I live in Sydney, and there are quite a few areas where new flats are going up where you have to be very careful. ie, if you buy a flat and someone develops even more flats near you, the value of your flat won't rise as much or may go down. Land is the key to capital growth, and having land allows you a greater ability to add value. Therefore, houses or blocks of flats are the way to go.
As usual it comes down to the individual situation. My thoughts would be that if you can't afford to buy a house in a certain area then buying a flat/unit would be preferable to not buying at all. Do other people agree?
Maybe a cheaper unit could be used as your stepping stone to get into houses which offer more land content and greater control over improvements?
I prefer to buy Townhouses, Units & Villas over houses for a number of reasons. The main reasons I've outlined below -
1/ A bigger future Marketplace & demand for these types of properties. - The baby boomers are the biggest group of people born so far. This group is now starting to reach their Retirement years and as such start to downsize PPOR due to 2 main reasons. a/ Kids have grown up and moved out & they're left with a big aging house requiring more alot more frequent maintenance, and , b/ They have over estimated how far their superanuations will last & the cost of retirement living and there fore have to sell up to realise some of the capital so they can stretch theyre retirement dollars further. They ultimately sell up and shift to an inner metro suburb for lifestyle purposes and/or to be closer to their adult children, and Grand Children..or they move to a coastal located lifetyle area. I feel as investors if we cater for this group of people we will do extremely well.
2/ Allows you a Lower Entry level into a Higher Growth Area.
3/ They're More Tax effective in terms of Capital & Plant Depreciation due to 2/(above).
4/ Able to hold more Investment Properties over time across your whole Portfolio due to 2/(above).
5/ Have a Lower Maintenance / Repair costs.
6/ Less Time & work involved for your Tenant/s to look after.
From memory, the total rate of return in
Residex includes capital growth and
rental income so, while the return may be
similar, it may be in very different
amounts. I.e. Double Bay might be 12%
capital growth, 3% rental return whereas
Mt Druitt might be 5% capital growth with
12% rental return. Which you prefer may
depend on whether you need equity or
Uncle Steve Navra likes a minimum of
30% land value but a bit hard to get this in
a Sydney unit unless it is an old block of
four on the harbour. However, I have 2
units with land value in the low to mid
20%s and these seem to be doing quite
well. Obviously, this is better than 5-10%
land value in a multi-storey tower-type
property. I prefer smaller buildings with
large land footprints. Would like to move
on to townhouses etc though.
What about land tax? I would think that townhouses, units or flats would not incur as much land tax due to there not being much land? Is this true? If so you should be able to buy more units than houses before incurring land tax.
you are right, the proportion of land allocated to units/flats/apartments is far less than houses, therefore the land value would therefore be less, attracting less tax (assuming you are over the threshold, I can't remember the threshold here in Vic off the top of my head, I think its over low $100,000s)...
I agree with the above posts, both houses & flats/units/apartments have their pro's & cons, so a balance in your portfolio wouldn't hurt (balance would vary based on whether you buy & hold over long term, your taxable income & also whether you will rely on the cashflow generated from rent to survive)...
Two schools of thought with paying less Land Tax with Units:
First one is yes you probably would.
Second one is that since land tends to appreciate as opposed to depreciating buildings, you may still be better off paying the Land Tax for a faster appreciating property.
As always, very much depends on the individual circumstances though.