HOUSE OR UNIT?
This question comes up all the time – both can be excellent investment options and both have pros and cons. If you have made a decision on your investment strategy – i.e. capital growth, income or both then it should help the decision making process if you weigh the choice up against what you are trying to achieve. Focus on the objective and to take personal preferences and emotions out of the equation.
Many will consider a house a better option simply because they believe it offers a better capital growth prospect. When you purchase a house you also purchase the land – in some cases the value of the land outstrips the value of the dwelling itself.
Units can still offer good growth potential – inner city living is becoming more and more popular as younger buyers opt for the convenience and lifestyle that it offers. As with any purchase you would need to do your research and select the property carefully.
The type of tenant is generally different – houses will generally attract families who want a bit of land for the kids to play on. They may also be more inclined to sign longer leases and treat the property more as the “family home”. Units may attract younger less stable tenants potentially less inclined to look after the property and only interested in short term leases. The trade off is that you may be able to get a higher rental income if demand is high.
Generally there is much more maintenance on a house, not only is there the “wear and tear” on the houses itself, the property garden needs to be maintained – this can be costly particularly if the property comes with a swimming pool.
Units can also have their own costs that should not be overlooked – body corporate fees can also be quite high.
After all is said and done – whether you buy a house or a unit is an individual decision. It really depends on the property itself and as always you should do your research to make sure you are buying in the right location and the property offers good value for money and meets your investment objectives.
NEW OR OLD?
Buying off the plan is attractive as you could be able to lock in the current price on a property and only pay for the property at a future point in time. That point in time may be two years down the track and if the value has increased in the interim you will have already made a “capital gain” before you have to make the final payment. Generally your only commitment until this stage is the initial deposit.
Another benefit of a new property is being able to offer tenants a brand new home with little or no maintenance and this should also help attract a higher rental income. There could also be tax advantages if you are able to claim depreciation on your fixtures and fittings.
Buying off the plan does not come without risks – there is no guarantee that the value will increase, it may go down. The final product might not be what it looked like in the brochures and marketing pictures and the workmanship may not be up to standard. Worst case scenario your builder goes bankrupt in the process and you lose your deposit.
Perhaps one of the biggest issues people buying off the plan have come up against is what is called the “sunset clause”. This clause is designed to protect both the buyer and the seller and generally stipulates that if the development is not completed by a certain time in the future either the buyer or the seller may terminate the sale. It has happened that the developer has cancelled contracts under a sunset clause and then offered to re-sell the property to the buyer at a higher price. This would then leave the buyer high and dry with the developer taking any benefit in the increase of value on the property.
If you intend to enter into this type of arrangement it is critical that your do your research on the property, developments in the area and the developer themselves. You should always appoint a solicitor who has experience in this type of contract to review any contract before you sign to make sure the contract suits your needs and not the developers.
Buying an existing property has its advantages as well – you may be able to negotiate on price more than on a new development. You may be able to add value to the property by making improvements to the property and increasing the value of the property that way. Generally you have a bigger selection of properties and areas to consider with an existing property.
Both options can be a good investment, buying at the right price and making sure that you have a mortgage matched to your specific needs with repayments that are affordable will go a long way to help you achieve your investment objective over the long term.
If you need help with property research we would be happy to provide you with detailed report on the property this includes a current market price estimate, the property sales history and a market snapshot for the postcode of the property. Simply request the report by sending us the property address at firstname.lastname@example.org.
KEITH MARSHALL | DIRECTOR
AUSTRALIAN MORTGAGE AND FINANCIAL ADVISERS
The information provided in this page is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs. You should seek independent advice from your financial adviser before making any decisions.
AUSTRALIAN MORTGAGE AND FINANCIAL ADVISERS (AMAFA)
Phone: 07 3378 2056
Fax: 07 3378 2069