Units versus houses: exploring investment strategies and tradeoffs

Property investors have long been told that houses are the preferred choice because land tends to be the key driver of long term capital growth.

But hosts of Buying Power, Victor and Reshmi Kumar, say units, townhouses and villas can also play an important role in a diversified property portfolio.

The hosts discussed how the choice between a house and a unit should depend on an investor’s budget, stage of life and broader portfolio strategy rather than following a one size fits all approach.

Units can offer a lower entry point than houses, allowing first time investors to take on smaller loans while potentially generating stronger rental yields and cash flow.

Better cash flow can help investors manage holding costs and potentially build the capacity to purchase additional properties.

Recent market performance also highlights why investors should not automatically dismiss units.

In Perth, unit prices have risen by 17 per cent compared with a 14% increase for houses, demonstrating that units can outperform houses in some markets and periods.

For some investors, a unit can therefore act as a stepping stone.

Building equity through a more affordable property may eventually provide the financial foundation to move into a house or expand a portfolio.

Houses, however, retain a key advantage through their land component. As land becomes scarcer, the underlying land value can be an important driver of long term capital growth.

Victor and Reshmi Kumar at the Ticker Studio

House owners also generally have greater flexibility to renovate, extend or add additional dwellings, subject to planning and local regulations.

Units come with their own risks, particularly strata costs.

High strata levies can significantly reduce cash flow and affect an investor’s ability to hold the property or secure further finance.

Large apartment complexes can also create greater competition between similar properties when owners are looking to sell or landlords are competing for tenants.

Due diligence is therefore critical before purchasing a unit. Investors should examine strata reports carefully, looking for potential structural issues, upcoming major works, financial problems and other liabilities that could result in unexpected costs.

The discussion from Buying Power highlights that there is no single property type that suits every investor.

Houses and units can serve different purposes within a portfolio, with the right choice depending on an investor’s financial position, risk tolerance, investment timeframe and long term objectives.