Diversifying Your Property Portfolio: An Insight into Different Types of Residential Properties

Navigating the diverse world of property investment can seem like a daunting task. With a multitude of residential property types to choose from, each offering its unique benefits and challenges, how do you determine which one is the right fit for your investment portfolio?

Whether you’re a seasoned investor or just starting your property investment journey, understanding the different types of residential properties is key to making informed decisions.

This blog post will guide you through the unique features, pros, and cons of various residential properties, from traditional houses and townhouses to modern unit blocks and granny flats. By the end of this guide, you’ll have a clearer picture of the diverse opportunities in the Australian property market and be one step closer to making your next strategic investment move.

Houses

Houses, also known as standalone or detached houses, have long been a staple in the Australian property market. They offer a traditional and versatile type of residence that appeals to many different types of buyers and renters, from families to individuals and couples.

In terms of property investment, houses can offer several significant advantages. Firstly, they typically provide more space, both indoor and outdoor, compared to other property types like units or townhouses. This can make them highly attractive to families, who might value the extra bedrooms, a large kitchen, or a backyard for the kids to play in.

Secondly, houses often come with more freedom and control than properties that are part of a strata scheme. As the owner, you generally have the liberty to renovate or make changes to the property as you see fit, without needing to get approval from a body corporate or adhere to strata regulations.

In terms of capital growth, houses often perform well over the long term. As land becomes scarcer, particularly in densely populated urban areas, properties that come with their own parcel of land (like houses) can appreciate in value.

However, investing in houses also comes with potential drawbacks. They are often more expensive to buy than other property types, making them a significant investment. Houses can also be more costly and time-consuming to maintain. As the owner, you’re responsible for all maintenance, both inside and out.

Furthermore, while houses can offer excellent potential for capital growth, rental yields can be lower than other property types. This is something to consider if you’re relying on rental income to service the mortgage.

Townhouses

Townhouses hold a unique position in the Australian property market. They offer a middle ground between the space and privacy of standalone houses and the affordability and convenience of units or apartments.

A townhouse is a multi-story structure that usually shares one or two walls with adjacent properties, often in a complex of similar homes. They typically have their own separate entrance and a small outdoor area, often in the form of a private courtyard. Inside, the layout of a townhouse is similar to that of a house, with the living areas usually located on the ground floor and the bedrooms upstairs.

From an investment perspective, townhouses can offer a number of advantages. They are often more affordable than standalone houses, particularly in desirable locations, making them a more accessible entry point into the property market. Yet they offer more space and privacy than units or apartments, which can make them attractive to tenants and potential buyers.

Townhouses often appeal to a wide range of people, including small families, couples, and professionals, increasing their rental and resale appeal. Additionally, many townhouse complexes offer shared amenities such as pools and gyms, adding to their appeal.

However, there are also potential challenges with investing in townhouses. They often come with strata fees for the maintenance of common areas and amenities, which need to be factored into the investment equation. Some people may also see the shared walls as a drawback in terms of noise and privacy.

Apartments or Units

In the Australian property market, “units” are a term often used interchangeably with “apartments”. Units are individual dwellings within a larger residential building. They offer a more compact and lower maintenance alternative to standalone houses and are a popular choice for urban living.

Units are particularly prevalent in larger cities and more densely populated areas where land is at a premium. They vary widely in size and layout, ranging from smaller one-bedroom or studio units, ideal for single occupants or couples, to larger three-bedroom units suitable for families.

When it comes to investing in units, there are several potential advantages. Their typically lower price point compared to standalone houses makes them an accessible entry point into the property market for many investors. Units in desirable city locations can be in high demand for rental, offering potential for strong rental yields. Additionally, many unit complexes offer amenities such as gyms, pools, and security services, adding to their appeal for potential tenants.

However, investors should also be aware of some potential challenges associated with investing in units. These can include strata fees for the maintenance of common areas and amenities, potential restrictions on renovations due to strata rules, and competition from a larger pool of similar properties in the unit market. It’s also worth noting that while units in some locations can offer strong rental returns, they may not always offer the same potential for capital growth as standalone houses.

Villas

In the Australian context, the term “villa” often refers to a particular style of single-level, low-maintenance property rather than the luxurious, expansive homes associated with the term in Europe. Australian villas are typically smaller, single-story residences, often found in complexes of similar dwellings. They’re popular among retirees, small families, and professionals seeking a balance between space, convenience, and affordability.

Australian villas usually comprise two or three bedrooms, a kitchen, a living area, a bathroom, and a small outdoor area. Some may come with a garage or a designated parking space. One of the key attractions of villas is their low maintenance needs, making them ideal for those who desire the feel of a standalone home without the extensive upkeep requirements.

When it comes to property investment, villas can be a wise choice due to their broad appeal. They’re often sought after by tenants looking for a low-maintenance lifestyle close to urban amenities. Additionally, their typically lower price point compared to larger standalone houses may make them a more accessible entry point into the property market for first-time investors.

Terraces

Terraced houses, commonly referred to as “terraces”, have a unique place in the Australian property market and architectural history. They were originally introduced during the 19th century in response to the need for high-density housing in fast-growing urban areas, particularly in cities like Sydney and Melbourne.

