Houses or Units? The winner is…

House or unit… It's an age-old debate among property investors, but I’m here to settle it once and for all.

Which makes the best property investment, and what will people prefer to live in 10 years down the track?

Are units a good investment, or is a house a good investment?

There are lots of different and varying opinions from investors and advisors, but the fact is communities and lifestyles continue to evolve and change… as will the answer.

The problem is, when it comes to debates as long-running as investing in units vs houses, there are lots of pre-conceived ideas some of which are outdated.

The general advice is that houses are usually a better investment option because there is value in the land.

But that advice doesn’t apply to every situation.

Here is a full breakdown of the pros and cons of each so you can make up your own mind.

Pros and cons of investing in units

Units are typically smaller than houses and can be located in either large or small complexes, sometimes with shared amenities, such as pools, gyms, and laundry facilities.

Here are the pros and cons of investing in a unit.

The pros

• Affordability: Units are generally less expensive than houses, making them more accessible for first-time investors..
• Amenities and convenience: Units are often located in urban areas in close proximity to amenities such as shopping centres, restaurants, public transport and entertainment. Many units also come with desirable amenities like gyms, pools, and security services.
• Low maintenance: Maintenance and upkeep of common areas is usually organised by a body corporate or strata manager, meaning individual owners don’t need to spend time maintaining it themselves.
• Security: Units can offer better securing features such as gated access, security doors and effective lighting.
• High rental yield: Lower purchase prices mean a unit could provide a higher rental yield.
• Robust rental demand: Units in good locations often have good rental demand, particularly from professionals, students and small families.
• Good appreciation potential: Units in growing urban areas can appreciate significantly in value due to demand for centrally located living spaces.

The cons

• Ongoing fees: While the convenience of a body corporate or strata is a benefit for units, it can also be a con. Ongoing fees for maintaining and repairing the building as a whole and its amenities can be substantial and increase over time.
• Limited control: Unit owners have to comply with their body corporate or strata rules and regulations which can limit any renovations or changes that an owner wants to make to their own property.
• Limited privacy: Units are less private by nature. There are many shared walls and floors, communal spaces and neighbours in a small area.
• Less space: Units usually have a smaller living space and no private outdoor areas which can make them less attractive.
• Slower rate of appreciation: Units can appreciate in value but they usually do so at a slower rate compared to houses, particularly if they are in high-density areas with limited scarcity.
• More volatility: The market for units can be more volatile, especially in areas where there is an oversupply of large new apartment buildings, which can drive prices and rental yields down.

Now let's look at how these pros and cons compare to those of houses.

Pros and cons of investing in houses

Houses are usually larger than units, usually with their own outside space and garage on a private plot of land.

Here are the pros and cons of investing in a unit.

The pros

• Space: Houses are usually larger than units with more living space, private outside space, garages or an entertainment area.
• Privacy: Being on larger blocks of land with more space means houses are more private.
• Higher rate of appreciation: Houses historically appreciate in value faster than units. Land tends to appreciate over time, sometimes more rapidly than the structures themselves, which means a higher return on value and larger profit and savings.
• Flexibility and control: Unlike an apartment, which is managed by an Owners Corporation, owning a house means you have the freedom and flexibility to do what you want. This applies to anything from owning pets to renovations or even undertaking extensions.
• High rentals: Due to their larger size, houses can have higher rental rates compared to units, but in general, units have higher yields.
• Robust rental demand: Houses generally have good rental demand regardless of their location, particularly from families or people wanting space like a Zoom room.
• Diversification: Houses can be rented out in different ways, such as single-family rentals, multi-family setups (if zoning allows), or even short-term vacation rentals, offering diverse income streams.

The cons

• Higher initial cost: Houses are almost always more expensive than comparable apartments. This means you need a bigger deposit and a larger home loan to buy a house.
• More maintenance: Owning a house means you’re responsible for all the maintenance, which can be particularly tasking if the house sits on lots of land. There isn’t a Strata Manager to organise these things, but in general, the tenants are responsible for maintaining the gardens other than the trees.
• Expensive to run: More space and land obviously means higher writes and Land Tax..
• Location restrictions: Houses are often located in suburban or less central areas, which might have less access to close by amenities or transport links.
• Vacancy risk: Houses might face higher vacancy risks, especially if they are in less desirable locations. Finding new tenants for a house can also take longer compared to units.
• Market sensitivity: The value of houses can be more sensitive to market fluctuations, especially in areas prone to economic downturns or where property taxes and insurance costs are rising rapidly.

Units vs houses: The purchase price difference

The initial cost of an investment is something that needs to be a key consideration from day one.

It’s also a consideration that is heavily featured when looking at the pros or cons of investing in a unit versus a house.

Generally, first-time investors may find units that are more affordable to enter the market due to their lower purchase price point.

Here’s a breakdown of the comparison of median unit and house prices in each Aussie state, and the difference between the two.

As you can see, the price gap can be as much as $576,754, which is the difference between houses and units in Sydney.

Even in markets where prices are much lower, such as Perth or Adelaide, the price gap is in the mid-to-high $200s.

Units vs houses: Median purchase prices

	Median unit price	Median house price	Difference
National	$644,758	$841,328	$196,570
Sydney	$844,659	$1,421,413	$576,754
Melbourne	$613,023	$941,698	$328,675
Brisbane	$600,215	$920,046	$319,831
Adelaide	$514,369	$800,648	$286,279
Perth	$514,369	$753,947	$239,578
Hobart	$528,625	$692,004	$163,379
Darwin	$364,075	$579,229	$215,154
Canberra	$592,879	$972,699	$379,820

Source: CoreLogic

Units vs houses: The capital gains difference

A capital gain is an increase in the asset value, and obviously, investors want to look for properties that offer the best capital gain possible.

