Should You Buy A Unit As Your First Investment Property?
A lot of people, when looking to buy their first positive cash flow investment property, look at purchasing units. Buying a unit is the obvious choice because it is usually way cheaper than a house and sometimes the rental yields can be quite high.
Units are generally not very good positive cash flow investments. If you want your property to make money from day one (despite what the market does) then you need to be earning more in rent than you are paying in expenses.
Units Have More Expenses
Units have one major expense that houses don’t have and that is strata. When you own one unit in a block of units you almost always have to pay strata.
Strata pays for the maintenance and upkeep of common land, like court yards and the pool/gym. It also pays for things like structural work should anything go wrong.
The cost of strata varies but often it ranges between $400-$800/quarter or $1,600-$3,200/year. This means you would need an extra $31-$62 in rent to cover this expense than if you owned a home.
$30-$60 is a lot of money and it is usually that sort of money that will make the difference between a property being positively cash flowed and making you money each week and it being negatively cash flowed and draining money from you every week.
It Is Harder To Make Changes In Units
If you ever want to make and structural changes in a unit (eg. knock down a wall) then you have to get permission from strata first. That is because your wall might be holding up another unit in the building.
In a house, making internal structural changes is a lot easier because you don’t have to ask permission from strata. Most things you do inside the 4 walls of your home you can do without permission from anyone but some things still require council permission.
Houses Allow You To Add Extensions and Add Extra Incomes
When you own a unit in a unit block the unit will be the same size when you sell it as when you bought it. It is almost impossible to add an extension onto a unit (with the exception of if you are on the ground floor) and thus you cannot add value to your property by adding extensions.
Houses are great because you can increase the amount of living space quite easily. You can turn a 2 bedroom home into a 3 bedroom home with an extension and increase the value dramatically. You could add a granny flat in the yard of your home and rent it out for a secondary income.
Houses give you a lot more flexibility to increase both the market value and the rental value of the home by increase the space of your home.
Units Aren’t Bad Investments
I am not saying that units are bad investments. You can make a lot of money with units, but I am saying that most of the time it is harder to obtain a positive cash flow when owning a unit as opposed to owning a home.
CashFlow Investor exists to help people “buy their first postive cash flow investment property” and that is why we are discussing the cash flow and not the capital gains.
You can still find units that generate a positive cash flow, but they are harder to find than houses and house can often be turned into a positive cash flow investment property by adding value and increasing the rent, where as this is harder with units.
Discover More About Positive Cash Flow Properties
If you are interested in investing in positive cash flow properties then I suggest that the best way to get started is to read some books by successful investors. I have created a lit of the Top Ten Positive Cash Flow Property Books Ever Written. You can view this on my Books Page.