6 Benefits of Houses over Units

Should you invest in houses or units? What are the benefits of investing in houses instead of units?

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0:42 – #1: Land Component
1:25 – #2: Easier To Renovate and Manufacture Value On a House
2:25 – #3: You Can Add Space/Bedrooms To a House
3:13 – #4: More Control Over Your Cash Flow
4:25 – #5: Houses Tend To Outperform Units Over The Long Term
5:06 – #6: Units Can Have Oversupply Issues

Transcription:

Ryan 0:00
should you invest in houses or units when you’re looking at investing in property obviously you can decide between investing in houses or investing in units with units having the benefit of generally being cheaper than houses in the same area but in this episode i want to talk about six benefits of investing in houses over units hi i’m ryan from onproperty helping you achieve financial freedom and when it comes to investing it’s very important that you choose the right asset class that is going to move you towards your goal of financial freedom or whatever it may be so what are the six benefits of houses over units and why should you consider investing in houses so the first benefit is the land component or the land value so we all know that it tends to be the land that goes up in value not the building itself the building depreciates in value gets older with time and less valuable but the land that they’re building is situated on is what goes up in value and so when you purchase houses you have a much larger land component than if you purchase a unit so obviously purchasing a unit you’ve got multiple people on the same block of land meaning that your the your ownership of the land component is much smaller however if you purchase a house you own that full block of land so as the land goes up in value you get access to that entire benefit the second benefit of a house is as much easier to renovate and manufacture value through renovation in a house than it is in a unit especially when it comes to the exterior of a property now when you own a house basically that is yours there’s no one on top of you there’s no one below you there’s no one next door to you or there’s a next door neighbor but you’re not sharing walls and so when it comes to structurally your house you can do what you want obviously you need to go through council and get that approved but you can do your own renovations without needing to ask for permission however if you’re in a unit then there are some renovations you can do internally to the unit in order to increase the value of it without requiring permission from strata but however a lot of things especially if it’s going to be a structural in nature or if you want to do the exterior that has to go through strata has to go through body corporate in order to get that approved so it can be much more difficult to do renovations with units and the third thing i guess is is much harder to manufacture value through actually adding space so adding space to a unit you can’t really do that it’s very difficult to turn a two bedroom unit into a three bedroom unit because the space is defined for you however if you have a three bedroom house there’s the potential to do an extension on that property to turn it into a four bedroom house or maybe you buy one of those old houses that have a weird layout you can just change the internal layout to turn it from a two bed to a three bed or a three bed to four bed and increase your value that way or in terms of development as well you could knock down that house completely and you could rebuild something else you could even subdivide that house or there’s other development opportunities there for you to get an increase growth and to manufacture growth in your property that just isn’t possible with a unit the fourth thing is control over your cash flow so council rates yeah they do tend to be higher in houses than units because you have more of that land and if you own too much land then you’re looking at a land tax as well that you’ll have to pay but that is state by state and you can look into that in more detail but generally speaking you have more control over your finances because with a unit you generally have money that you have to pay to the body corporate and the body corporate then decides what to do with that money but what you don’t realize is that sometimes that changes i know ben invested in his first property and the body corporate fees they didn’t have a sinking fund so the sinking fund is i guess a large pot of money that they use for big improvements to the unit block they didn’t have a sinking fund so they upped everyone’s body corporate fees significantly which then stripped all of the cash flow out of the property and put ben in a very difficult situation at the time on his first investment property and so you don’t have control over that whereas with a house you do have control over you have control over what renovations and what you spend money on so more control over that cash flow is a big benefit of having a house over a unit and the fifth thing is that houses actually tend to outperform units over the long term there was recently a study done that looked at houses versus units and looked at how they performed over the long term and it showed that houses tended to outperform units in terms of capital growth in an area if you look at the brisbane market at the moment if you look at the last 10 years which really there hasn’t been that much strong growth in brisbane houses have outperformed units and i’m sure you’d see the same if you look at other cities as well so it’s not really hard to see that okay

if i can afford a house and if it’s more likely to outperform a unit then that’s potentially going to minimize the risk on my property and the last thing is that units can have oversupply issues so this kind of happens in two different ways one is if you’re buying in the inner city or if you’re buying a new build unit off the plan all of a sudden you got all of these units that are flooded to the market i was recently talking to a real estate agent in sydney and i think the americans flooded their area with about 1500 units just all at once and there’s just all of these vacancies and it was so hard to get units rented because obviously people have so much choice given that there’s so many units around so if you’re buying in a very densely populated area with lots of different units and there’s new units coming to the market then oversupply can be an issue oversupply can also happen in housing but it’s a lot less likely if you look at an area if you look at the vacancy rates in that area if the area is already filled in so it’s not a greenfield site like a brand new suburb but if it’s already filled in and there’s low vacancy rates in the area you can be pretty sure you’re not going to have an oversupply issue in the near term unless you know something changes and a big block of units opens up in your area but that’s highly unlikely with houses where it’s more likely with units and you also have the oversupply issue of when it comes time to rent your unit or when it comes time to sell your unit the larger the lock you’re in the bigger the risk of this is that someone else in your unit block is going to be selling their property at the same time as a how those tend to be more unique in the way that they’re laid out the land on that aspect the type of house it’s very rare to see two houses next door to each other that are basically identical however with units given you have flaws generally each floor is identical to the one below it and so you’ve got a lot of units that are extremely similar in nature and so if you’re in a block of units and you’re trying to sell your property chances are there’s going to be someone else selling a unit at the same time and so you’re then directly competing with that person and the larger block you’re in the higher the chance of okay someone’s selling that property but not only are they selling it but they’re actually going through a divorce or financial hardship so they’re actually willing to sell that property cheaper than you and so that means you’re going to have to drop your price to be in line with them and so that can make it harder to rent your property can make it harder to sell your property because people are looking at two units that are almost identical versus if you have a house and your house has something unique about it so there you have it six benefits of owning or investing in houses over units i hope that this has been interesting to you obviously it’s up to you what you do whether you think houses are going to suit you best or if you want to invest in units that can be some great investments that are unit so i’m not saying that units are bad i’m saying that there are some benefits of houses over units and i’ll leave it up to you to decide what to do thanks so much for tuning in today and until next time stay positive