In this blog post, we will discuss how to make a wiser choice between a house or an apartment.
Today morning, Ramesh and Suresh bumped into each other at the new Bella Vista metro station. Both had their coffee sorted already and were carrying the dollar 7-11 coffee. Ramesh tells Suresh (with a promise that he will not tell anyone else) that he has decided to buy his first property, but he is a little bit confused about whether to go for a house or an apartment. Suresh says let’s board the train and discuss it as it is going to be a time-consuming task. Once inside the train, below was Suresh’s answer to the query.
Many first-home buyers and property investors often grapple with this question over & over and most of them have their own views about the pros & cons of each type i.e. Strata or Torrens title. Truth is, there is no universal answer to this question that whether to consider a house or an apartment. Let’s lay out some facts and let the reader decide what is the best choice for them! A seasoned property investor usually prefers to keep both types of dwellings in his portfolio as far as the property meets the associated goals of cash flow and capital growth.
This question also involves a matter of personal choice. However, it is important to understand the facts and risks associated with each type of dwelling which can further assist in deciding the type of property one should go for. Let’s discuss some facts helping you decide whether to go for a house or an apartment
The Facts
Strata plans have their own by-laws and therefore, unit holders in the plan must abide by them. Common by-laws include restrictions such as no pets or renovations without prior approvals. Some strata payments may also include very high outlays towards sinking funds. For property investors, although, on the paper gross yield on strata units may seem higher than those of houses, yet, the difference can get eroded really quickly when the strata payments are taken into consideration; especially if the lot involves maintenance of high-end amenities such as swimming pool, sauna, tennis court, gyms and so on.
It’s a widely believed notion that houses perform better than apartments in a long run because of the associated higher mix of land ownership that comes with a house. And this belief does hold true for most of the properties but can never be considered a universally applicable norm. Nowadays, contemporary luxury apartments in ‘ambitious’ suburbs, designed to maximize usage of natural resources (such as sunlight, and solar power) also tend to perform better in keeping the maintenance cost low thus making them an attractive proposition for many small and downsizing families.
Yet, one major aspect where a house wins hands down is the ability of the owner to manufacture capital growth through renovations or cosmetic upgrades. Achieving the same in a unit is very unlikely, given the prohibitions in by-laws as well as the hassle of gaining the required approvals from the strata committee.
The Risks
There are risks in both types of dwelling that must be avoided, mitigated, or absorbed depending upon their severity. Buying a unit must be preceded by an appropriate strata report thoroughly studied by the buyer’s solicitor and any potential issues being promptly communicated which may include inadequate insurance, a potential rise in sinking fund contribution in the future, upcoming capital works in the lot, an unusually higher number of non-paying strata members and so on. If possible, try to purchase an apartment in a building where the percentage of owner-occupiers is higher in number than in the rented-out units. Such buildings are usually well looked after with reasonably low strata outlays because owners cannot write off their strata payments and therefore, always keep a close watch on every expense incurred on the lot maintenance.
Similarly, when it comes to buying a house, never buy before hiring experts to carry out building and pest inspections. Don’t look for cheap service providers and go in with an approach of identifying the maximum possible reasons for rejecting the property. Even with the slightest of hint of potential issues highlighted in the report, stop your due diligence on the house and move on. If despite your best efforts in identifying the potential issues, the reasons to buy the property still outweigh the reasons to reject; then go for it and make an offer confidently.
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Choose Wisely
Beyond the normal comparison, the buyers must never ‘overpay’ for a house just because of the widespread belief that houses do better than units or their value always goes up or they are a ‘safe bet’ in a long run. A good apartment with a unique lifestyle appeal, bought at a reasonably low price is always better than an overpriced house bought just because it comes with complementary land in your name. Remember, an apartment bought in a growth area may perform better than a house bought in a dud neighborhood so choose wisely.
Keep End in Mind
One overlooked aspect by many property buyers and it is something that even seasoned investors tend to overlook is the quality of tenants that their dwelling would attract. Even if you are a first home buyer, you must keep in mind that one day in the future; you may choose to rent out your home and therefore, it must have a tenancy appeal to fetch higher rental yields.
If your dwelling is in a desirable location and has lifestyle factors associated with it; you tend to attract the kind of tenants who would happily beat their competition by paying higher rents to stay in your property. Such tenants also tend to stay longer and have a stable income. One must always strive to buy such properties regardless of their dwelling type.
In the end, do as your wife says.
Ramesh thanks Suresh for the detailed insights and both get down at Chatswood. It took them 29 minutes for the whole journey. Both also thank God and the Government for providing them with excellent infrastructure and both walk to their respective jobs near the station. Thanks to Sanjeev Kaushik for co-authoring this article. More such authors are needed for the blog
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Disclaimer: Articles in this blog are just the author’s or authors’ personal opinions.
It may or may not be correct. Please do your own due diligence and seek professional advice according to your own personal circumstances. The author or authors cannot be held responsible/liable for any content in this blog.
*all images are for illustration purposes only
