Apartment Vs. House

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Apartment vs. House – which one should you go for!

Today morning, Ramesh and Suresh bumped into each other at the new Bella Vista train station. Both had their coffee sorted already and were carrying the one 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 apartment or a house.

Suresh says that let’s board the train and discuss it out 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 pros & cons of each type i.e. Strata or Torrens title. Truth is, there is no universal answer to this question. 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.

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 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, 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 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 appropriate strata report thoroughly studied by the buyer’s solicitor and any potential issues being promptly communicated which may include inadequate insurance, potential rise in sinking fund contribution in future, upcoming capital works in the lot, unusually higher number of non-paying strata members and so on. If possible, try to purchase an apartment in a building where percentage of owner-occupiers are higher in number than 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 inspection. Don’t look for cheap service provider and go in with an approach of identifying the maximum possible reasons for rejecting the property. Even with the slightest of the 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.

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 ‘safe bet’ in a long run. A good apartment with unique lifestyle appeal, bought at 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 growth areas 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 future; you may choose to rent out your home and therefore, it must have tenancy appeal to fetch higher rental yields.

If your dwelling is in desirable location and has lifestyle factor 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 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 in providing them excellent infrastructure and both walk to their respective jobs near the station.

Thanks to Sanjeev Kaushik for co-authoring this article. More such authors needed for the blog

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