Which is the best investment, apartments or houses?
On one side you’ll find investors who believe a property’s value is in the land. On the other, you’ll find those who believe a property’s characteristics, such as location or number of rooms, are far more important.
Both investment choices carry risks. You should make a decision based on research, your financial position and your investment strategy.
Benefits of Investing in an Apartment
First-time investors often assume houses are better investments, which may have been true at one point in time. But a growing population, rising house prices, urban lifestyle needs and new migrants have resulted in apartments becoming a popular and high performing investment choice.
Buying an apartment is generally a cheaper investment option. Lower outlay means fewer risks and more investment choices. This gives you the opportunity to purchase multiple apartments rather than one house. Apartments built since 2005 abide by a new building code, meaning they have more space, better amenities and a lower risk of poor construction.
Considerations When Investing in an Apartment
Investors looking at apartments should consider:
- Size – the more floor space and bedrooms, the better, 50 square meters should be the minimum
- Amenities – quality facilities and extras like gyms and pools will add more value
- Rental income – research rental history and market trends. Rental income can significantly differ even in the same market.
- Body corporate – check the body corporate minutes to confirm whether any issues have been identified and addressed. Check body corporate fees, which can be quite high in some cases.
A possible disadvantage of investing in apartments is that they don’t perform as well in capital gains. The apartment market can be fickle where valuation is concerned, so investors should base their decisions on the long-term yield of the property. Generally, older investors favour apartments because of the increased monthly yield.
Benefits of Investing in a House
While urban living is on the rise, many renters are still happy to live further out for more space and privacy. This is reflected in the investment returns on apartments, which are currently failing to keep pace with returns on houses.
Many investors are wary of investing in an apartment that is identical to hundreds of others in the same high-rise complex. They prefer houses because they offer more scope for improvement and personalisation. Many property investors also dislike dealing with body corporates.
Price rises for houses tend to be bigger than those for apartments, providing investors with better capital gains returns. Historically better value and a sense of control, security and flexibility mean many investors are happier to invest in houses.
Considerations When Investing in a House
Houses tend to require more attention in terms of ongoing maintenance and repairs. While they are delivering better returns than apartments now, future trends may change this.
Ultimately, there are pros and cons to all types of property. You should pay attention to lifestyle trends and tailor your investment strategy to suit the area you are buying in. Remember to consider the segmentation in New Zealand’s property market when deciding. What is happening in one city or region may not reflect trends in other places.
iLender is one of the leading mortgage brokerages in New Zealand. Our team of expert mortgage brokers can provide assistance for investors interested in apartments or houses. Talk to us about home loans, investment mortgages, equity loans and expert advice on the property market.
Call us today on 0800 LENDER (0800-536-337) or contact us online to see how we can help you with your property investment goals.
