When is buying an apartment advantageous? Lower LVR?

For a single income / single person... Strategy is to enter the property market, and maintain flexibility in terms of living costs, so I could take more risks with my career.

If you could purchase an apartment with a large deposit (e.g. 40-50% LVR), say for example purchase price 300k (repayments on 150k of the property), is there a point where it becomes advantageous to purchase an apartment, over a more expensive property such as a house?

With the house of say 550k the LVR would be 80% (repayments on 425k) .With the higher mortgage repayments and life of the loan, am I thinking correctly that any capital gains would need to offset the higher mortgage repayments?

Can the Low LVR / low CG beat the high LVR / high? CG and is there a way to calculate the sweet spot?

 

Just because you reduce the repayments with a higher deposit doesnt mean you reduce the risk.

first define the risk. If the risk is being unable to make repayments, then having money in the offset (instead of as a deposit) reduces the risk.

Generally, it is better to borrow 80% no matter what deposit you have, and keep the excess in offset.

you are not actually comparing between unit and house. You are comparing cheaper unit and more expensive house. The risk is higher with the house partly because its more expensive.

if you are saying you dont want too much exposure, and at the lower price range you can only afford a unit, fine. But especially if you assume the house will have higher cg, the house will win every time.

You are actually asking whether there is a sweet spot for exposure v risk. But thats personal, and you are not clear on what the risks are.

 

I'm really unsure of what you're asking. To me, a house wins every time over a unit. I'd only buy a unit if I couldn't afford a house.

If you want something that's cheap, so that you can leave your job sooner, then that's a different thing all together, and has nothing to do with the LVR.

 

To clarify, the risk for me is not being able to afford the repayments or having the repayments negatively affect my lifestyle (e.g. pin me to a stressful job).

So yes, having money in the offset, and having an ability to gain an amount of rent which I am not as reliant on with a larger mortgage, minimises my risk.

For example:
Apartment
CG Risk: High
Repayment / mortgage stress risk: Low
Rental income reliance: lower

House
CG Risk: Low
Repayment / mortgage stress risk: High
Rental income reliance: High

 

As the purpose is for you to take risks with your career (I find this admirable) then your main aim is to reduce living costs so that you can afford to take a considerable drop in income. A large part of this is to secure a roof over you head and avoid renting. If you think the drop in income is likely to be relatively short then @Trainee's suggestion of borrow to 80% and put any balance into an offset account would be sensible. If the outlook is more uncertain then finding the lowest cost housing is more important. I feel that CGs are not a major consideration.

In the choice between flat and house you need to balance the total annual cash outlay for the flat against the holding cost for the house, particularly the body corporate costs of the flat may offset increased borrowings for the house. My choice would be a cheap house that can be upgraded if and when time/income allows.

 

Obviously the lower the net (of cash) debt, the lower the risk.

though think about this. Is it better to put some hard yards in now, or later? Do you think it would be less stressful to have a big mortgage when you have a family?

you want less stress now, fine. Dont give yourself excuses. And dont complain later on if prices boom and you end up with a less nice ppor.

personal experience says that when you have a family looking for a ppor and finding your budget too low, people usually regret not working it harder when they were young. Though to be fair thats after sydney had a boom in the last 8 years.

Perth fhbs might be different.

 

The "Sweet Spot" you are alluding to is a personal measure. It simply boils down to your risk tolerance. If possible, (financially) I feel better long term outcomes can be attained through purchasing houses over units. Many threads on here have pointed out the reasons why.

 

Kids are not on the table for me. It's a personal decision. So it's not necessary to factor them into the discussion.

While I agree in principle with the assumed knowledge that houses are a better purchase, however I have really come here to question that assumed knowledge, particularly in context.

 

But what are you actually asking?

can a unit be a better investment than a house? Sure. If you dont need to upgrade to something bigger. If you dont need the extra growth thats more likely with houses. If you want to and are willing to live cheap because you dont want the stress of a big mortgage.

its like saying can you retire on 30k a year. The answer is yes. But is that what you want? Its really up to you.

 

Like I said, there are numerous threads about the pros and cons of different types of residential property investment. Have a search....... and draw your own conclusions.

 

That's the summary version, but I am being much more nuanced than that.

Going on the info that a mortgage calculator can give me the interest owed on the life of a loan, I am actually trying to quantify (calculate) the capital gain I would need on a larger loan, to offset the higher interest repayments. Directly compared to another situation with a smaller loan due to a higher LVR/offset.

That was exactly my question. E.g. I'm a skeptic, but if I could be convinced with the figures that would be really be something.

Armed with this sort of knowledge I would know what I am getting myself into, and could quash a lot of the concerns I have.

 

Capital gains are never guaranteed.

 

Live. At the very least live initially, but possibly long term. If things did go better than expected, possibly convert to IP.

 

Haha, beat me to it.

 

You are basically asking will capital gains continue into the future, and will houses outperform units.

Problem is, all the ‘proof’ is based on selected historical growth.

You can easily make a good argument that it wont perform as well in the future. So you can justify whichever decision you make.

but in 20, 30, 40 years, what you have will be based on how good your prediction was. Can you handle the consequences of being wrong?

you buy a unit with low lvr, and houses outperform. Is that a problem? You still end up with a unit and a better lifestyle in the meantime. Will it matter that you could have made more if youd bought the house?

 

Will there be higher enough growth to the house to justify the larger mortgage and lifestyle hit?

No one can prove the future.

 

Which city are you thinking about buying into @Howler ?