If you’re wanting your new home or investment property to be easily maintained, central, and relatively affordable for a new build, you may be considering a townhouse or apartment. But what are the major differences between the two and how do I weigh these against each other to make an educated decision? In this article we’ll go through the pros and cons of owning a townhouse or apartment and how to align this purchase with your future goals – whatever they may be!
TIP #01: Start with Your End Goal in Mind
The first thing you’ll have to do when it comes to your decision is to think about your end goal. Is this house just a starter home for you? How long do you plan on living here for? Or if you’re going down the investment route, how long do you plan on holding this property for? Are you after high rental yield or capital gains? Both living arrangements offer distinct benefits and challenges, and the choice becomes especially crucial when considering not just the day-to-day living but also the potential for resale. Find out what you’d like to achieve in buying this property over the long term as this may determine whether a townhouse or apartment will suit you best.
Townhouses
Pros:
- Space and Layout: Townhouses often boast a generous amount of space, typically featuring multiple levels which help separate living and sleeping areas. This is particularly appealing for families as a starter house and individuals with flatmates needing their own space. The distinct levels add privacy that is sometimes lacking in single-level apartments.
- Outdoor Access: Most townhouses come with some sort of private outdoor space, whether it’s a backyard, front yard, garden, or deck. This private outdoor area is not only beneficial for personal enjoyment, hosting, and quality of life for pets, but also adds considerable appeal in the real estate market when it’s time to sell.
- Low Maintenance: When buying new, having a smaller yard and shared spaces, you can expect the upkeep of your property to be minimal.
- Good Location: Due to their volume and density, you can get townhouses in some great locations all around New Zealand. This can be a great option for first home buyers who want to remain close to where they’re currently renting.
- Good capital growth and yield: Townhouses often have a good mix of capital growth and yield making them a good choice for investors. Townhouses go up in value faster than apartments.
Cons:
- Renovation challenges: Renovations can also present challenges for townhouse owners when it comes to reselling. If you want to make significant changes to your townhouse, such as adding an extension or altering the layout, you may need to get approval from the residents’ association or adhere to specific guidelines set out by the development. Changes to layouts are often quite strict when it comes to renovations.
- Less privacy: This con depends on the company you go with. If they have a forward-thinking architect the houses will face away from each other or at least be offset from one another.
- Additional costs: As townhouses have shared driveways and grounds, they usually have annual or monthly residents’ association fees to take care of the maintenance, issues, and any upgrades when or if they’re needed.
The difference between residents’ associations and body corporates
Body corporates are compulsory under the Unit Titles Act. Unit titles are common with apartments. You own the inside of your apartment, but you co-own the building, the common areas, and the land underneath.
Residents’ associations are slightly different. You own the land underneath your townhouse but you co-own any of the common areas with your neighbours i.e. driveways, car parks and shared gardens.
Apartments
Pros:
- Affordability and Urban Living: Apartments are generally more affordable. They can offer a practical entry point into the housing market, especially in urban centres. Their location often means better access to city amenities like cafes, shops, public transport, and cultural activities, making them attractive to young professionals and downsizers.
- Low Maintenance: The responsibility for building maintenance lies with the body corporate, not the individual owner, which means less personal hassle and potentially lower costs for routine exterior upkeep.
- 3. Security Features: Apartments often come with enhanced security measures, including CCTV, secure parking, and gated entries, which can be a significant drawcard for residents concerned about safety.
- Good rental yield: Apartments tend to have great rental yield. If this is most important for you as an investor, then this option may be right for you.
- 4. Amenities: Some of the bigger apartments will often have shared amenities such as pools, saunas, gyms and outdoor areas which can be a nice perk.
Cons:
- Space Limitations: Apartments typically offer less space than townhouses, which can be a significant drawback for those needing extra room or desiring more separation within their living environment. This can be an unattractive living situation for growing families – something that first home buyers should keep in mind.
- Body Corporate Fees: These fees can be substantial and are subject to increases, depending on the building’s age and condition. Unexpected repairs can lead to significant levies, impacting the affordability.
- Risk of Over-supply: In cities like Auckland and Wellington, the rapid construction of new apartments can lead to an oversupply, depressing prices and making some apartments harder to sell.
- Slow capital growth: Unlike houses and townhouses, apartments have the slowest capital growth. If you’re an investor looking for both capital growth and yield, an apartment may not be the right fit.
Making the Choice: Living and Reselling
The decision between a townhouse and an apartment should be guided by several personal and market considerations:
- Personal Lifestyle Needs: If you value space and an outdoor space with a touch of community living, a townhouse is ideal. For those who prioritize location, convenience, and easy maintenance, an apartment may be the way to go.
- Financial Considerations: Townhouses generally provide a better prospect for capital appreciation due to their larger size and land value. However, the higher purchase and maintenance costs must be factored in.
- Resale Considerations: Townhouses might appeal more to families or those looking for a ‘house-like’ feel without the maintenance of a standalone property. Apartments are the slowest to go up in value, so you’d need to hold onto it for some time before you can resell it for a profit.
When it comes to real estate investment in New Zealand, both townhouses and apartments present attractive opportunities, each with their distinct advantages and challenges. Choosing the best option depends on various factors including location, market trends, personal financial goals, and lifestyle preferences whether it’s a starter home, your next home, or is going to be used as an investment property.
If you’re needing some help with gaining pre-approval for your first home purchase or investment property purchase, get in touch with us and we’ll help you put your best foot forward with the bank.
