Is a townhouse a good investment?

Peter Gianoli

If you are considering investing in a strata-titled property such as a townhouse or a villa, it is essential to first weigh up the pros and cons.

Blogger: Peter Gianoli, general manager, Investor Assist

The simple answer to this question is ‘yes, a townhouse is a good investment’. But, as with any property purchase, the advantages and disadvantages must be carefully considered.

A person’s property investment objectives must be personally tailored to suit their individual circumstances. For many people, a strata-titled property such as a townhouse or villa is an attractive proposition.

Investors just need to realise that there are many different types of strata properties on the market and they shouldn’t all be lumped into the same category. Purchasing in a strata development of five or six units is very different to buying into a multi-level apartment building with more than 100 units.

To understand if a strata-titled property is a good investment, it is important to understand exactly what ‘strata title’ means. Some of the main features of a strata-titled properties include:

  • The title grants ownership of a section or ‘unit’ of a larger building or development;
  • The property can be sold or transferred by the owner;
  • Shared walls, floors, ceilings, facilities and common areas;
  • The complex may include many different types of properties, such as apartments, units, townhouses, villas, duplexes and triplexes;
  • As the owner of a strata-titled property you become a member of the strata company, which entitles you to participate in the management of the overall property;
  • Owners must abide by any by-laws (or rules) of the strata company;
  • Owners must pay levies to administer the strata scheme, such as insurance, maintenance and repair of common property;
  • Owners have the option to attend meetings to discuss and vote on issues including expenses, repairs, improvements and management of the complex;
  • Depending on the type of strata title, any changes or improvements you make to your property may need prior approval by all other owners in the complex;
  • Some strata units may have age restrictions in place, such as 55 years and over for retirement homes.

Unlike in a green-titled property (which has totally freehold ownership) you many find you have greater involvement with the other strata owners due to the proximity of the properties and shared interests in the common areas. As such, when considering purchasing a strata-titled property (particularly in an established complex) it is important to answer a few additional questions before deciding whether it is a good investment. These include:

  • What is the age group/mix of residents?
  • Are the units owner-occupied or rented?
  • What are the costs of the strata fees, levies, rates and insurances?
  • How old is the property and are any major repairs required?
  • Are there any shared facilities (such as a gym, swimming pool or lifts)?
  • What are the rules about pets, car parking and use of common property?
  • What procedures are in place for maintenance issues?
  • What is the financial position of the strata company?
  • How often is gardening and maintenance carried out, and by whom?
  • Does the strata council employ an external strata company to manage the complex?
  • Are there any fees, insurances or claims pending?
  • How are disputes resolved?

The more units there are, the more complex it may become. Often developments with smaller numbers of units are managed with fairly few hassles.

In smaller developments with less units you are not as likely to find shared facilities such as pools and gyms. This will reduce the maintenance and upkeep costs, resulting in reduced strata fees for owners.

So with all these extra considerations in place, is a townhouse a good investment? Yes, buying a strata-titled property has a number of advantages. Firstly, strata-titled developments usually make extremely efficient use of the land – especially if they are designed and constructed by experienced builders. A reputable builder will carefully consider each dwelling and its relationship to others within the development to achieve the best possible outcome for all owners. The efficient use of the land means the cost of the property relative to the land is much cheaper than buying a house – this is often very attractive to buyers. This is particularly relevant in areas where the cost of land is high, such as inner-city locations and popular suburban areas.

Many buyers have their hearts set on a large property in a desirable area but sometimes, due to the popularity of the location, the property can be just out of their reach. By purchasing a strata-titled property in the same area, they don’t have to compromise on location and they don’t have to over-stretch themselves financially. Because the purchase price of strata-titled properties is generally lower, they are usually in high demand, which can result in attractive capital growth in the long term.

Another consideration is that if you buy into a strata-titled complex, there is potential for one of the other owners to sell their property below market value, which could unfairly reduce the value of your property. But this should not deter you from purchasing.

Generally, if the property is in a well-presented complex in a good location, history shows that it should always retain its value, even if another owner sells in a hurry. The important point to remember is that the location is just as important as the property. No matter how appealing a property is, you should not buy if the location does not have the potential for strong future growth.

Strata-titled properties are generally viewed by financiers as good investments for both owner-occupiers and investors, so getting finance should not be too onerous. Depending on the suburb, you may be able to obtain up to a 90 per cent loan to value ratio (LVR) for owner-occupiers and 85 per cent LVR for investors.

Strata-titled properties are well suited to first-time buyers who may be on a limited budget but still want to buy a quality property in a good location, or for experienced investors who may be looking to grow or diversify their portfolio. 

Finally, strata-titled properties are often very popular with prospective tenants because they are safe and secure and there is social interaction. These are attractive factors for young singles, professional couples, female occupants who may live on their own and do not wish to be isolated, and elderly residents who prefer daily interaction with others.

The low-maintenance ‘lock-up-and-leave’ lifestyle is desirable to many, particularly as the best strata-titled developments are usually in close proximity to public transport, shops and community amenities. 

So is a townhouse a good investment? If you can find the right strata property in a strong location, it is definitely worth considering.

Peter Gianoli

Peter Gianoli

Peter Gianoli joined ABN Group in 2011 to establish Investor Assist. Peter has more than 15 years of experience in the property industry working across some of the country’s premier development projects and throughout his career has overseen the sale and settlement of properties worth in excess of $1bn.  Peter is also a highly sought after public speaker and has educated audiences throughout Australia and around the world on topics including property marketing and investment.

Is a townhouse a good investment?
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