Selecting the right property plays a key role in your success as a landlord.
In previous blogs we’ve looked at the importance of developing an investment strategy to meet your goals. Here, we look at how the type of property can influence your returns.
Narrowing down the choice – affordability
For many investors, a primary decision is choosing between a house versus an unit.
Units can offer a number of advantages.
Firstly, units tend to be more affordable. As a guide, RP Data figures show that at the end of February 2014, the median house price across Australia’s eight capital cities was $535,000 compared to a median unit price of $450,000.
Units can offer higher yields
Along with being more affordable, units can also deliver higher yields than houses.
Yield refers to the annual rent the property earns as a percentage of its market value. Again referring to RP Data statistics, units are delivering a median yield of 4.6% nationally compared to 3.9% for houses.
Ongoing costs matter too
As a landlord it’s also essential to consider the day to day costs of owning the property as well as the yields. These ongoing expenses will impact your cash flow and the property’s net (after costs) returns.
Houses can come with considerable maintenance bills especially if you plan to pay a contractor to take care of the garden or outside areas. By contrast, the upkeep of the common areas of a unit is managed by a strata company and if things go wrong the cost is split between all the strata owners.
Nonetheless, if you do decide to purchase a unit make sure you check the strata fees. The more complex the common facilities are, with say, a pool or gym, the higher the strata fees will be.
Potential for capital growth
The extra land value of a house can provide a greater scope for long term capital growth – though there are no guarantees of this.
This is why investors need to consider the underlying factors of scarcity and amenity. A unit in a multi-unit complex for instance may experience lower rates of capital growth than a smaller, boutique unit. However a unit located close to cafes, shops and entertainment precincts may achieve better long term growth than a house in the outer suburbs.
Think about the type of tenant you would like to attract. Families often prefer houses and are more inclined to stay on in a tenancy for a long period. A unit could attract singles or couples, and while this may mean less wear and tear on the property, you could also experience higher tenant turnover, and this can mean increased costs in re-letting the place.
To find out what sort of property is popular in the area you are looking at, talk to local rental agents. For more tips on investing, take a look at Aussie’s free Property Investment Guide.
Have you ever invested in property with family or friends? If yes – share your experience below. If no – tell us your reasons why in the comments.
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 RP Data-Rismark February Hedonic Home Value Index Results, 3 March 2014
Aussie does not provide any financial or investment advice. This article has been prepared as a factual guide only. It does not take account of your objectives, financial situation or needs. Aussie recommends that you seek independent financial advice and obtain your own professional legal and taxation advice before making an investment decision.