Unit’s or house and land?
Units are often a popular choice for first time investors as they are at a lower price point than houses for the same location and on the surface, can appear to offer better returns.
They do however have a number of draw backs that are not immediately apparent but do show up over time.
When you buy a unit you are not just buying a unit you are also buying into all the common spaces and shared amenities in that complex. While those amenities (pools, gardens, gyms, elevators) may offer a benefit they also come at a cost.
Units often have hefty body corporate fees, and sinking fund payments to cover the maintenance and up keep of common areas and amenities. But you, the investor have little control over what these charges will be.
If the costs to maintain those amenities goes up so will your fees.
You also have to remember the common areas are used by all the residents including all their guests. More people means more usage and therefore more wear and tear.
The body corporate can also request additional contributions above your regular payments if the unit complex requires significant upgrade or maintenance which cannot be funded from the current sinking fund.
These contributions can wipe out a lot the higher returns you would be expecting.
Free standing homes on the other hand do not have body corporate fees and do not have high traffic common areas that need to be maintained. Therefore, the ongoing upkeep is significantly less particularly if buying new.
You don’t need a lot of land to build a lot of apartments. On about 2000m2 of land you can build 30-40 apartments possibility more.
If there are 40 units in your complex then that means at some point someone else can come along and build another 40 units right next door.
So suddenly the unit supply in your little part of the world has doubled over night.
The result for you is lower rents as there are now more units available to tenants and a lower value for your property.
Free-standing houses don’t have the same level of density therefore supply tends to be more limited and values tend to be held.
Land value is the key driver of property price growth, the higher the land content per dwelling the more likely it is to produce a capital growth return. Units, particularly in larger complexes will have a much lower land content and therefore can struggle with price growth over time.
The above are just some of the reasons we recommend seeking value for money free standing houses that are affotdable to hold rather than units. A house that delivers price growth with low holding costs will deliver solid investment returns over time.
If you are a first-time investor I recommend having a FREE telephone appointment with me about your investment plans.
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