Townhouse or house?

Hello guys,

I'm coming slowly to a point where I'll be buying my first property in australia (with my partner). We don't have our own home yet so this will be our investment property (as long as the company i work for provides us with accommodation) and one day we'll be living in it. I'll be buying early next year in perth.

So this is my situation. I'll have around 300k deposit available (OK, that's probably more like 270k after paying for stamp duty and other acquisition costs). I wouldn't want to stretch my buying power too much, so I'm willing to spend up to 550k. So my question is, do i buy a townhouse in a really nice area (Doubleview, scarborough, North perth..) or should i go further away (like Morley, dianella..) and buy a house?

My reasoning so far is: everyone says buy a house to avoid Strata fees, but if i buy a freehold/torrens Strata townhouse i won't be paying Strata, right? Also people say 'land appreciates, building depreciates', but as an owner of a townhouse I still own a share of land, right? And that land can be on a much more expensive location.

Thanks very much for any input. I realise that my logic my be flawed as i don't know much about RE.

 

Prefer houses over townhouses, especially if your time frame is long. I wouldn't base the decision on strata fees (although that does cut into your holding cost and needs to be accounted for) but rather on dwelling supply.

Over the years, you've probably spotted houses turn into townhouses. The supply of the latter is increasing and supply of the latter is decreasing.

 

I'd get a house with that sort of a deposit! Even something that may need doing up / adding value and hence equity.

Though what's the reason for not taking advantage of the leverage and parking funds in the offset? You'd be losing the deductibility of the loan by paying it down by that much.

 

As @D.T. says don't make decision on Strata costs, it's such a low priority factor.

Focus on location first and asset type secondly. If you can afford a house in a relatively good area it should perform as well as a unit in a really good area. Don't buy a unit in a average/poor area.

That's really generic advice of course but hope it helps.

 

I would agree with this. Focus on location ( especially for long term holds) and asset type second.

 

In your situation i'd definitely go for a house in good location, and don't pay more than 20% as your deposit. Any extra funds park it into an offset account, in case you later decide to rent it out.

 

Thanks very much for your advice MsAli. I did think to put those 270k in an offset account and then rent out the property. The rent money should hopefully pay the mortgage (neutrally geared).

Is that what you meant?

 

Yes. Is this an investment property? If so, personally I'd go for 88% LVR and park the rest in the offset. You will lose tax deductibility for an IP if you pay it down

 

Thanks everyone for your comments.

It seems that everyone thinks we should buy a house. But then it would mean that:
- I'd have to borrow much more, as buying a house in perth in a relatively good area would cost us 750k+,
- Rental return would be lower on such a high price, and isn't that something i should primarily focus on (rent money is the only secure money, everything else is speculation)?
- I'd be in a financial stress if i lose my job (I'd have to borrow 500k+ to buy a house in a nice area).
- Wouldn't buying a townhouse (paying less) allow me to get quicker onto a property investment ladder and build one day my own portfolio?
- Reading a couple of articles lately i understood that there is an increasing trend towards low maintenance/close proximity to cbd lifestyle. Wouldn't it mean that the demand for townhouses close to cbd will increase?
- Being my first investment, would i be too much exposed to any potential downturn in the market with this much money invested in one asset class?

Sorry for being confusing, just trying to understand re a bit better.

 

A large portion of strata fees is insurance, you don't need home insurance if you are in a strata building (you still need contents though).

As previously said, it's not worth basing your decision on this.

It comes down to lifestyle choices. You are presented with closer in smaller dwelling or further out bigger dwelling. What do you want?

I was presented with the same choice 7 years ago and I chose the smaller dwelling, it's easy to keep clean, I have no yard maintenance and I love my home. If you want a large garden or lawn area then it would be worth considering the larger dwelling.

It's your PPOR, buy what you want to live in, not what you think is a good investment, that's what IPs are for. I can tell you from experience (in our previous dwellings) if it's not what you want to live in, you will spend more time out (because you simply don't want to be at home) and it will cost you a lot more in the long run*.

*this is based on my own experience and doesn't reflect any financial data.

 

It is up to you. Percentage wise, we have realised greater capital gains on units than houses.

As you intend it to be a PPOR one day, that should be the focus of your thinking.
Marg

 

Thanks Dan. There is a good chance i won't live in that property for the next 10 years (if everything goes to plan and i keep my job and company accommodation). That's why i still like to see it as an IP. When it comes to lifestyle choices, I don't really care much what type of dwelling i live in. I lived in both houses and apartments and both have advantages.

