Taking your first step into the property market is exciting but it can be difficult to know which decisions are right and what the best choices are for you. One of the main issues facing young first home buyers is whether to buy a house or an apartment. While there is an emotional component to the idea of a house – it is the great Australian dream after all – the practicalities aren’t always ideal for your first investment. The important thing is to research the property market to see what’s out there that matches your budget and goals, and find a good agent who can advise you on what the options are in the current market. This will not only substantiate your own research, it will also give you real-time insight - a good agent will always have a much better ‘on the ground’ knowledge of the current market than any set of numbers you might find. Their advice is free and they can even help you to find the perfect property.
When looking for your first investment property, the key things to consider are location, affordability and ongoing costs such as maintenance, body corporate fees, and/or rates. Once these things have all been taken into consideration, you are then better able to decide the true investment potential of the property you choose and make the best decision for your current goals. Remember, your investment portfolio can grow beyond just this property and diversity is key to future success. A strong portfolio will ideally have a diverse mixture of houses and apartments, so you can always go the other way with your next investment.
Choosing a good location may seem like an obvious point, but many first-time buyers get too focused on where they want to live, rather than which location is best to invest in. Remember, you may never actually live in the property yourself, so you don’t have to like the location you buy in. What’s important is that property prices are achievable for your budget and the area is delivering good rental yields. A large suburban home near a major university for example, may be the ideal share home for local students, plus you have a regular supply of tenants as long as the university is operational. Conversely, apartment living has trended much more strongly in the past couple of decades and the average occupancy according to the last census was 2.6 people per household. This makes a 2-bedroom apartment a pretty stable proposition, especially if you can find something within your budget and within up to 10 kilometers from a major city. This offers you good rental yields as well as investment growth potential. If you have a particular area in mind you’d like to invest it, it’s well worth finding out what types of property have sold well there over time, as this could indicate a long-term trend that may well be the norm for that location.
Another thing for first home buyers to consider is the affordability of their first property. If you have long term plans for investing into the future, then starting small may be a better approach. Investing in a low maintenance apartment, with a manageable mortgage and good rental yields means you can learn how the investment will impact on your lifestyle and possibly even enjoy the process. Leaping into a huge investment can be debilitating if you can’t afford the ongoing costs and all of your income ends up being poured into the property. Depending on the deposit you have and your income, you may discover you can only borrow enough to buy an apartment – in which case the decision gets made for you! Alternatively, you could look for a ‘renovator’s delight’ on a big block, knowing that you have the time, enthusiasm, energy and most importantly cash, to put in to maximise the site by improving, extending or developing the property.
In addition to the initial buy in, there are also ongoing costs that buyers often overlook. Knowing what these are could be the difference between a house and an apartment for your budget. Apartments tend to require less maintenance and, assuming all the appliances were relatively new when you bought it, shouldn’t need much attention through the year. The great thing about apartments too, is that all the ‘common property’ maintenance – gardens, car parks, driveways, fences, rooves etc. is taken care of by the body corporate. Of course, the downside of that is that body corporate fees can get quite hefty, especially if swimming pools, leaking balconies, lifts, gyms and and outdoor entertaining areas come into the equation. However, some buyers prefer the convenience of the shared risk, over paying rates on a house and still having to take care of all of the maintenance themselves.
The investment potential is the final part of the equation and your choice here will really be influenced by what your long-term property investment goals are. In the case of an apartment, the bulk of the growth potential may be in the building itself, rather than the small piece of land it sits on. When purchasing a house, the land itself becomes the greater part of the asset in many cases, which is why a rundown shack with harbour views can sell for millions of dollars in Sydney, with the house considered basically firewood (as an extreme example).
Making your first property investment should not be an emotional decision. It’s a great opportunity for learning and there are plenty of resources available to help. Even the research phase of deciding where to buy and whether to buy a house or an apartment can be extremely informative with regard to your long-term property investment goals. Your local First National Real Estate agent will be more than happy to advise you on what might be the best choice for you and where the best place is to start looking.