Australian terraces are typically narrow, multi-storied structures built in rows. They share common sidewalls with the houses on either side and often have a small, private outdoor space at the back. The architectural style of these terraces often reflects the Victorian or Edwardian era, lending them a distinct character that many buyers and renters find appealing.

When it comes to property investment, terraces can offer several advantages. Their unique blend of historical charm and urban convenience often makes them highly sought after in the rental and buying market. Located in established inner-city suburbs, terraces are often close to key urban amenities, such as public transport, shops, cafes, and schools, making them attractive to a broad range of potential tenants, including professionals, small families, and individuals.

However, prospective investors should be aware of some potential challenges. The age and heritage status of some terraces may entail restrictions on renovations and may also mean higher maintenance costs compared to newer properties. As terraces are often part of strata schemes, it’s also important to consider any associated strata fees.

Unit Blocks

In the Australian property market, a “unit block” refers to a residential building that is subdivided into individual units or apartments. These buildings can range from smaller blocks containing just a few units, to larger high-rise developments housing hundreds of individual apartments. Unit blocks are particularly common in densely populated urban areas, where land is at a premium and there is high demand for housing.

Investing in a unit block as a whole can offer several potential advantages. Firstly, owning a unit block provides the opportunity for multiple streams of rental income from a single property. If fully tenanted, this can generate a significant income. Secondly, there may be opportunities to add value to the property, for example through renovations or by managing the property more efficiently.

However, investing in a unit block also comes with challenges and responsibilities. As the owner of the entire block, you would be responsible for the maintenance and upkeep of the common areas and the building’s exterior. This can be time-consuming and potentially costly. There are also potential risks associated with vacancies – if it takes time to find tenants for all the units, this could impact your rental income.

In addition, investing in a unit block requires a significant upfront capital outlay, making it a less accessible option for many investors. Financing can also be more complex than for individual residential properties, and it’s important to seek professional advice on the best financing options for this type of investment.

Duplexes

In the Australian property landscape, a duplex is a single residential building that is divided into two separate dwellings. Each dwelling within a duplex has its own separate entrance, and they are usually mirror images of each other. Duplexes can offer a unique blend of the benefits of both standalone houses and units, making them an attractive choice for many property investors.

From an investment perspective, duplexes present several advantages. Firstly, they can provide two streams of rental income from a single property, potentially offering higher returns than a standalone house. The dual income potential also provides a level of risk mitigation; if one unit is vacant, you can still generate income from the other.

Duplexes also offer flexibility. An investor could choose to live in one unit while renting out the other, providing a source of income to help cover the mortgage. Alternatively, they could rent out both units for maximum income potential.

Moreover, duplexes often appeal to a wide range of tenants, from small families to couples and individuals, increasing the potential tenant pool.

However, there are also potential challenges to be aware of when investing in duplexes. These include the possibility of conflicts or disputes between tenants in the two units and the potential for additional maintenance costs due to the property essentially housing two households. If the duplex is under strata title, there may also be strata fees and regulations to consider.

Granny Flats

Granny flats have become an increasingly popular property type in Australia in recent years. A granny flat is a secondary, self-contained dwelling on the same block of land as a main house. They’re typically smaller than the main house and can be detached or attached to it. Despite the name, granny flats aren’t just for housing grandparents; they’re versatile dwellings that can serve a variety of purposes.

From an investment perspective, granny flats offer several benefits. One of the key advantages is the ability to generate additional rental income from a single property. This can significantly improve the overall yield of the property and help with mortgage repayments.

Granny flats also add value to the property, which can be beneficial if you decide to sell in the future. They’re also appealing to a wide range of potential tenants, including single professionals, couples, elderly relatives, or even older children still living at home.

In terms of construction, granny flats can be a relatively quick and cost-effective way to add a second income-producing dwelling to a property, particularly when compared to the cost and complexity of building a duplex or buying an additional property.

However, it’s important to be aware of the regulations and restrictions around granny flats. These can vary by state and local council area in Australia, and typically cover aspects such as the size of the granny flat, the size of the block of land it’s built on, and whether the granny flat can be rented out separately from the main house.

Pros and Cons of Each Dwelling Type

Here’s a table outlining the pros and cons of each property type when it comes to property investment:

Remember, the right property type for your investment will depend on your individual circumstances, goals, and the specific dynamics of the local property market. Always do thorough research and consider seeking advice from a property investment professional before making an investment decision.

Conclusion

As we’ve explored, the Australian residential property market offers a wealth of opportunities for investors. Whether you’re drawn to the privacy of standalone houses, the balance of townhouses, the urban convenience of apartments and unit blocks, the luxury of villas, or the versatility of duplexes and granny flats, there’s a property type that can align with your investment goals.

However, it’s important to remember that property investment isn’t a one-size-fits-all endeavor. Each property type comes with its unique benefits and challenges, and what works for one investor might not work for another. Always consider factors such as location, market trends, your budget, and long-term investment goals when choosing a property to invest in.

Lastly, consider seeking advice from property investment professionals. They can provide valuable insights into the market, help you understand potential returns on investment, and guide you through the process of buying and managing your investment property.