How are villas, townhouses and apartments different to house and land?
In any property portfolio, we believe diversification is important. This includes the type of accommodation you purchase as your investment property. The real answer to this question, however, lies in understanding fully the selection criteria that is explained to all clients.
One of the principal considerations an investor should make before purchasing an investment property is a consideration of ‘exit strategy’. In other words, how will you sell this investment property when the time comes? The obvious solution is to ensure you purchase an investment property that will appeal to the most common owner/occupiers in the area in which you are investing. Censes data tells us that the majority of homes in our CBD’s and fringe suburbs in all major cities now have less than 2 persons per household! Is it any wonder that the vast majority of properties sold in these areas now are one and two bedroom units? Surly, from an investment point of view, a one or two bedroom unit is by far the best investment to make if you are within a few kilometres of a CBD? However, if you decide to invest in one of our outer suburbs, there is probably little demand for a one or two bedroom unit and the obvious best investment would be a 3 or 4 bedroom house and land.
Purchasing higher density accommodation, such as townhouses or units, also help investors into more desirable locations closer to city centres. These types of property usually have higher rental yields and higher demand compared to house and land in similar locations.
Understanding cash flow is also very important and we all wish to maximise tax deductions. Villas, townhouses and apartments do not have as high a land component in the overall cost, so depreciable tax deductions are usually greater . You cannot depreciate land, only the improvements made upon it.
Be aware that the land component of investment properties is subject to land tax when an investor’s properties (land value) in that state reach the tax threshold. This is an important consideration for investors wishing to build a portfolio with multiple properties.
