Debbie Shankar - 21 Jul, 2014

Homes or Units – Which is a More Profitable Investment?

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Many new or want-to-be investors ask, “Are houses or units and apartments more profitable in terms of capital return and rental yield?” Unfortunately, the answer to this question depends entirely on a vast number of factors that are hinged on your investment strategy and what you’re hoping to achieve long-term.

Let’s compare two different investment strategies in order to understand investment profitability better.

Investment strategy 1 – Buying a property and sub-dividing the block to create two rental properties.

Some property investors may focus on a property’s development potential. This means looking at land size and subdivision opportunities, where another residence can be built on a block and then leased under a dual occupancy. In this respect, houses represent the best value if you’re seeking to utilise this strategy. While houses are more expensive to purchase and attract higher stamp duties and council rates, they are typically situated on bigger blocks so they give you greater opportunity for development. So in this case buying a home rather than a unit is a better option.

If you are looking to sub-divide, then do your research beforehand. Contact councils and discuss your options to ensure that what you are wanting to do is viable.

Investment strategy 2 – Buying a unit and renting it long-term.

Units, on the other hand, are often cheaper to purchase than a house, easier to renovate and maintain, and can be easier to rent due to size and convenience. But, they often attract strata fees and have additional costs in comparison to houses.
If you’re seeking to buy units, then look for quality property and developments in sought after areas. This will decrease your vacancy rates and maximise your returns.

Ways to improve rental profitability

To further increase profitability consider the following:

• Routine maintenance Keep your property in good condition, fix broken items and keep your tenant happy. This will increase your property’s capital value and decrease your vacancy rates.

• Have good, reliable management If you cannot manage the property yourself because you don’t think you have the skills, then enlist the help of an experienced property manager. A manager can be found at most real estate agencies and will typically charge you a percentage of the rent collected as a property maintenance fee.

• Review rents annually – Rents should rise with inflation. This allows you to cover your costs and to make a healthy profit. Therefore, you should review all property rents annually and aim to increase these by the current inflation rate.

Do you want to know more about property investment loans? If so, then contact eChoice today.

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