When you think about property investment, you probably assume that you’re going to invest in residential property. But why? For instance, why not invest in retail or office space?
When you think about property investment, you probably assume that you’re going to invest in residential property. But have you ever thought about why that is? For instance, why not invest in retail or office space, or even industrial property?
Let’s take a look at why everyday Australians prefer to invest in residential.
The benefits of residential property
Along with being more understood by the average Australian compared to retail, office, industrial or hotel investments, residential property has some other key advantages:
Investment residential properties are typically under $1 million, compared with commercial investments that are usually well above this. That in itself makes it much easier for singles or couples to choose residential!
While residential properties can offer a lower yield than commercial, they can see higher capital growth, benefitting investors over the long term.
Vacancy rates are lower with residential properties and they’re much easier to rent out. It can be tricky to find tenants for retail or office spaces, for example, and it’s not uncommon to see empty spaces for weeks or months until new tenants are found.
Residential leases are usually shorter – usually a year – allowing for regular rent increases, whilst commercial contracts often have limits on rent increases and are usually multi-year.
Houses vs Townhouses vs Apartments
Once you’ve decided on residential, the next step is to research which kind of residential property is right for you. This will depend on your goals and current portfolio – if you have one. Here’s a brief breakdown of the different residential property types:
Houses
A single dwelling on a block of land (usually Torrens* titled). Houses are generally not built to the boundary of the land lot and may be single or double level.
Typical location: Outer suburbs or regional.
Capital Growth: Generally High
Cash Flow: Generally Low
Townhouses
A 2+ level dwelling, typically one of a set of connected dwellings (Strata or Torrens titled). Townhouses can be built to one or both lot boundaries.
Typical location: Inner or outer suburbs.
Capital Growth: Generally Medium
Cash Flow: Generally Medium
Apartments
An individual unit in a multi-unit building (generally Strata titled). Usually, separate car parking in a basement area, and shared facilities and recreational areas are common features.
Typical location: Inner and middle suburbs.
Capital Growth: Generally Low
Cash Flow: Generally High
*A note on Torrens and Strata titles: Torrens means you own both the land and the building, while Strata is when there are multiple owners of properties on one piece of land (and all are responsible for shared common areas).
So, which to choose?
Where you are in your property journey (a first time investor, rentvestor or sophisticated investor) will help you decide which property type to go for.
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SUMMARY
When you think about property investment, you probably assume that you’re going to invest in residential property. But have you ever thought about why that is? Let’s take a closer look at the different types of residential property and their benefits.
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