When it comes time to purchase an investment property there is a lot to consider. However, all of the choices that you make will rely on one aspect, your investment strategy. Let’s critically analyse the differences between buying a unit or house so you can see how your selection plays a role in your investment strategy.
Ultimately the type of property you buy depends on whether your investment strategy is to buy and hold, so you make greater capital gains, or for you to realise a higher rental return. Buying a unit or house and how that property performs depends on where the property is situated, and housing market conditions. Therefore, before you buy any property, you need to research the market thoroughly.
Real Estate Market Research
Instead of focusing on property type, look directly at the market. Do not view the purchase of an investment property as a single asset, think of it as being a commodity surrounded by a market that drives its growth, therefore, making it more valuable.
In this respect, the unit or house that you buy relies on the market that its situated in, to push up its value. Therefore, its vital that you focus on the economy of this market, as well as property supply and demand and affordability. These three factors will dictate to the type of property that you purchase.
The Market Economy
Once you have narrowed down your search to several areas that are performing well in terms of rental yield or capital gains depending on your investment strategy next assess the economic drivers of each location. Ask yourself what each market is doing. Is growth being witnessed, along with development? How is the economy in each area performing? Does the area have the ability to sustain this growth? Does the area rely on one or more industries to keep its economy thriving?
Market Supply and Demand
Next, look critically at how the market is performing. Review the statistics of each of your selected areas. Focus on both property types when looking at the statistics. Then ask yourself about supply and demand. Is the population in the area growing? Why and by how much? What are future growth predictions? How many homes are in the area? How many are likely to be built in the future? What are the number of home approvals? Then do the same for units?
Your goal as an investor is to build wealth. So to do this, you need to buy property that has high demand. This way your home or your unit will have a high rate of occupancy, and you will not be left with a vacant property and having to pay the mortgage.
To find a property that has a high demand you need to focus on affordability. An affordable property is likely to attract more potential tenants. Homes and units situated in affluent markets are desirable, but not everyone can afford to rent these. So if you want to cater to the majority, rather than the minority, then look at middle-classed suburbs. These will be far more affordable for more people.
Units and Homes as Investments
Once you have decided on a location and which suburbs or township are the most desirable to invest in, then its time to focus on property types. While units are everywhere, those that are most desirable are typically situated in areas that are closer to the city. Homes, on the other hand, are in less-densely populated areas, they have larger yards and are often more desirable to families.
Units are usually cheaper to buy than a home. So if you are an investor that is looking to build your portfolio fast, then they are a favourable purchase. The low cost of a unit also means if your investment strategy is rental yield based, then you can make a higher return as your mortgage is likely to be lower. Homes are excellent for those who have a capital growth strategy as they can appreciate in value faster.
Written by eChoice.
Since 1998, eChoice has helped more than 50,000 Australians secure a home loan through its network of over 25 lenders and hundreds of loans. Best of all our service is cost and obligation free!