Is a house or townhouse more suitable for an investment property?
The Facts
The proportion of households occupying detached houses has decreased in the past 20 years, from 76% in 1996 to 73% in 2016, offset by increases in semi-detached and townhouse households [1].
The growing appetite for townhouses and apartments from homebuyers and investors has been the result of changing household demographics, affordability constraints, and population increases.
To highlight which dwelling type is more suitable, let's delve into the pros and cons for each.
Houses
Pros
Outdoor Space. Houses typically have a lot more outdoor space. This additional space is attractive to families with young children.
Privacy. As houses are located on a detached block, tenants are not living close to their neighbours offering tenants more privacy. Privacy is becoming more valuable over time and is a factor tenants are taking into consideration when looking for a place to live.
Flexibility. As owners are under Torrens Title as opposed to Strata Title, homeowners have more freedom over alterations to the property. For example, it's typically easier to gain council approval for the construction of an additional bedroom in a house, compared to seeking approval to renovate in a townhouse complex.
Cons
Maintenance. Houses require far more maintenance, which can deter tenants if there is too much maintenance required. Maintenance tasks include mowing or general garden upkeep.
Expensive. Typically a house is the most expensive property type within a suburb due to the size of the land. This has caused many buyers to look at other property types for easier entry into the market.
Townhouse
Pros
Price. Much like apartments, townhouses offer a more affordable entry point into the property market.
Location. In a competitive market, townhouses will typically be located closer to amenities.
Cash Flow. Townhouses provide stronger cash flow for an investor, compared to a house. Due to the cheaper price of townhouses, rental yields are usually 1-2% higher than houses.
Low Maintenance. Due to strata fees, tenants will only need to upkeep the internal part of the property and not communal areas such as gardens and entry ways.
Cons
Individuality. Within an estate, townhouses will all have a similar design and style with limited individuality.
Space. Townhouses generally have less internal and external space when compared with a house.
Strata Title. Investors will be paying for strata fees for the upkeep and maintenance of the communal areas.
Key Takeaways
All types of property have pros and cons and they can all outperform each other.
Before selecting the type of property to invest in, proper due diligence must be conducted. It is this research on the fundamentals of the market that should ultimately decide what type of property is purchased for investment purposes.
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James Allnutt – Property Investment Consultant
P: (02) 9939 3249
References
[1] ABS 2017. Census of Population and Housing, 1971 - 2016
[3] Savings.com.au