A week ago, I sat down for a cup of coffee with one of the richest people in Australia. He mentioned something that made me think again about our property investment market scene.
He said, “Yaron, it does not matter what I buy. I just wait and I make some returns. It does not matter which property or floor plan you choose, because over the long term you can never go wrong.”
While that strategy may have worked well for him, it may not work so well for many others. This rings true especially when people can only invest in a handful of properties…you sometimes cannot afford rely solely on property prices going up in the long term.
You need every single property in your portfolio to perform.
One of the key knowledge a property investor needs to have is knowing the various types of properties in Australia and what sets them apart.
In this article, I will mention a few property types and their characteristics so you can determine which type may work best for you.
Generally, home owners or investors have to choose between buying a house or a unit. But which would be the wiser option? Here are some of the things an investor needs to know before making that investment decision.
|Stand alone asset||Strata title for communal living|
|Sits on a block of land||Sits among other blocks of units|
|Investor or owner benefits from the land value||Each unit gets a small percentage of common land|
Due to the small percentage of common land for a single unit, houses with larger blocks of land are known to grow better in value in the long run. However, houses may not always be the better option as there are many other factors to be considered.
For example, houses with big blocks of land are usually located further away from the CBD. Also, typically houses in the inner cities have smaller land as compared to houses in suburban areas. It is also the norm for houses within the inner cities to be highly expensive and unaffordable.
On the other hand, units are usually located closer to the CBD, major cities and amenities.
But in general, investing in property that has a larger land component provides the investor with lower risk. However, it is vital to select a location where values are poised to grow. As regions far from the CBD can have slower capital growth rates.
Units: Townhouses and Semis
Townhouses or terraces are usually 2 stories, with 3 bedrooms and a small courtyard. Generally, the total size is less than half the size of a house with a good land size, therefore townhouses are mainly referred to as a unit product.
As for semis, they have a better structure than a complex of townhouses. To give you an idea, when you take a big house and ‘cut it’ into 2 pieces, you get 2 x 2 townhouses.
Townhouses values generally hold well closer to the CBDs and major transport hubs.
Units: Apartments and Condominiums
Another type of units are apartments and condominium developments. They can be dense developments consisting of up to several hundred units in a single building.
Traditionally frowned upon by investors, these types of units have become increasingly popular in recent years due to their proximity with major transport hubs, shopping centers and the CBD.
In addition, the lower price point, low maintenance, modern amenities and security features built into these new developments are also becoming a strong attraction for new buyers and empty nesters.
In general, these types of units carry a higher risk than the previous mentioned property types. This is not to say that values don’t increase, you just need to be extra careful when putting money in these properties.
Houses vs Units
Between investing in a house or a unit, which would be the better option?
If you are thinking of renting out your unit, the good news is units generally achieve higher yields as compared to houses. However, in terms of equity, houses have a tendency to have better equity growth prospects.
In reality, it is not easy to determine which type of property would be the better choice. Some people love houses, some others prefer units. Each product has its advantages and disadvantages.
As an investor, you need to be able to choose an investment based on certain factors, such as the current demand, location, proximity to local amenities, the economy, growth rates, rental yields, your target audience as well as your financial means.
Now if you planning of going beyond the residential investment options, then commercial properties could be more up your alley. Commercial properties are often regarded as the ideal property investment options as they have high rental returns and business dividends.
However, unlike residential properties, investing in commercial properties is not as straightforward and they do possess higher risks. For first time investors, commercial properties may not be a viable investment option.
Knowing the various types of properties in the market is an excellent start to investing and you can make wiser investment choices just by doing your research.
Now if you are still unsure about which property type to invest in, consider seeking professional advice from a credible property investment consultant to help you develop an ideal investment strategy that’s safer and will give you higher returns.
The pitfalls are many for the uninformed investor. Get educated and this will save you a ton of heartache down the track.