Thinking of investing in property but unsure whether to choose a house or an apartment? This article dives into the growth potential, rental demand, and unique benefits of both options. Backed by real data and personal insights, you'll gain clarity on what works best for your goals.
Let’s say you're out there looking for an investment property, or you're actually going out to purchase your own that you might turn into an investment property later, and you're thinking:
In this article, we're going to deep dive into how these two stack up when it comes to houses and apartments, what grows more, what gives you a bit of cash flow.
Hopefully, by the end of this article, you will understand the pros and cons for both, and from there you can make the decision you like.
Not only will I share some of the results from my own personal property portfolio because I do have both units and houses, I will also share with you some stats and data that's out there suggesting that one might be better than the other.
If you're interested, keep reading.
Now, for full transparency, I'm not just going to make up numbers. I'm actually going to give you real numbers from my own portfolio where I've got units and I've got houses.
Given that we have a full-time research team here at the buyer's agency at Search Property, it gives you a lot of access to knowing what we're looking at and how some of the data that I share in this article is going to help you make a better decision with not picking the dud property and picking the right one moving forward.
You've probably heard this age-old saying: Land appreciates, buildings depreciate.
This is such a traditional way to think of things, and it might be to your surprise that I actually don't agree with what that means. So effectively, it's this blanket rule that says: Hey look, invest in land because land appreciates—there's a finite amount to that—and buildings depreciate because you can always build up, and there's always buildings around.
Now, although at the core, yes, it could make sense, when we dive a little deeper, you start realizing how this is so flawed.
Now I'll give you an example:
If you go out there and say: Well, land appreciates, I have the opportunity to buy an apartment or a house in a certain area, or I can go out into the middle of Australia and buy, like, three or four acres of land because someone told me land appreciates. That should technically grow a lot more than the house or the unit I bought in, like, say, the city.
Well, you'd be incorrect. You just have a piece of land that nobody wants to live in, and therefore it's a dud property.
On the opposite side, if you bought an apartment that's quite unique in the right location, although it has a smaller land size, you'd actually go and make more capital growth and have more rental demand long term because it's actually in demand. That's where we go to the fundamental law of economics, which is supply and demand.
How many people actually want to live in the middle of Australia, where there's nothing else around and there's no water, there's no electricity on the land you've bought?
Probably not that many.
If you look at how many people actually want to live around cafes, around restaurants, and their family and friends—yeah, probably a shitload.
That's why I don't like this blanket rule.
Just like we're going through in this article, you can't go: Well, if I've got a unit.
You might go: Well, Ravi's going to disagree. Units are the best thing.
You get triggered, or equally you go: Apartments are sh*t—like, I had one, and it's crap.
No, houses are the better option.
Now, it might be the better option at that time in that location, but it's worthwhile going through some analysis and understanding why one performs better than the other.
To help you understand further, we have here a study that was done with Aussie Home Loans and CoreLogic.
Now I'm going to break it all down for you, simplify it, because there is a lot happening here.
What we can see here is the national median house and unit value.
This is slightly outdated, but it's still very relevant, and what you can see is that prices for both houses and units track very closely to each other, although more recently, we've started seeing that price gap between houses and units start spreading even further. I suspect this is due to more supply and how councils are forced to rezone many parts of Australia because there's simply not enough supply.
There's not enough areas to build more houses, so they've gone in and said: “Well, you know what, we can change the rules here, and you can now build 15 storeys of units," and that's why we're starting to see that disparity, because the supply of houses is limited versus how many units are coming into the market.
What you'll also see is the house values over the last 25 years.
What we can see nationally is that the annual percentage change over the last 25 years — keep in mind this is pre-pandemic.
You can also see that its average growth is about 6.8 percent.
When you compare that to unit values, it actually is about 5.9%.
Now, although that sounds so small, it's like 0.9 percent: What's one percent going to be?
Let's just take a second to think about that…
If you go and purchase a property for, say, $500,000, after 25 years, that one percent difference that we thought: Hey, it doesn't really matter, would actually be a difference of about $141,000. So yeah, safe to say one percent means a lot.
This is where it comes down to having the right team, the right research, and the right partners.
You can go out there and have purchased a property over the last couple of years and said: Hey, I grew by 6 percent, and 6 percent is great, but over the last couple of years, we've had huge amounts of growth. So if you go 6 percent versus 8 percent or 9 percent that I could have got, say, with a buyer's agent or with the help of the right team, then you're unfortunately falling backwards when it comes to the opportunity cost.
You could probably be in a better position in two to three years to actually go and use that equity to purchase another property. This is something that's often overlooked even today.
After having so many chats with people, you start realising there's trends, and the people that go against the trends are actually making a lot of money and are on their way to financial freedom.
Whereas if you go and do what everyone else does, you're most likely going to live the life that everyone else does, which is, unfortunately, trying to retire at 65. (I say "trying" because it is extremely difficult to retire by 65 and be financially free.)
Once you extrapolate that data across into 2043, which is about 20 years from now, you start seeing a stark difference.
What you can see is national prices for houses could go up to $2.9 million.
I know it sounds crazy, but tell that to the guy who bought a property for like $60,000 thirty years ago in Sydney, and now it's worth like $1.8 million. He would be like: Give me some of that lolly juice.
