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Is it better to buy an apartment, townhouse or house?

With all the issues that are affecting the world property markets something that never changes is the need for housing. Empires can come and go but the people will always need accommodation. 

In Australia we have three main choices of accommodation, each one can vary in performance when it comes to capital growth. We are going to explore the pros and cons of all three and hopefully assist the reader with some wise real estate advice.

Is it better to buy an apartment, townhouse or house

Apartment

If your lifestyle needs are city based, then this could be a great a great way to simplify your life. A metropolitan area offers employment, entertainment and the premium dining options.  Residence can skip the daily traffic jam from the suburbs and enjoy the luxury of walking to work and potentially not having to own a car.

Do apartments make good investments? In short, no. Looking at the Melbourne apartment market, few apartments have made good investments over the last 7 years.  A few reasons why apartments haven’t been good investments:

  1. Supply and demand: Too many apartments vs buyers that are wanting them.
  2. Dime a dozen. Small floors plans, not enough natural light with no build character.
  3. Excessive holding costs: High body corporate fees with big ticket repair bills from poor build quality.
  4. Historical lack of demand: Pockets / areas that have a history of poor capital growth.

The few apartments that have had great capital growth usually feature the opposite characteristics of the above four points.

Some people believe you get what you pay for, with apartments this might not aways be the case. A high price doesn’t mean a great grwoth or a low price doesn’t mean poor returns. 

Finding a diamond in the ruff isn’t impossible and you most likely need professional assistance when buying an apartment to reduce your risk of losing allot of money.

For more information on help buying an apartment.

Townhouse

Townhouses have grown in popularity since the 1990’s as they offer affordable living closer to the city.

Do townhouses make good investments? In short, yes and no. It depends on the type of property you purchase and of course location.  

What are town houses?  Town houses are usually double story compact homes, two or three bed rooms, one living area and a 1 car garage on a small land allotment. Single level units are also in the same category as townhouses.

Most town houses are built on ordinary residential land allotments that have been subdivided between 2 to 8 times, that means one land allotment can have 2 to 8 homes squeezed on to it.

Cutting up residential land can be a licence to print money for developers hence it’s important to be careful when buying this kind of property as the wrong purchase can result in sluggish capital growth.

Some townhouses can sell for premium amounts of money. What a buyer must consider is there purchasing a small land allotment, all the premium fixtures and fittings wear and tear to a point of no value, hence your left with a small block of land.

Good capital growth townhouses are usually located close to a major city or lifestyle amenities like a beach where prices of homes are too expensive for most buyers.

Another major key to success when owning townhouses is buying property that hasn’t been subdivided too many times. Ideally, a two-lot subdivision have the most demand, property is free standing, not sharing a driveway or walls with its neighbours on a minimum sized land allotment of 300sqm.

House

A major factor in good capital growth is the proportion of land you own. As in the above townhouse example, fixtures and fittings, bricks and mortar eventually need replacing hence the true value is in land ownership. The more you have the more it’s worth.

Houses with large land allotments can attract premiums when it comes to resale, this is because it appeals to many groups of buyers on resale.

Hence land can give its owners allot of options like developing into a multi-unit site, extending the existing dwelling or adding lifestyle amenities like a pool or tennis court.

Historically, houses across Melbourne, Sydney and Brisbane have been the best preforming when it comes to capital growth. It’s hard to find houses that haven’t doubled over the last 10 years.

So, can you make a bad or risky purchase when buying a house?

With median house prices in excesses of one million dollars in most major cities along the east coast of Australia, the cost of holding a home can out way capital growth if you don’t own the property for long enough.

Consider the cost of stamp duty, selling fees, increasing interest rates and maintenance bills. This can add hundreds of thousands of dollars to the hidden cost of ownership.

With high prices of labour and material costs houses can be plagued with major maintenance bills for all sorts of different reasons. This can be a major burden to any property owner.

To make property ownership work, a long-term hold strategy and buying the best property you can is a major ingredient of success. 

Hidden cost of property ownership


Summary

All three property styles have potential to make great long-term investments as highlighted in the above. As with any type of big ticket purchase it’s wise to have experience on your side when it comes to buying.

Most people will only buy a few properties over a lifetime hence it’s critical to own property that will give you a rate of growth that doubles the rate of inflation. Healthy capital growth translates to beneficial options after ownership of the asset is complete.

Buying sluggish or negative growth property puts buyers in a position where renting would have been a better option. It’s not uncommon to have to take on a personal loan to sell a poor growth property. This is a worst case outcome for any property owner.

For more wise real estate advice speak to one of our property experts.

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