There are various categories of residential property to purchase in Australia and none of them alone are right or wrong for any one person.

It starts with a person’s goals and aspirations, then take their current situation and financial ability combined with their skills and education to then work out what path they should best to take in their wealth creation journey.

Even if two people had the same dose of all the above, it then comes down to the MOST IMPORTANT ingredient: ATTITUDE!

You can have all the ability, knowledge and debt serviceability in the world but if you are a paranoid and fearful person you will probably procrastinate and fumble and either do nothing at all or finally do ‘something’ way down the track (which may not be PERFECT anyway). 

You then potentially cost yourselves thousands by procrastinating while the market went up in the meantime. Have then experienced a combination of guilt (for procrastinating and being silly) and sheer frustration, you JUMP into the next thing that comes along just so all your research and pondering hasn’t been a complete waste of time.

So, we are getting into the personalities of investors and even the psychology of certain investors. Funnily enough, I am mostly just talking about their psyche for their first purchase and maybe into their second. Once people get started, it gets easier and easier and they are more confident in making a decision, and living with whatever follows.

As long as investors follow the keys steps outlined in this book, they can’t really make too many mistakes and the negative consequences should be minimal, besides, history shows in Australia, the market rises eventually.

Like an old mentor of mine said: “If you make a mistake in property…. just wait.”

I am discussing people’s personalities because it often translates into the type of property they first buy.

People who are happy living in an apartment are more likely to buy an apartment. Also, people who are a little nervous might be more inclined to go for an apartment or town house first up. Why? Often because it is less money and therefore perceived to be less risk. Also, there is little or no land to worry about. No garden to upkeep, lawns to mow or fences to fix. Apartments and town houses have body corporates to take care of things after all, don’t they?

Well, yes they do but once you do the math and get under the hood, it all starts to work against you.

1. Apartments

There’s a great deception out there told by marketers wanting to sell apartments, especially off the plan. “Apartments go up in value roughly the same as house and land.”

It’s not really true in the most part. There are always exceptions though of course. The explanation is often that they are closer to the centre of a city therefore have assured demand and consequently growth.

They will even pull some stats from somewhere (their bum) to help justify this, but be careful what you read.

The stats I’ve seen on this are confusing. Why is that?

Simple really: new apartments are disproportionally expensive. This is backed up by history that they are notorious for being sold at well over valuation price.

I have numerous clients who have shared their stories of apartments they have bought, initially all starry-eyed, being convinced of the promised cash flow benefits, ‘close to city growth’ only to find that growth has been far less than their houses, cash flow was retarded by rising body corporate fees and the discomfort of being forced to go along with the WILL of the body corporate member on what sinking funds and their other fees are being spent on.

Imagine going halves in an Investment Property with your neighbour’s grandmother. Her upbringing, goals, expectations are very different to yours, right? How do you manage decisions around maintenance, capital improvements of tenant issues? Sounds a little difficult?

You betcha! Now multiply that with a hundred other people all having an opinion and a trying to agree on a paint colour for the repaint, expenses on updating or repairing foyer furnishings, garden etc? … Are you starting to get me? Give me the control and options in owning a 4 br house on a block of land any day. A house has land that will have grown in value. An apartment is compared directly with the newer, flashy apartments next door. It is a different choice.

Home owners buy houses with a potential renovation in mind. Sales of older apartments don’t compare to the price of new, off the plan apartments.

The bottom line here is that it’s the overpriced cost of NEW apartments that brings up the sagging values of older apartments to make it LOOK like they grow ‘ok’ compared to house and land.

Apartments are not very versatile.

There is not much variety in how they are bought or managed. Most are sold off the plan to help the developers pay for the build as they go. Can’t argue with that, it’s the model and how it’s worked for decades. They are either lived in by owner occupiers, rented out on holiday letting or rented on a normal lease arrangement.

While body corporate fees usually start off at a reasonable price (during the sale phase), anecdotally, body corporate keeps rising well above CPI. Why is that? Take a look at it, apart from the obvious tactic-wise, when they are new, there is less upkeep. As an apartment’s life progresses there are more and more things that need maintenance until one day you find the body corporate fees have doubled and the sinking fund is being used to replace elevators and the like.

2. Town Houses

Ok, we can play a little more comfortably with this type of investment.

At least there is usually a reasonable portion of land per property. Even if it is conjoined, there is usually a higher percentage of land than an apartment.

Stand-alone townhouses or ones that are part of a four to eight unit complex are usually better still firstly because of the land component but also because there are less parties involved in the body corporate and simpler involvement.

