Townhouse or house?

I'm sort of trying the same, to wait probably until early to mid next year. Hopefully prices come down a bit more by then and i have some more cash too

I did a quick calc on rental returns and it turns out that it's better to keep money in the bank than buy a property (not speculating on cg here, just looking at rental return). But then i thought, i gotta have a property one day so i might as well buy soon when prices in perth seem to be close to the bottom (hmm I'm speculating again).

 

Excellent, so it's not only me! That's exactly what in trying to figure out.

One thing I'm wondering though. Say I'm an owner of a townhouse and i inherited it from my grandparent. The townhouse is 100+ years old and it's in a very bad condition, no one would buy it. You obviously need to knock it down and build a new one or do major renovations. Are you actually allowed to do something like that considering it's on strata?

 

Depends on the type of strata a little, but generally not - because you need the permission of all lot owners to do something like that.

 

So would that mean that type of property would lose a lot of value over long enough period of time (as the building would eventually deteriorate to nothing and you can't rebuild)?

 

I'd say its pretty rare for strata complexes to "deteriorate to nothing", even over multiple decades. That's what you generally pay strata fees more - maintenance of the building.

That said, there are often big costs that come up from time to time such as a roof reconstruction or the like.

I think given the time frames involved, I don't think its as big a consideration as you might think compared to other factors (like potential capital growth or rental yield).

 

Hi Dan, Realist - let me try to explain the logic behind the quote.

When you buy a property you are buying 2 things.
1. House + the land it is build on (townhouse has only this)
2. Any additional land (garden, farmland, etc.)

These 2 items appreciate/depreciate at different rates.

Example:
1. Bricks and mortar goes down in value (10,000) but land it sits on goes up in value (30,000).
2. Any additional land goes up in value (30,000).

Townhouse increase 20,000 (point 1)
House increase 20,000+30,000=50,000 (point 1 and 2)

So although both increase in value, houses with land appreciate faster. This is because land is a finite resource while building bricks are not (look at apartments).

 

Excellent example, thanks for that.

However I've noticed that a lot of houses close to cbd have only part 1 in your example, that is they don't have additional land, front yard etc. I assume in those cases there wouldn't be much difference between a house and a townhouse.

 

Honestly, I don't think its as mathematical or simple as that. And if I had to pick the 'best' simple description of the house v townhouse comparison, I actually think Dan's one is more accurate.

 

It all comes down to supply v demand.
I would tend yo agree with you its not yhat simple.
Eg the location of the land can vary wildly on cg values. Ie even if its a smaller allotment, it could appreciate much faster amd more than a larger allotment thats not as well located.

 

Hi JDP1,

Would you then agree that it's more prudent to buy a townhouse closer to the cbd than a house that's further away (not as desirable location)? My assumption here is that both have the same price.

 

@Realist35 thought you might appreciate this - Units vs houses: Which is a better investment? - realestate.com.au

 

No one can be sure either way. There is no hard and fast rule. I would read @Bryan Loughnan link above.
Lots of dd required. Supply factors , demand factors etc.

 

+1 to this. Completely agree.

Trying to use these 'general rules of thumb' as a basis of your DD or research is a poor way go imo. There's no substitute for learning as much as you can about the markets you intend to invest in.

 

Thanks very much guys.

It's much more complicated than i thought. I think given that I'm a beginner, it would be wiser to limit my purchase to 550k and hence buy a townhouse. Less risk i guess, and as i build my portfolio over time and learn, i can buy a house as the next property.

 

Depending on the market, there is a fair chance, there is absolutely nothing 'less risky' about this statement.

 

It doesn't seem to work like that, one thing to maybe try is find a suburb you think will do well from your research then see what you can afford in that area, it's how I'm approaching it.

 

Imo it depends on the demographic of the area your looking to invest in and supply and depend for particular dwelling types. Generally I prefer houses for a couple of reasons so I will invest in areas where the demographic want homes and demand is strongest for that dwelling type. I wouldn't be buying a unit in a predominalty townhouse demographic and likewise wouldn't buy a house in a predomintalty unit demographic.

My 2 cents.

 

Just trying to find data and trends that show that house prices historically grew more than apartments/units. What I have been able to find (on REIWA) is that for many suburbs in Perth it was the other way around over the last 10 years.

Does anyone have any trends or data showing this?

Many thanks!

 

Re.com can give you a median house vs median unit over about 8 years.

E.g. South Yarra Median House 2007 1.01M vs 1.53M (2015) - 51% gain
Vs Units 441k vs 560k - 27% gain.

So houses compared better

And if you compared the 2010 to 2015 median it tells a really bad story for units....

House - 670k (2010) vs 1.53M - 128% increase in 5 years

Units - 545k (2010) vs 560k - 3% gain.

Worst part being 1 Bed units - 428k (2010) vs 405k (2015) - 5% loss

The general rule I live by is land appreciates buildings depreciate, I think this demonstrates it quite well.

The higher your land content in a purchase the better gains you will typically see (if buying on a east coast capital). Reason being is they cannot make more land so if demand is the same prices go up as less land is available, however if the same demand but they build more units then prices will stagnate or go backwards.

 

Partly yes, it's not the complete picture though. The apartments above would have had much more supply reducing cg values than houses further out. It's not purely because land appreciate and buildings depreciate.
No easy answer to this as above posts.
Having said that I'd be careful in categorising Townhouses in the unit/apartment category. They offer more land, are less constrained by supply additions than apartments.