Units vs houses: which is the better investment?

Recent CoreLogic data has shown that the value of units in Perth increased slightly more than houses over the last year.

In the 12 months to September 2024, houses increased by 24.0% while units went up by 25.2%.

As a result, the total return – that’s the annual price growth plus rental yield – for units was also slightly higher, at 32.6% compared to 29.5%.

Looking at this data, a property investor might therefore question which is the better investment. Let’s have a look at the pros and cons.

Units as an investment

Pros:

●???? Lower cost of entry: With a median value of $572,007 for units in September compared to $830,965 for houses, according to CoreLogic, units are more accessible to investors with limited budgets and can potentially lead to a quicker return on investment.

●???? Lower maintenance requirements: With less space and shared responsibilities in your strata, units generally incur lower ongoing maintenance expenses.

●???? Strong demand: Units are often popular among young professionals, students and downsizers, potentially ensuring a steady stream of tenants.

Cons:

●???? Limited control: Strata rules can limit your ability to make changes or improvements to the property.

●???? Strata fees: Ongoing strata fees can eat into rental returns and overall yield.

●???? Potential for lower long-term capital gains: Despite last year’s results, houses historically have shown stronger long-term capital growth compared to units.

Houses as investment properties

Pros:

●???? High capital gains: Houses have traditionally demonstrated strong long-term capital appreciation, evident in Perth’s current market where house values have increased 46.9% since 2020, according to the Real Estate Institute of Western Australia. Comparatively, units have seen capital growth of 23.4%.

●???? High rental income: Larger spaces and additional features allow for higher rents. According to SQM Research, weekly asking rental rates for houses in Perth were $793 in September compared to $621 for units.

●???? More control: Owners have more freedom to renovate, improve or develop the property, within city guidelines.

Cons:

●???? High initial cost of purchase: Houses require a larger upfront investment, which can be a barrier for some investors.

●???? Higher maintenance costs: More space and features mean potentially higher ongoing maintenance.

●???? Potential for vacancies: The higher rent and specific features of houses may lead to longer vacancy periods between tenants.

So which is better?

Both units and houses come with their own set of benefits and drawbacks. The right choice for you will depend on your long-term goals, risk tolerance, and financial situation.

However, one key factor to always consider is location. While houses often outperform units for capital gains, a high-quality unit in a prime location can offer better growth potential than a poorly located house. A unit in a sought-after neighbourhood may see consistent demand and rental returns, outperforming a house in a less desirable area where property values might stagnate.

It’s also helpful to remember that the property market generally moves in cycles, and current trends may not necessarily predict future performance.

Ultimately, successful property investment relies on research, financial planning and a clear understanding of your plan. With the help of a buyer’s agent in Perth, you can find a property that suits your needs and objectives.

Interested in buying an investment property in Perth? As an expert Perth buyer’s agent, Resolve Property Solutions can help. To discuss your options, book a free discovery call with Resolve Property Solutions.