I’ve often been asked whether buying a unit makes better financial sense than buying a standalone home. The question is often driven by affordability concerns, especially for first time buyers who desire a house as their first purchase but because just about everyone else wants one as well are often priced out of the market.
Some see a unit as a poor man’s house, neither holding the same prestige nor the opportunity for capital growth. I believe they are wrong on both counts – and much more. But before we go on, let’s look at the main differences between a house and a unit.
The difference between a house and a unit
A house is a standalone dwelling on its own block of land and is usually the aspiration of most home buyers and property investors. Houses are attractive because, among other things, they are normally bigger, offer larger internal and external living spaces and are easier to renovate and improve to meet individual lifestyle needs. And of course, because of the larger land component, are considered to offer superior long-term capital appreciation.
A unit on the other hand is typically a smaller dwelling grouped with others on the same block and share common areas (like driveways and gardens) and is owned through a strata title, although there are instances where units can have their own land title.
Units have advantages over houses
Units are no longer just the domain of older Australians and are becoming more and more popular with property buyers of all ages and backgrounds because they offer a number of advantages over houses. These include:
- Price – units are often cheaper than houses by between 10% and 20%. This can save you around $50,000 to $100,000 on a typical house worth $500,000 and help get you into suburbs you may not have otherwise been able to afford.
- Location – new housing estates are usually built in the urban fringe whereas new units built on subdivided blocks are usually closer to the centre of town, thereby offering greater convenience, cost savings (e.g. in travel) and potentially greater capital appreciation. The old adage Location Location Location applies equally to units as to any property type.
- Community – units can provide a greater sense of community given the proximity of neighbours. This can work to your advantage as everyone keeps an eye out for everyone else and helps make things that much more safe and secure.
- Lower running costs – smaller properties require less upkeep and are cheaper to run with lower heating, cooling, maintenance, cleaning and repair costs. Of course on the flip-side, you will have to pay your share of the ‘common costs’.
But there are some traps to keep an eye on
There are of course some downsides to consider and steps you should take:
- Capital appreciation – many believe because of their lower land component units may not appreciate by the same degree as houses. This is not always correct. In many locations, units can and do outperform houses in capital appreciation because of growing demand for this type of property. To maximise long-term gains, it’s important to focus on a unit’s location, design, uniqueness, quality and size. It’s also worthwhile checking out price changes between houses and units in the areas you’re interested in. Most real estate agents and online property research companies can supply this information either free or for a small fee.
- Noise – because units are associated with higher density living, it’s important to check how well they are insulated against sound. Wall thickness, shared walls and floor coverings are all things to check.
- Security – if the units in the block look rundown or show signs of vandalism, be cautious. It could be a sign of serious problems, especially if adequate security (e.g. gates and alarms) isn’t present. On the other hand, it could be a great opportunity to buy cheap and add considerable value through renovation and improvement. This is where getting to know the area and your neighbours are vitally important.
- Body Corporate (or Owners Corporation in Victoria) – body corporate rules (which aim to advance the interests of the unitholders as a whole) can be quite prescriptive on what you can and can’t do (e.g. have pets, the exterior colour you can paint your unit, noise etc.) so make sure you read the rules and understand your rights and obligations before you buy.
Is a unit rights for you?
So which is better - a house or a unit? The answer is there is no answer. They can both make an excellent home for you and your family and offer good long-term capital gains. The key as always is to buy within your means, be selective and buy with your head and not your heart.
Peter Boehm's book The Great Australian Dream: A Guide to Buying Your First Home is available online and at all good bookstores. It’s an easy to read and comprehensive how-to guide that will help you successfully navigate the numerous challenges everyone faces when entering the property market as an owner occupier or investor. It is also available as an iBook