3. Dual Living

Dual income properties can take a variety of forms and I really think will take on a few more forms over the next 20 years as significant population increases lead to higher density living.

Dual income could mean a purpose-built property on a patch of land ranging from four bedroom houses with one bedroom living, to 3–1, 2–2, 5–2 or any other combination depending on what the local council rules are and what the will of the owner is.

This could also mean a house and land that you later build a one to two bedroom granny flat on, a Fonzie flat over a garage or you do what happens a lot in Sydney where people build a flat into their garage and extend a carport down the driveway.

A standard dual living option is not ideal for someone in the early stages of building a portfolio in my opinion. I will explain, but commonly valuers give a lower valuation that expected so you have to put more of your own deposit funds in to acquire it, which depletes you for buying your next property sooner.

There is nothing sinister in the valuation, they tell me it is because they have to value it based on a forced sale within 60 days and simply, there are not THAT many potential buyers for this type of property (mostly investors) if it had to sell in a hurry.

I feel it can be a great option for investors if they are either finished their portfolio build or are nearing the end of their portfolio build.

Why is that?

Simply a matter of maximising their available equity to fit purpose.

Refer to the chapter on overall strategy for a deeper understanding but simply put, while you are building your ‘Land Bank’ or footprint of your portfolio, your available equity needs to be channelled into land acquisition. The extra building funds required to increase your income generation (i.e. the cost of the second part of the building) are usually best spent on buying land at the lowest price you can… while you can.

Often people have enough income to cover their investments cash flow but it’s the deposit funds or available equity that is stretched.

Plus, really, we need the income from our properties far more once we are retired than we do while we are working for a living!

This is the format I love the most but ONLY when it’s combined with the right strategy and timing. Talk to your trusted property investment strategist/advisor about this in detail along with your accountant to ensure you are maximising your timing and potential.

Remember, even though I said I love this, each investor, their goals, situation and ability are different so nothing is ‘One Size Fits All’.

If buying dual income, see if you can strata title after being built. You will find the sum of the parts is valued higher than the whole!

4. Duplex Properties

Another good option at the end or nearing the end of your portfolio build is duplex properties. You can also ideally strata title the two halves of a duplex and increase its value. Most council rules require you have firewalls between each half and to do the strata titling after building has been complete.

Expect to pay $15,000–$20,000 for all this but the value increase usually well outweighs the cost. It’s only relevant if you need to access equity or going to sell so don’t do it just for the sake of it. Again, it’s all about knowing your strategy.

5. Commercial Properties

I’ll admit this isn’t my area of investment forte, but I have had the absolute pleasure of talking to a man who knows this industry well – Australian golfing icon Peter Senior. While he is of course most well-known for his golfing prowess, including winning all three Australian Majors and most recently collected the coveted Gold Jacket in the 2015 Australian Masters, he is also an incredibly savvy commercial real estate investor.

“I think the returns on commercial property far outweigh residential,” he told me in a recent chat near our mutual home of golf, Hope Island. Yes, it is high reward – thanks to a greater yield – but be warned, it doesn’t come without equally high risk. This comes in the form of tenancy. You may have a tenant who is great for a five or ten year lease and the income’s great, but when you’re without a tenant, your building could sit vacant for months or even years, in some cases.

However, like Peter has done, you can control that by owning the business as well. Mike shares more riveting insights from Peter in Chapter 12 of his book, where he discusses the all-important attributes of focus and discipline in the world of investing.

6. House and Land

Here we go, hurray! We’ve saved the best and most versatile vehicle for last!

Why do we call it versatile? Well, it is great for giving you the combination of growth as well as yield. You can switch and adjust the income model depending on what your portfolio priorities are at the time.

As explained earlier, you have full control over your asset and do not need permission to make changes. Perhaps if you are changing the fence you need to get agreement from 1 or maybe 2 neighbours and if you are building a structure, you need council permission but you do not need to consult with body corporate or multiple neighbours (unless you buy a house in a complex of course).

You will commonly have a smart house and land investment running cash flow neutral, especially in this long term era of low interest rates. When you want to increase the yield and return for income purposes, you have multiple options whether it be to use Airbnb, share rent, add a granny flat or Fonzie flat, build in a garage or even build a garage out back to run a business, the options are multiple.

Another key aspect to buying house and land is that banks usually LIKE it. You will usually be able to get 80%, 90% loans for a house and land whereas often apartments are limited to 60% – 80% max loan to value ratio.

It is simply a much better investment vehicle when it comes to buying for growth AND yield.

We think you’ll agree, getting your strategy right is imperative when investing in property. To learn more, read our other blogs on strategy: