Why Buying a House Over an Apartment in Australia Might Be Better

Investing in Australian Real Estate: Why Houses May Be the Better Choice

Australia’s real estate market has drawn in many investors, and for good reason. The great potential of wealth generation and the opportunity to create additional streams of passive income are just some attractive aspects of property investment. Investor lending has also seen an increase in 2024, with 37% of housing loans going to investors, up from 34% in 2023 and 33.5% in 2022, as per the ABS. As more investors enter the market, knowing what to look for will be key to making a successful purchase.

But with so many properties up for grabs, it can be overwhelming to narrow down which type makes the most promising investment opportunity. Here, we introduce the age-old debate for prospective property owners: houses or apartments? While apartments may be appealing for first-time buyers, it’s also important to consider longevity. Each with its own unique benefits and drawbacks, the best choice for you will depend on your budget, current priorities, and financial objectives.

This guide will dissect the fundamentals of apartments and houses, underline the advantages of investing in a house, identify ideal investor scenarios, and highlight crucial factors to consider before making your choice.

Understanding the Basics of Houses vs. Apartments

To get a better sense of what you’re signing up for, here’s a brief look at the basic features of a house vs. apartment, and how they may affect your investment:

Apartments

Apartments are typically multi-story buildings containing multiple residential units. They offer a variety of living arrangements, from studio apartments to larger units with multiple bedrooms and bathrooms. Popular in urban centres and places with high rental demand, many apartments are scattered near universities, employment hubs, and public transportation. 

Due to lower purchase prices, they often generate strong rental yields. This makes them well-suited for short-term rental platforms, offering flexibility and possibly higher rental income. Apartment buildings also involve ongoing maintenance and management responsibilities, covering common areas, shared amenities, and tenant relations.

Houses

Houses, on the other hand, are detached or semi-detached properties with their own land. They come in numerous styles, from quaint cottages to modern mansions, and often include features like a backyard, garage, and driveway. This calls for ongoing maintenance and upkeep, including landscaping, exterior repairs, and future renovations.

With houses, there’s a stronger potential for long-term appreciation, especially in desirable neighbourhoods with limited land availability. The initial investment for a house is generally higher than that of an apartment, but may prove beneficial down the road as it’s able to command higher rental income, particularly in family-oriented areas. The value of the land itself also contributes significantly to the overall value of your investment property.

Advantages of Buying a House

While many may jump at the appeal of an apartment (built-in facilities and promising rental prices can be hard to resist), choosing to invest in a house instead can open the doors to many key benefits. Here’s what you stand to gain:

Stable Property Market

Despite the occasional market fluctuations, investing in property can be more stable compared to stocks or other assets. In fact, real estate in general has a solid track record of long-term appreciation. It’s also a good shield against inflation, protecting your wealth as the value of your property increases with the cost of living.

Tax Benefits

With home investments, you get a chance to reduce your tax burdens. Depending on your location and circumstances, enjoy potential deductions on mortgage interest, property taxes, and even home improvements. In many countries, you can minimise your tax liability on capital gains when you sell your home, especially if it’s been your primary residence for a while.

Land Ownership 

Owning a house means you own the land it sits on, giving you a sense of security and independence. Land ownership provides lots of freedom to customise your property as you wish, from landscaping to renovations, making it truly your own. These upgrades can increase your property’s market value, enhancing its appeal and potential rental income.

Space and Privacy for Families

Houses give you more space to work with, as most apartment units are limited to a certain square footage. The larger floor plans can accommodate a wider range of tenants, such as larger families, and increasing rental demand. Many homes also come with backyards that can further enhance the investment property’s appeal to tenants and contribute to a higher rental income.

Potential for Higher Property Appreciation

Prime locations in sought-after neighbourhoods and towns tend to see strong property growth over time. Factors like proximity to schools, public transportation, and employment centres all contribute to a location premium. Strategic home improvements can also boost value, such as adding an additional story or garden area.

