six times stronger than Sydney and it offers units in ideal locations, which are undergoing urban renewal programs or infrastructure improvements – typically in that $400,000 to $800,000 sweet spot.
So, with this in mind, getting the strategy, timing and location right are far more important than debating whether to buy a house or a unit.
This article was originally written by Richard Sheppard for the June 2016 edition of Peninsula Living Magazine.