Property maintenance: houses vs apartments

Hi all

A quick question for the more experienced investors on here.

Long term, which has higher maintenance costs, houses or apartments?

I hear a lot that it is houses, which can put off some owners and tenants. But I struggle to reconcile this with the idea that a much greater proportion of the value in an apartment is in the depreciating building rather than land as with a house. So what’s the missing piece? Is it that we mostly compare brand new apartments with older established houses? Or is the real maintenance cost in apartments not explicit cash costs incurred on a regular basis but the refurbishments that need take place semi-regularly, or in the long term depreciation of the building value, which comes through just in lower capital gains? Or something else?

Just doesnt seem right that, on a % of total value basis, one asset that is say 50-60% land should really have more maintenance expense long term than another that is say 20%. Is it just offset by other economic costs?


Not sure if this makes sense but hope so.

Thanks all

 

I wouldn't have said it was houses necessarily. I'm not sure there is a good rule of thumb that exists.

In my personal portfolio, its been my one apartment that has had the highest maintenance costs as a %.

 

Some of our best capital gains came from well-located apartments.

Body corporate fees include allowance for maintenance, so you rarely get extra charges for routine repairs. Regular contributions to a sinking fund allow for expenses such as repainting etc that only happen every 8-10 years.

Murphy’s law says that repair costs for IPs come in batches - you will have a good run for a few years then get several things go wrong at once.

You can allow for this by creating and contributing to your own “repair fund”.
Marg

 

Maintenance in strata buildings is more obvious - you contribute via your strata levies to the sinking fund for the larger planned events.

If house owners were more diligent, they too would have a 10 year maintenance budget (aka sinking fund) so would not be taken by surprise when external or major works are required.

In a block of units, you're only liable for a small portion of the shared costs eg roof replacement or driveway repair rather than 100%

 

I would draw fire with my guess and say, balance of probabilities that strata units would cost much more in a long run. More people live in smaller area, more people use the facilities and common areas, higher wear and tear, generally more renters who take less care of premises, generally higher costs to repair due to more demanding structure (higher roof etc).

The other day the phat person above the apartment in Utopia clogged the shitter for the fifth time in twice as many months. Who knows what they dump there? Strata will fix it.

I’ll go with my guess of units being more expensive.

 

Agreed. There are so many variables I think it would be very difficult to come up with a definitive answer. There is also an element of what seems to be just old fashioned luck!

- Luke

 

I'd say overall it's offset by other charges.

For instance a brand new house vs a brand new apartment - everything equal in terms of builder, suburb etc. Let's say 2 bed apartment vs 3 bedroom house.

Your apartment is more likely to have a higher turnover in tenants, high strata costs because they all have lifts now days, possibility for longer vacancy between tenants depending on the area and whether there's a flood of new apartments regularly.

House likely to have lower turnover, but higher wear and tear (families), vacancy may be shorter especially if it's in an area with a higher number of apartments but limited houses. May be higher maintenance costs due to more wear and tear, but no strata costs.

Both will have varying degrees of capital gains and rental yield as these do tend to fluctuate and depending on the suburb one may perform better than the other depending on the trends.

I really think overall it would be hard to find a definitive answer, as above I think a lot would be luck and the tenants you have too.

 

It is not a small portion, you have to pay all your share of the costs, which include a portion of every-one elses costs. If a house, or the assets leveraged, of it needs a sinking fund to pay for maintenance and cant generate enough profits or equity to cover maintenance costs, you should sell the house before sinking more money into it. If house owners where diligent they wouldn't need a sinking fund , or suffer the opportunity cost of one.

 

It's probably difficult to compare because most people don't have a good idea of how much 'maintenance' is involved in a unit, when it all gets lumped into the strata levies with electricity, water, insurance, strata manager and so on. Having amounts set aside for future work (sinking fund?) can also cloud the issue.

On the other hand, many house owners never have to fork out for things like fences, sewer, retaining walls - these sorts of items can cost big $ but might take 40 years or longer to eventuate from new.

I think with a house you can have more discretion about timing - you might be able to put off the painting for another year or two. While in a strata situation you will have a number of owners making that decision.

 

It depends on the age of the property, the quality of the original build, the tenants etc etc BUT all those things being equal, it would have to be more costs to run a house... a lot of the apartment issues are for the strata to fix, whereas when you own the land, the walls, the plumbing, the gardens, the roof, and the fences, you are bound to have more maintenance issues with a house (esp as it gets older). Just to be clear, you are still paying for all those issues in apartments through your levies - so this ignoring levies and special levies - and just comparing maintenance issues with maintenance issues...

 

Very well said Marg & Scott, and I totally agree with you both on this.

But sorry I beg to differ here. All else being equal, I suspect apartment will be more cost efficient for two reasons: routine and economies-of-scale. Also, it's harder to get Tradies to do a "small" job for a single house Vs Complex of units.

Yes you do and can have knowledge of your Complex, only if you pay attention and show interest. Join the Committee, understand the Financial Budgets and the Sinking Fund, just to name a few.

This works both ways: there will be time when "others" are paying for your portion... Eg that part of the gutter above the ceiling of your Unit.

I tend to agree with you there for reasons stated above. Also, most house-owners are less disciplined with come to maintenance of their own house: roof, driveway, garage, handrails, paint and so on and so forth, only gets done on a "needs-basis". And 80% of the time, it's only being done before they want to sell it and they for out big money in one hit. Just have a friend as me for a reference for a builder because after 18 years, she reckon she needs to do a reno and have budgeted $150k.

 

Every strata owner should take the time to read the full minutes of meetings and financial statements. All expenses are detailed.

True, many charges are included in the strata levies, but expenses are listed in the financial reports.
Marg

 

It will depend, state of either building type & who is in charge or clued up when it comes to maintenance.

With a unit, you would expect it be more likely serious things are picked up by residents and managers, so they should be more hands off than houses, unless you have a great PM and a tenant who reports & together things can be picked up.

You can make or lose money from either.

It is easier if you have a clue to control spend on a house, if a poorly managed complex, it can be hard to rectify. So pluses and minuses for both.

 

From my experience most repairs to strata buildings are always expensive. Committee members generally don't have time to chase around for the best quotes even for small repairs. Multi story buildings the costs can be even more expensive. I am currently dealing with a unit building in Sydney where there are quotes for close to 1 million for building rectification works but to look at the building it appears to be ok, buyers have recently bought into the building not realising there are any issues. This particular building has 12 units so the owners are up for 80-90 each over the next few years and in the last 10 years they have paid an additional 10k each for other major works with special levies not to mention the strata fees each year circa $4000 per year (an additional $40,000 in the last 10 years!) Can't imagine where an average house could have over 100k in general maintenance in 10 years. An engineer I know said its common for strata buildings to have major expenses over the life of the building.

 

I have had units where none of them were any more expensive than an average chosen house, but there will be blocks that will be nightmares, Opal is a good example.

But same with houses, I know someone who had to do a full rebuild, had to house themselves for 6 months, then argue with the builder, and I do not know the outcome, but your losing straight away.

Not unlike buying a lemon car, and people in the Syd boom were just buying anything, I seen plenty of auctions where those bidding or some of those bidding did no checks at all, and had only just walked into the open on the day of auction, so if they were the average joe blogs, as I can assure many were, they were basically gambling - on two fronts, that things would just keep going up and that there were no issues.

A number of inspectors also just rely on insurance, so you cannot count on them 100%, but a unit block will have some history that you can obtain that you cannot get with a house, so this may make it a better bet in some ways if you know little yourself.