Lifestyle Flexibility

By providing the freedom to customise your property and handpick your location, homeownership offers a level of lifestyle flexibility that is difficult to achieve with other forms of housing. Plus, houses generally offer more pet-friendly options, allowing furry companions to roam freely and enjoy the outdoors.

Independence

Unlike apartment living, buyers aren’t restricted by building regulations. You can renovate, remodel, and make changes to your property as you see fit. With each mortgage payment, you’re slowly building equity in your property too, increasing your net worth. Looking at the bigger picture, a house investment can help you achieve financial independence, becoming an extra source of income and a valuable asset in retirement planning.

Location Diversity

Houses are available in a wider range of locations compared to apartments. This allows you to survey property hotspots and select homes which align with your personal preferences and financial goals — whether that’s in bustling cities, quiet suburbs, or unique rural settings. Depending on the location, certain properties may have better access to amenities such as parks, schools, shopping centres, and recreational facilities.

Storage Space

Most houses come with ample storage space — this includes attics, basements, garages, and sometimes even outbuildings like sheds. This further enhances the functionality of your property and helps keep living spaces clutter-free. Extra storage space can also be valuable for tenants who work from home or have hobbies that require dedicated workspace.

Who Should Buy a House over an Apartment?

Now that we understand what houses can bring to the table, it’ll be easier for prospective property investors to approach the “apartment vs. home” dilemma. To add to this discussion, let’s explore a few ideal buyer profiles that could greatly benefit from investing in a house:

Family-Oriented Investors

Investors seeking to cater to families will find houses more attractive. Most of these homes offer more space and privacy, making them ideal for families with children who need room to grow, play, and entertain guests. This includes adequate space for bedrooms, playrooms, and dedicated living areas.

Long-Term Investors

Those with a long-term investment horizon will likely get the most out of a house’s potential for significant capital appreciation. Homeownership also provides a strong sense of stability and long-term financial security, acting as an additional income stream.

Renovators & House Flippers

For investors with experience or an interest in property renovation, houses are a great choice. You’re free to personalise living spaces to your exact preferences, from interior design to exterior renovations — which can be subject to restrictions in apartments. On top of that, the ability to add value through renovations and upgrades can lead to substantial returns. 

By carefully considering individual needs, lifestyle preferences, and financial situation, you can make an informed decision that best suits your current circumstances.

Key Factors to Consider Before Making Your Choice

Investing in a house isn’t a commitment you make half-heartedly. Carefully consider these key factors before sealing the deal to make sure you’re buying the right investment property: 

Budget and Financial Planning

First and foremost, a thorough financial assessment is essential. Determine your investment budget realistically, factoring in not only the purchase price and deposit but also ongoing expenses such as mortgage payments, property taxes, insurance, maintenance costs, and estimated vacancy periods. It’s important to assess how this investment will impact your overall financial portfolio, cash flow, and risk tolerance.

Lifestyle Preferences and Long-Term Goals 

Don’t forget to break down your investment objectives and risk tolerance. Are you seeking long-term capital appreciation, consistent rental income, or a combination of both? Consider your preferred investment strategy — buy and hold, renovate and flip, or short-term rentals.

Investment Potential and Market Trends

Thorough market research will let you know where to start property hunting. Analyse the local market trends, rental demand, and potential for capital appreciation in your chosen location. Identify high-growth areas with strong rental demand and a stable economic outlook. Consider factors such as proximity to malls, offices, and transportation.

Conclusion

When deciding between an apartment vs. buying a house, it’s important to remember that there’s no one-size-fits-all answer. While apartments offer convenience and may be more suitable for certain lifestyles, houses present a unique set of advantages that can significantly enhance your financial well-being. Think about the stability aspect, the potential for long-term financial growth, and a greater degree of property control, all of which comes with house investments.

Take time to weigh your individual needs, priorities, and financial situation to determine the best option for you. If you’re still asking yourself, “Should I buy an investment property?” or “How do I get started in property investing?”, our experts are ready to walk you through this process. At InvestorKit,  a leading Australian real estate buyer’s agency, we’ll help you find high-yield properties and make sound investment decisions. Connect with us today for more insights into property purchasing!