 

Hi @Realist35 - the way I read this comment is that one day this property will become your PPOR - where you will be living. So don't confuse this with an investment decision. This is going to be an emotional purchase. Ultimately you are purchasing in Perth (I'm assuming) because that's where you want to live not because it's actually a good investment decision. Australia is a huge country and if you believe Perth is the best investment decision of anywhere in the country - well I certainly think there are much better opportunities. Given this property will be for you to live in one day, surely the question "Townhouse v House" becomes a question of - what do you want to live in???? Unless I'm mistaken about the usage of the property of course. If you don't want to live in a house... then why would you buy one? If you don't want to live in an townhouse.. then why would you buy one?

 

H

Hi again @Realist35 - you must have been typing this response as I was typing mine. Given you may or may not even live in this property - why have you chosen Perth as an 'investment' location? Ultimately, who knows where you will be in 10 years? Who knows if the style of property and the location of the property you choose today will even be what you are looking for in 10 years time? What if family commitments change? What if work commitments change? Making a decision today on what you may or may not want in 10 years is probably a less than ideal process.

 

To also add a bit to this, I am looking at retiring to the Gold Coast in the next 10 years or so. I am also looking at investing in a number of properties in the next 12 - 24 months.

Unless something spectacular at a complete bargain price comes up, I am not buying an investment with a view to move in. I originally was going to but then talking to a few others, these are my reasons why not:

a) It will be 10 years older than it is today by the time I move in
b) My tastes may (and most likely will) change in 10 years
c) it may not be the best investment for me, I would be mixing emotions of where "I" want to live with where I can get a good rental yield

The amount of money I stand to make over the next 10 years through making good investment decisions means in 10 years time I can probably buy something very nice for me to live in in the GC. If I am not emotionally attached to any one property, it will be easier to offload should I want to.

I would recommend reaching out to some of the rentvesters on here, it sounds like that may be a suitable frame of mind for what you are trying to achieve.

Ultimately though, the decision will come down to you and it will be a case of what you are most comfortable with and what you feel is the right fit for you.

Good luck with it, exciting times lay ahead .

 

Thanks Dan. Sounds like we're on the same page with this one. I really prefer to see it as IP as i wanna focus on making money in the first place, there is a chance i can buy a second property in 5-10 years if im in the same financial position (that i can then make my PPOR) and lastly, i don't really care whether i live in a house or a townhouse. Also 10km closer or further away from cbd isn't a big deal to me. Monday to Friday i spend working and at home anyway. I don't have children either.

Would you agree with the majority here that a house generally makes a better investment? I guess i have three options:

A) buy a townhouse in a nice area for around 550k,
B) buy a 550k house further away from cbd,
D) or get a bigger loan from the bank and buy a 750k house in a nice area.

The third option seems a bit risky to me as i would have a big loan, all eggs in one basket and overly exposed to any market fluctuations.

Any opinions would be much appreciated.

 

I had been considering the same for my investment in Brisbane and decided to choose the option A. I believe CG are a bit better in this case (which is what I'm after) as the property is in the nicer location closer to CBD, jobs, etc.

 

Hi Observer,

Thanks very much for your reply. Was it a while since you bought this property? Are you happy so far with your choice?

It seems that the main arguments for people buying houses are that land appreciates (not the building), but as an owner of a townhouse you still own a share of the land, right? The second argument for houses vs townhouses is that you don't pay strata fees, however you can buy a freehold townhouse i believe and avoid this pitfall. And the third argument that i don't know much about, is that the demand for houses is higher than for townhouses.

Hmm, tough choice to be made. .

 

@Realist35 I bought it 7 months ago.It's proven to be great, got some CG already, no regrets.

Btw, I'm interested in Perth market and when it bottoms out a bit will consider buying there. My knowledge of Perth market is quite limited so far. However, when considering what type of property I'd be after over there I'm leaning towards a townhouse in a nicer location closer to CBD rather than a house further away.

 

I have heard this many times, my townhouse appreciated just as much as houses in my area in the most recent boom though. If this wasn't the case then within 3 boom cycles you would end up with townhouses costing a fraction of a house in the same area. This would then increase the desire for them, with a limited supply it would increase demand and......... push the price up .

I have never understood the logic behind the quote .