There are a lot of moving parts when it comes to the decision of whether to buy an apartment or a house.
Firstly, not having a garden or a large costly house to maintain can save on costs. Although this can be offset by high strata fees which you would normally pay to maintain a pool, gym or lift.
Many investors get caught out by the facilities an apartment has to offer but don’t consider the ongoing costs of strata fees.
Apartments can offer a higher rental income in comparison to the value of the asset which can be attractive to a first time investor. Higher rental yields can keep your head above water and may be the saving grace if you come into financial hardship and need to decide between holding and selling. But all costs need to be considered to understand the true net income.
Location. Purchasing an apartment gives you the ability to get into a more expensive area where you may not be able to afford a house. Maybe a beach suburb or inner city suburb where the rental demand is high would typically be difficult for the average investor to purchase a house in gives the opportunity to capitalise on the location by purchasing an apartment in a prime area.
Considering supply and demand. When a new apartment building is constructed this adds a lot of supply to the market. Sometimes too much supply which can affect the values of surrounding apartments.
Check the pipeline of building approvals, is there a lot of land in the area zoned for units that developers can possibly turn into apartment blocks?
When buying a brand new apartment you are paying for the materials at a brand new price, which the builder has made his margin on and the developer has also made their profit on. From day one, the building starts to depreciate in value.
Ultimately, you need to consider your strategy. Most investors are focused on capital growth and the evidence is clear that houses achieve greater capital growth over time.
This is due to the old adage that land appreciates in value, where buildings depreciate in value.
In conclusion, if you decide to invest in an apartment then buy in a prime suburb in a prime location. Don’t buy a new apartment. Consider future supply.
Look for small buildings with under 20 units in the block that have character with a high demand and low vacancy rate and a high proportion of owner occupiers. Look for some sort of wow factor, views and courtyards are always winners.
Hit me up if you have any questions or need some advice on the next step in your investment journey.
Happy Investing!