When it comes to the median unit values, it would go up to $2.1 million. What you're starting to see is that gap widening further and further away.
Based on just these graphs and all of this data, it's fair to say that houses might be a better option. But let's not make that decision straight away. Let's start drawing on my experience as well as some other data points that I'm going to share with you now.
In my own personal portfolio, I have preferred to have houses, but if I can find a unit and the price stacks up, and if it's unique, then I would be willing to go after that property. In my case, I have done that, and with those properties, yeah, they've grown. They've been fantastic.
When it comes to rental demand, yes, it's been high. It's in a great location, which means I'm getting the capital growth.
However, when I compare that to the houses that I have in my portfolio, the houses are outperforming the units.
When you're looking at the units I actually purchased in a really good location at the right time of the cycle, they're still being outperformed.
To give you an idea, if the average growth in my units is like 11 to 13 percent — which again is phenomenal — I'm actually having the houses outperform them by about one and a half to two percent. So again, very similar to the numbers we're already seeing.
We already have established that one percent may not sound like a lot, but it is a huge amount over the next 25 to 30 years.
Now as I said, those graphs or the data that I had shown you were pre-pandemic.
Over the last couple of years, if we start factoring in what happened during the pandemic years, we need to look at what houses and units have been doing and the comparison between the two.
We can see this housing price growth annually from PrepTrack, and what we can see is that although they had been tracking quite similarly, when the pandemic hit, that's when we started seeing houses exponentially grow.
The units did experience some of that growth, but nowhere near as much as the houses.
Yes, this could be due to the fact that during that time, people had to stay at home, so they were like: Screw the unit, I want to go buy a house, and a lot of people started moving to houses versus units.
What you can see is that both are starting to decline, but when you see house prices versus their pre-pandemic levels, they are significantly higher even today compared to their unit counterparts.
When you're looking at just a capital growth perspective, it's clear by this point that you have more upside when it comes to houses versus units.
However, if you bought in the wrong location, it doesn't matter if it's a house or a unit—you’re going to get screwed.
Equally, if you buy a unit in the right location versus a house in the wrong location, you'll definitely outperform with that apartment versus that house. So again, you can't just look at these data sets, you can't just look at everything that's on the media headlines and say: Oh well, that's easy, I'm gonna go buy a house. Then you buy the house in the wrong location. Now, when you go down the path of buying the right asset, what happens if you buy an older home versus a newer home? That's a whole other argument.
From a rental perspective, although your rental yield will look higher from a unit perspective, there are often other things that you have to pay for, like strata. Because you're on a strata title, it means you're going to have to pay a fee every year.
That's the opposite to a house, which is a Torrens title. You own the title, that's your land, and you basically take care of it as well.
Whereas with strata, you've actually got a building, so there are common areas and facilities that need to be used by everyone that owns an apartment there. In that case, you pay a strata fee that takes care of things.
Therefore, when you get sold this idea of: Oh my God, look, it's got a nice rooftop pool, a gym, and a dining precinct, and it's amazing, just know that you're going to pay a lot when it comes to strata as well.
I've seen some of these deals look absolutely amazing from the front end, and once you look at them from the back end, you're like: What the hell was I thinking? That's effectively what you're trying to avoid.
When it comes to houses, you have so many more options when it comes to actually increasing the value. That's why I like older houses. You can go in, renovate, do a quick renovation or a deep-dive renovation.
In fact, you could even take a step further—go to council, get some DA approvals, then knock down and rebuild, build a granny flat, and do a bunch of things.
You definitely don't have the same options when it comes to your unit. You can renovate things inside, but you can't just knock down and rebuild, or say: I'm going to add an extra bedroom. There's so much more red tape when it comes to those sorts of things versus a house.
Do I regret buying a unit versus houses in my portfolio?
No, I don't, because I know I need to diversify my portfolio.
If I just wanted to buy a house in that location, I was simply priced out. So, I've got something there that's super unique—it's water-facing, so no one can build in front of me.
Keep in mind it is very important that as you go on your journey to buy a place for yourself to live in or to invest, be sure that it's unique.
Understand that if you can find a unique property, it needs to be in the right location with the right demand, and that will often lead to further price appreciation and rental demand moving forward.
I've actually just been purchasing houses, seeing the data there. But as I build out my portfolio, my plans have changed as well. I want to be able to go, in 5, 10, or 15 years, and renovate all of those properties. Some of them I can redevelop as well, then increase my equity, have all these properties that have no maintenance costs at all, the rents go up, the value goes up, and I'm able to manage my portfolio towards financial freedom.
I hope this has been a helpful article. Again, there are so many factors because there are so many markets within markets.
I'll catch you guys in the next one.
Thanks, guys.
Disclaimer: Search Property Pty Ltd (SP) does not provide financial or investment advice and does not hold a financial services license as defined in the Corporations Act 2001 (Cth). Any advice given by SP is general in nature and does not take into account your personal circumstances or objectives, financial situation or needs.
.png){kind=icon}
.jpg)
.jpg)
%20(1).jpg)
%20(1).jpg)
%20(2).jpg)
.jpg)
%20(1).jpg)