The problem is that capital gains for units or houses vary significantly depending on various factors, such as location, property type and the market conditions at the time.

In fact, amongst units, there are new luxury units, high-rise towers of secondary “investment stock” units, established family-friendly apartments built in the 50s and 60s, townhouses and villa units.

And, not surprisingly, established family-friendly apartments with a level of scarcity in great locations outperform the other types of units with regard to capital.

However, as a general rule of thumb, houses have historically had a higher potential for capital gain versus units.

But I would rather buy an established, solid, family-friendly apartment in an investment-grade suburb, than a house on its own block of land in a secondary location.

We can only look at the data we have in front of us to get an idea of what might happen next.

Here’s a breakdown of the annual price growth for units and houses in each Aussie state.

Units vs houses: Annual price growth

	Unit annual price growth	House annual price growth
National	6.8%	9.2%
Sydney	6.2%	9.6%
Melbourne	2.5%	3.0%
Brisbane	17.4%	15.9%
Adelaide	14.5%	13.9%
Perth	19.6%	21.3%
Hobart	-1.7%	-0.2%
Darwin	3.0%	1.4%
Canberra	0.0%	2.8%

Source: CoreLogic

Units vs houses: The rental yield difference

A property’s rental yield is the amount of gross rental income that it attracts relative to its market value.

• Also read:Caveats – The Red Flags of Real Estate
• Also read:How much you need for a house deposit in each Aussie city
• Also read:The offer and acceptance process when buying a property
• Also read:Guide to Downsizing a House in Australia
• Also read:How to Save for a House Deposit in Australia

In Australia, gross residential property rental yields typically fall between 2% and 5% annually.

The rental yield of units versus houses will vary depending on several different factors, such as location, property type and market conditions.

On one hand, units may offer a higher rental yield due to their lower purchase price, but houses may offer a higher overall rental yield due to their lower running costs and higher demand from tenants looking for more space.

CoreLogic, again, has some data that can help determine what you could expect from rental yield in each Aussie state for both units and houses.

Units vs houses: Rental yield

	Unit gross rental yield	House gross rental yield
National	4.43%	3.48%
Sydney	3.90%	2.60%
Melbourne	4.38%	2.95%
Brisbane	5.21%	3.74%
Adelaide	5.10%	3.73%
Perth	6.29%	4.54%
Hobart	4.60%	4.01%
Darwin	7.44%	6.02%
Canberra	5.02%	3.59%

Source: CoreLogic

Units vs houses: Maintenance cost differences

We know that there are significant differences in the maintenance costs of owning a unit versus a house, mainly due to the fact a unit has additional and ongoing strata or body corporate fees.

Here’s a brief breakdown of what you can expect to pay for maintenance costs for each.

	Unit	House
Maintenance fees	This fee could be as low as $30 per week - and as high as $600 per week.	Around 1-4% of the property's value each year.
What it includes	Administrative fund levies: Day-to-day running of the complex such as gardening or repairs. Sinking fund levies: This covers general costs that aren't routine, such as roof repairs or major repainting.	This may include, but not be limited to: Planned and routine maintenance Emergency repairs Pest control

So which is a better investment?

Quite frankly, the answer is neither.

It’s like saying, what tastes better: an apple or an orange?

You can’t say which one is better because they are different fruits that satisfy different nutrient needs and tastes.

Similarly, when it comes to choosing your properties, there is a certain checklist that guides you to making a wise decision and the suitability of a house or apartment as an investment will depend on your specific list.

These might include location, proximity to local amenities, the economy, the local property market, previous growth rates and rental yields, demand for housing, and your own financial affordability… to name just a few!

Both options have their unique advantages and can be profitable if approached with careful consideration and planning.

Regardless of whether you’re looking to buy a house or apartment, the property investment methodology remains the same in order to make the best investment decision.

1. Look at property price appreciation

It’s important to consider how much the property you plan to buy is likely to appreciate over time.

Ideally, you want a property to appreciate at a higher rate than the state average.

2. Consider the age of the property

Generally, existing properties appreciate in value faster than new properties.

In the current market, it is still possible to buy established properties considerably below "intrinsic" value, and in fact, we are often finding apartments for up to 20 per cent below replacement cost.

Whereas new properties come at a premium price.

3. Look at the state of the market

The state of the market should be a consideration when it comes to choosing your investment property, but it’s important to remember that there is no right time to buy.

Time in the market is much more important than timing the market.

4. Evaluate property value & expenses

The cost of the property plus the cost of maintaining and even renovating the property needs to be taken into account.

You might be able to snag a bargain with an existing property, but if you need to pump a lot of money into it to make it livable then you need to consider the costs involved and whether it’s worth it in the long term in terms of your capital gain.

A final note…

Many people get confused when choosing between a house and an apartment.

On most occasions, the house will come out on top.

However, remember, it is not just the size of the land you should consider but the value.

Apartments in small boutique complexes offer great alternatives to houses located a large distance from amenities like employment hubs, public transport, schools and entertainment precincts.

Many smaller boutique complexes are on underutilised pieces of land and that will get rarer and more scarce as time goes on.