Pros and Cons of Buying an Investment Apartment

Investing in property comes with lots of questions. If you are doing initial research, or just trying to find out where to start, one of your first questions may be whether you should get an apartment or house as your first investment. It’s not uncommon for first time investors to lean towards an apartment, but it’s important to understand the pros and cons before committing.

Pros of buying an apartment

More affordable

Typically, an apartment is much more affordable than a house. The median house price in Australia is $615,000, while the average unit price is $450,000. Depending on the city and the area, this can vary but most apartments are around $200,000 less than a house.

Better locations

Most apartments are built inner-city or close to amenities and transport, making them appealing to young Australians and renters without families. This is typically a much wider market as there are more benefits to the location that suit more people.

Less maintenance

One of the major benefits of an apartment is that a lot of the upkeep is tied into the strata title, managed by the body corporate. This means the cost of building insurance and maintenance is shared and managed by this group. Outside of this, any maintenance or repairs inside an apartment is usually less solely due to the size of the space.

Additional asset potential

Depending on how much you have to spend and the price of apartments in your area, there is potential to buy two apartments for the same price as one house. This could result in higher rental income, future flexibility and lower risk, while also diversifying your investment portfolio.

Cons of buying an apartment

No land value

With a home, you are purchasing the house and land together. With an apartment, you are purchasing part of a building. Land tends to appreciate over time while buildings tend to depreciate (particularly apartments). This means there is a risk you may lose money when reselling.

Body corporate barrier

While the body corporate means some costs are more affordable, it can also make some things more difficult or expensive. If the apartment is in a complex with common areas like pools or gyms, the payments can be more than standard maintenance. If something does go wrong or you want to make renovations, there can be a lot of red tape and limitations on what you can do.

Oversupply

Depending on the location, apartments and units in the area can increase significantly over the years. Owning an apartment in a space that is oversupplied can result in lower rental yield and renter demand.

Would a house be better?

The short answer: it depends. Your choice should be based on your unique situation, thinking about your investment objectives and strategy, your budget, housing demand and supply trends, and location.

If you need help finding the right property or identifying what would be a good investment for you, Offset Property is here to help.