Apartment or Townhouse?

 As buyers advocates, we continually develop our investment strategies.

We help our clients purchase and own property that is highly attractive to tenants and also attracts strong, consistent capital growth with as small a financial commitment as possible each week after rent has been paid.

Two bedroom apartments have been great in the past

As buyers advocates the most common request from our clients has been to purchase a two bedroom apartment for investment.

Usually this request comes with a budget around $500,000.

We have purchased many two bedroom apartments for our clients and we even own two bedroom apartments ourselves. They have proven to be great investment properties and have rewarded us well financially for owning them.

Two bedroom apartments are a great foot in the market for many first home buyers, first time investors and often a staple of many experienced investors portfolio.

Leasing competition for two bedrooms

Over the last five or so years there have been thousands of two bedroom apartments built all within ten kilometres of the Melbourne CBD – the areas we prefer to focus on for our clients.

Such a large quantity of apartments creates competition for investors when it comes to leasing their apartments. It will also have an effect on capital growth.

Consider the townhouse

In the last three years our focus has turned to another type of investment property, one which we believe is really hitting its straps now. While other advocates continue to advise their clients to buy two bedroom apartments in the developing areas, we are focusing on buying three bedroom, two bathroom townhouses in the inner North and North West of Melbourne.

Areas such as Brunswick and Ascot Vale are some of the areas that are grabbing our attention – and proving to be rewarding investments for our clients.

Property investment benefits analysis

Our Property Investment Analysis (PIA) also shows that on a weekly basis it costs less out of the investors pocket each week to hold a three bedroom townhouse than it does to hold a two bedroom apartment.

Benefits at a glance

Owners Corporation Fees
Body Corporate Fees / Owners Corporation Fees

Investment and fees

A two bedroom apartment that fits our buying criteria in the current market generally sells between $525,000 and $575,000 – let’s say $550,000.

A three bedroom townhouse sells for between $725,000 and $775,000 – so again, let’s say $750,000.

Leasing rates are lower for traditional two bedroom apartments

The townhouse leases for between $600 and $700 per week, say $650 per week.

The apartment leases for between $450 and $500 per week, say $475 per week.

Owner corporation fees are often lower for townhouses

The owners corporation fees for an apartment building on average are $2,500 per annum compared to $1,500 per annum for a townhouse.

Townhouses in smaller groups of say three often only have an insurance component to their fees and no maintenance.

Older apartments attract larger levies for repairs. Older apartment buildings built from the 50’s to the 70’s are also starting to attract large levies for major works such as roofing, painting and structural works to name a few.

Newer townhouses offer depreciation

The icing on the cake when it comes to newer townhouses versus older apartments is the depreciation benefits that can reduce your taxable income every year you own them.

Case study – growth and income from a townhouse

We purchased a townhouse in March for a client at 34 Lobb Street Brunswick. Three months later two other identical properties in the same development, units 2 and 8 at 12 Beith Street Brunswick sold for $765,000.

This adds up to $84,000 growth in three months.

The townhouse has owners corporation fees (formerly known as body corporate fees) of $1,500 per annum, leases for $700 per week and is only 5 years old so offers full tax depreciation benefits to the owners. The owners of this property financed the entire purchase. 20% deposit from another investment property and 80% on 34 Lobb Street. The property is positively geared and earns the owners about $100 per week.

By way of contrast, in the current market – even with current interest rates – t would cost an investor approximately $100 per week to support the purchase of a two bedroom apartment.

If you are contemplating the purchase of an investment property to add to your portfolio and would like to find out how a buyers advocate can help you buy at better prices, in a much shorter time frame and without a massive investment of effort, Justin can be contacted on 0418 334 126 via email justin@ipb.com.au

The content in this paper is intended only to provide a general overview. It is not intended to be comprehensive nor does it constitute investment advice. You should seek professional advice before acting or relying on any of the content.

The contents of this article or website are only intended to provide a general overview of the topics discussed. The author of this article makes no representations as to the accuracy or completeness of any information and the information is not intended to constitute investment, legal or professional advice. You should seek professional advice before acting or relying on any of the content. This article does not contain references to any specific company, organisation or individual, unless expressly specified.
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