There are three main types of residential real estate. These include:
Houses: A house is best described as a free-standing building on a freehold block of land.
Apartments/units: Apartments and units are names used in different areas for essentially what we would describe as a multi home complex. These have typically four or more residences; some have 100 residences or more. In these complexes, you typically own a share of the land according to the number of units in the complex.
Townhouses/Duplexes: A townhouse or duplex is best described as two or more homes built on one freehold block of land. Sometimes, each one has its own title. Often, townhouses or duplexes share a common wall, also known as a party wall. The most attractive duplexes, however, are two independent freestanding homes on one title.
Each of these property types have their own positives and negatives for investors.
For houses, some of the pros are:
You own 100% of the property, meaning all appreciation of the property is yours.
You have more flexibility for upgrades and renovations, with council approval being the only hindering factor for any works being done.
A house is often more appealing to renters, therefore there is a lesser chance of vacancies.
Houses tend to have better appreciation in comparison to apartments and townhouses.
More reliable rental returns, as houses generally attract tenants like families and couples, who are usually more reliable and likely to stay for a longer period of time.
The cons include:
Houses generally have a lower rental yield than apartments, but a higher capital growth. If cash flow is more important than appreciation, then you may want to keep this in mind before your purchase.
House prices are more expensive compared to apartments in the same location.
You are responsible for all maintenance and up-keep costs of the property, as well as insurance premiums for the building.
For apartments and units, the pros include:
The ability to purchase real estate in a better location for a cheaper price.
The cost of purchasing an apartment is considerably less in comparison to a free-standing house.
Fewer maintenance responsibilities, as if you purchase an apartment under a strata title, maintenance will be organised by a strata committee, which is paid for through strata costs (or body corporate fees). Strata fees typically cover building maintenance, building insurance and the cleaning and maintenance of common areas.
The amenities provided in many newer apartment buildings attract more potential tenants.
The cons include:
Lower land value. Generally speaking, apartments don’t have much, if any land at all. This means they do not offer as much capital growth as houses do.
Corporate fees can be quite high. Newer apartment buildings with more amenities, such as pools, gyms and rooftop entertaining areas, will have a larger corporate fee to maintain these common areas.
Limited control for upgrades and renovations. Any major alteration to your apartment needs to be approved by the body corporate.
Lower demand. Because there is an increasing supply of apartments, this could potentially lower the demand for rentals in the area. As a result, you may receive lower rental yield, less appreciation and less demand for tenants.
For townhouses or duplexes, the pros include:
You get all the same benefits as with a house (including garages, a larger floor plan and backyard areas), but at a lower price point.
They provide better rental returns compared to a house of the same value.
They have a higher appreciation rate than apartments, though this is still less than a house.
Less maintenance due to the building and yard being smaller.
High market appeal to tenants, as these provide low maintenance, modern designs, adequate size and proximity to amenities. All these factors attract quality tenants.
Some of the cons are:
Lower levels of capital growth compared to free standing homes
Because townhouses have one or two shared walls, this could deter some tenants due to noise and privacy. However, townhouses still provide more privacy and noise restrictions in comparison to apartments.
Strata fees and limited renovation options (as often, townhouses are purchased under a strata title and share common areas, as with apartments)