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Is a House a Better Investment than a Unit?

detached houseThe “house or the unit?” debate lingers- and how! Even as the dwelling approvals for units increase, detached houses keep being the blue eyed baby of the traditionally bent investors. If you are looking to enhance your property portfolio with either of these choices, a bit of Due Diligence and stats-study is certainly not out of order.

The underneath land

The lobbyists for detached houses have kept their tone simple. Their assertion is that “when you buy a house you buy the land underneath”. God has made only so much land and because its quantity is finite its price is more than likely to escalate with time.

On the contrary, a unit, while it can definitely escalate if it offers the right cues for growth, is vulnerable to depreciation. For all we know, the roof can slacken, ceiling can fracture, and the basement can give in. All this while, the land remains firm.

Do not consider me an admirer of this line of thinking but you have got to give it to these theorists. After all, they are rooting for something whose intrinsic value is redoubtable- the inherent land factor.

Doubling the rental yield

Detached houses have another great advantage. Council permitting, you can demolish a detached house, take the route of Subdivision and construct two houses in the place of one.

This can facilitate dual occupancy and can help you double your rental yield. Is it not a great bargain in times when vacancy rates for apartments can get excruciatingly high and can force investors (also landlords) to pay the mortgage entirely through their own pockets?

Number of unit approvals improving

The interesting battle that I talk of becomes even more interesting when we look at how the playing ground is being levelled by the government. Everything was hunky dory for the detached houses but a few stats have changed the equation a bit. As a first, there is a marked increase in the dwelling approvals for units.

This means that the government is looking to bring down the gap between the numbers of houses and units built in Australia in the coming years. At the moment, houses are the staple choice- what with the cumulative value of houses across capital cities being a cool 28% steeper then the units. This may change with the right kind of ‘unit’ infusion.

Positive gearing

Another interesting addition to the dynamics will be the abysmally low vacancy rates the stats exhibit. At the very least, this can lure investors to think about the units in a new light. Is it not natural? After all, low vacancy rates mean that it won’t be hard to find tenants for the units anymore.

This will only convince the investors that the units can allow the leverage of “positively geared properties”. I bet there are many investors who would give their right arm for a positive cash flow (even as their peers look for capital growth via negative gearing).

Both kinds of purchases can go right….. and wrong, too

In the end it is not about the units or houses anymore. It is about the location you get them at. It is about the town planning initiatives involved, the restrictions (if any), and many small and big changes (like the strata bylaws changes) which can cement or uproot your conviction about a particular purchase.

Imagine buying a unit in an old strata complex where your developer can get it demolished with only 75% vote (instead of 100% required previously). The local council won’t stop them- part of the past has to be sacrificed for a beaming future. What goes bust in the bargain is your dream of settling into (or investing in) a nice old strata titled complex!

And imagine a counter-case where you buy a detached house only to learn about an easement on it or an encroachment by your neighbour. Fight you must and fight you will but won’t the legal bills drain your mental and financial resources?

So to the serve the last sprinkling, both kinds of purchases can come with their bit of deception and both can be immensely rewarding, too. All you have got to do is to keep your research pad active.

Which do you prefer for your portfolio and why?