The property you choose as an investment determines how much you can borrow, what rent you'll collect, and how much you'll spend on maintenance and body corporate fees.
A unit in a higher-density development might deliver stronger rental yield but softer long-term capital growth. A freestanding house might require a larger deposit but offer more control over renovations and fewer ongoing fees. The choice depends on what you're optimising for and how much equity or cash you have to work with.
Units Suit Investors Chasing Yield Over Growth
Units typically offer higher rental yields because purchase prices are lower relative to the rent tenants are willing to pay. A two-bedroom unit closer to public transport or employment hubs will often rent for a similar amount to a house further out, but the unit costs less to buy. That means your rental income covers a larger proportion of your loan repayments.
Consider an investor who buys a unit for $600,000 in a suburb with strong rental demand. Weekly rent might sit around $650, delivering a gross yield above 5%. The same investor could buy a house for $950,000 in a neighbouring suburb, but if the rent only reaches $750 per week, the yield drops below 4%. The unit generates more passive income relative to the loan amount, which matters if you're relying on rental income to service the debt or you're planning to hold multiple properties.
The trade-off is that units in high-density areas tend to grow more slowly in value. When supply increases through new developments, vacancy rates can rise and rental growth flattens. Over a decade, the house might appreciate more in percentage terms, but the unit will have delivered stronger cash flow in the meantime.
Houses Offer More Control and Fewer Shared Costs
When you own a freestanding house, you're not paying quarterly body corporate fees or special levies for building repairs you didn't approve. You also have full control over renovations, extensions, and cosmetic improvements that can increase the property's value or rental appeal.
Body corporate fees on units can range from $1,000 to $5,000 per year depending on the facilities and age of the building. Those fees are not tax-deductible in full if they include contributions to a sinking fund for future capital works. For an investor holding the property long-term, those costs compound. A house avoids that entirely, though you're still responsible for all maintenance yourself.
Houses also tend to perform better in suburbs where land is scarce. If the area has limited development potential due to planning restrictions or geography, a house on a decent block will appreciate as demand increases and supply remains constrained. That's less true for units in areas where developers can keep building upwards.
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Lenders Treat Different Property Types Differently
Your investor deposit and loan to value ratio can vary depending on the property type. Most lenders will lend up to 90% of the property value for a standard house or unit, but if you're buying a studio apartment, a property in a high-rise building with more than 50% non-owner-occupiers, or a unit with a floor area below 50 square metres, some lenders will cap your borrowing at 80% or decline the application altogether.
That means you might need a larger deposit for a small unit than you would for a house, even though the unit costs less. It also means some property types are harder to refinance later if you want to leverage equity for portfolio growth.
Serviceability is another factor. Lenders apply a discount to expected rental income when calculating your borrowing capacity, and that discount can be larger for units in areas with higher vacancy rates. If you're buying in a suburb where supply has increased rapidly, the lender might assume a lower rental income than you're actually collecting, which reduces the investment loan amount you can access.
Townhouses and Torrens-Title Units Sit Between the Two
Townhouses and torrens-title units combine some of the benefits of both property types. You typically get more space than a unit, lower body corporate fees than a high-rise apartment, and better capital growth potential than a standard unit in a large complex.
Lenders generally treat townhouses the same way they treat houses for lending purposes, so you're less likely to face restrictions on loan to value ratio or property type exclusions. The trade-off is that purchase prices sit somewhere between a unit and a house, so your rental yield might not be as strong as a smaller unit but your growth prospects are better.
If you're planning to hold the property long-term and eventually sell to fund retirement or financial freedom, a townhouse in an established suburb can offer a middle path. You're not paying excessive body corporate fees, you still have some outdoor space, and the property type appeals to a broader range of buyers when you eventually exit.
New Builds vs Established Properties Change the Equation
Buying a new apartment off the plan can unlock depreciation benefits that significantly reduce your taxable income in the early years. You can claim depreciation on fixtures, fittings, and the building itself, which can turn a negatively geared property into a stronger tax deduction without affecting your actual cash flow.
Under the recent budget changes, investors who buy new builds after 12 May 2026 can also choose between the 50% capital gains discount or the new inflation-indexed method when they sell, meaning they retain the more favourable tax treatment. Established properties purchased after that date will only have access to the new indexed method from 1 July 2027.
The downside is that new builds often come with a price premium compared to established properties in the same area, and they can take time to settle. If the developer delays completion or the market softens before settlement, you might be locked into a contract for a property that's worth less than you agreed to pay. That risk doesn't exist with established houses or units where you're buying what already exists.
Negative Gearing Still Works, But Only Against Property Income
From 1 July 2027, if you buy an established residential property after 12 May 2026, you can only offset rental losses against other residential property income or capital gains, not against your salary. That changes the appeal of negatively geared investments for PAYG professionals who were previously using rental losses to reduce their tax bill each year.
If you're holding multiple properties, you can still use losses from one property to offset income from another, so the changes matter less if you're building a portfolio. But if this is your first investment and you're relying on negative gearing benefits to make the numbers work, you'll need to carry those losses forward until you sell or until the property becomes positively geared.
New builds remain exempt from this change, so if tax deductions are a priority, buying a new unit or townhouse might deliver better after-tax returns than an established house, even if the house has stronger growth potential.
Which Property Type Matches Your Investment Strategy
If your priority is cash flow and you want rental income to cover as much of the loan as possible, a unit in an area with strong rental demand will deliver higher yields. If you're optimising for long-term capital growth and you have the deposit and cash flow to manage lower yields, a house in a supply-constrained suburb will likely appreciate faster.
Townhouses and torrens-title properties offer a compromise, with moderate yields, lower body corporate fees, and better growth prospects than high-density units. New builds deliver stronger tax benefits and remain eligible for the 50% capital gains discount, but you're paying a premium upfront and taking on construction risk.
The right answer depends on how much equity you're starting with, whether you need the rental income to service the debt, and whether you're planning to hold one property or build a portfolio over time. Call one of our team or book an appointment at a time that works for you to discuss which investment loan structure and property type fits your strategy.
Frequently Asked Questions
Do lenders treat units and houses differently for investment loans?
Yes, lenders may cap borrowing at 80% for small units, studios, or high-rise buildings with high non-owner-occupier rates, even though they'll lend up to 90% for standard houses or larger units. Property type can also affect how much rental income the lender will accept when calculating serviceability.
Are new builds still better for tax deductions after the recent budget changes?
New builds purchased after 12 May 2026 retain the 50% capital gains discount and full negative gearing deductions, while established properties bought after that date are subject to the new rules from 1 July 2027. Depreciation benefits on new builds also remain unchanged, making them more attractive for investors prioritising tax benefits.
Should I buy a unit or a house if I want higher rental yield?
Units typically deliver higher rental yields because purchase prices are lower relative to the rent tenants pay. Houses usually offer lower yields but stronger long-term capital growth, especially in suburbs where land supply is limited.
What are the downsides of owning a unit as an investment property?
Units come with body corporate fees that can range from $1,000 to $5,000 per year, and you have less control over building maintenance and renovations. In high-density areas, supply increases can lead to higher vacancy rates and slower capital growth over time.
Can I still use negative gearing if I buy an established property now?
If you buy an established residential property after 12 May 2026, you can only offset rental losses against other residential property income or capital gains from 1 July 2027. Losses can be carried forward, so deductions are not lost, but they can't be claimed against your salary like they could before.
