Does a house have more intrinsic value as an investment than an apartment?

Is an apartment really real estate?

Absolutely, real estate includes the buildings (improvements) on land.

But I was thinking, do apartments really provide this intrinsic value as much as a house?

On average, no. Condos (owned apartments) tend to appreciate more slowly than single-family homes and have less relative intrinsic value.

Edit: As nanoman points out, this is commonly stated but I'm not finding data that supports it, so not sure if it's just realtors saying it to get people to spend more or if it is supported by data.

But imagine if a house and an apartment were exploded/on fire, and are now both flat rubble.

Insurance should be in place in both instances, so barring inadequate insurance or failure of insurance system this should not be a large factor.

The same argument could be made for an apartment, but the apartment would have to divide the same land as the house amongst the 40 unit holders. The actual "land" you (indirectly) own would be really small.

Yes, but not all land is equally valued, apartment building sized plots of land in a large city are far more valuable than equal sized plot in the nearest suburb.

This means as an investor that wants to maximise the amount of assets with intrinsic value, you are far safer with a house right?

On average, yes, but there's no guarantee.

united-states

A condominium or co-op is indeed real estate. It's just usually a smaller amount than a house on private land. But the price is inherently lower -- you usually have less square footage, and you generally have more encumbrances due to rules for common areas. You have a beneficial ownership of the common areas, but this isn't typically fungible on its own.

On the other hand, you also have fewer responsibilities than if you own your own land and house. There's a board of directors that makes decisions that apply to the buildings and common areas, and there's a management company that handles the day-to-day concerns (e.g. cleaning the hallways) -- you're only responsible for your unit. This isn't free, of course -- you pay a monthly fee for these benefits.

So a condo/co-op is appropriate if you don't want to spend as much on the real estate, don't need lots of space, and don't want to be bothered as much with upkeep. That makes it a good starter home before you have a family, or after the nest empties (many retirement communities are condominium ownership).

I think that there are several key considerations missing from this question.

This is not to say that investing in real estate is a bad idea, or to contradict the idea that real estate has intrinsic value... just orthogonal points that need consideration.

Asset Liquidity

Liquidity is, roughly, a measure of how easy it is to get your money out.

For example:

• Bank Account: you can typically dispose of the money as you wish.
• Stocks/...: for the most liquid, you can buy/sell at nearly any time, although it may cost you a bit.
• Real Estate: selling takes weeks to months, routinely, or requires drastically slashing the price.

Asset Divisibility

(For lack of a better word, help?)

If you have $100,000 in the bank, and you need $5,000, you can take them out now. Similarly, if you have a 100 stocks, you can sell 5 out now.

On the other hand, if you own a house, you can't easily just sell the kitchen, or the living room. In theory you would be able to sell equity in the house, but in practice that's rare. You may also be able to secure a loan at the bank with the house as collateral, but expect to pay interest rate.

Portfolio Diversification

Diversification is, basically, not putting all your eggs in the same basket.

You can easily have multiple bank accounts at different banks, you can easily invest in variety of bonds, stocks, ETFs, etc...

Due to the individual costs of a house, however, you'll typically start with a single house (or apartment), and even if you build it up, you'll probably never have much more than a handful or two.

This represents a diversification risk, in that it's much harder to hedge against tail risks. For example, if your handful of properties are all around the same town, and said town gets hit by a hailstorm/flood/..., you may have 5 roofs to repair, and if there's a crunch, it may be hard to find tenants in the meantime. Longer term, just because an area is trending now doesn't mean it'll stay trending, etc...

Real estate is much harder to diversify due to how chunky each investment is (unless you go for equity, of course) and much harder to re-balance due to how illiquid it is.

Conclusion

Intrinsic value is a good consideration, but if you are planning to invest, do beware that there are other considerations you should think about.

This doesn't mean you shouldn't invest in real estate, but it does mean you shouldn't sink all your money in real estate -- due to the above -- and instead treat real estate as only part of your investment portfolio, alongside more liquid, divisible, and diversified assets.

An apartment is real estate for its owner. If you are buying a condo, that is arguably real estate, though with a lot of burdens. If you are renting, the landlord owns the apartment and it is real estate for them.

Note, however, that real estate you live in should generally not be treated as an investment. When you sell it, the money will have to go right into paying for your next housing situation, and any gain in value is likely to be offset by the fact that everything else will have increased in cost over the same time period. And it is relatively hard to sell, generally taking an extended time if you want to really get a fair price for it.

(My house is now worth about 2.5x what I paid for it. But every other house I would want to live in has gone up proportionately. Equivalent-dollars gain essentially zero; it has just kept up with housing inflation. Meanwhile, there have been maintenance costs, and things which I consider improvements but which do not increase value at sale anywhere near as much as they cost to implement.)

The house retains a significant amount of value, because even though the building is gone, the land is still there, and the land has value.

In most places (that I've seen, at least), the structure and the land are two completely separate objects with separate valuations. Buying a house generally includes buying the land that it's on, but there are also people who own a house and rent the land. For example, someone might build a house on land owned by a family member that they rent through a long-term leasing agreement. Also, some jurisdictions have a concept of a leasehold where you lease the right to occupy a piece of property for an extended period of time and can build on it.

Your comparison is a bit unfair because you're comparing owning an apartment to owning a house+land. If you make the more direct comparison of apartment to house (no land involved), then your scenario is equally disastrous for both options. The land is the stable part of the investment since it's a limited commodity and you can't just build more of it (unless you're Dutch). You can invest in land without involving houses or any sort of structure at all.

Lets take the assumption that land holds its value, because it can't de destroyed as true.

You are asking the following - which is better: purchasing an apartment/condo or a house?

If the goal is to have your land investment you are doing it in an expensive way. You are paying for a structure to be built, maintained, and insured.

Some would say you are also living in that structure, or you are renting that structure out to other people thus generating income to pay for the structure and the expenses of owning the structure. But again that is an expensive way to own the land.

You could also purchase vacant land, and then lease the building rights to somebody else. They pay you for the ability to build the apartment, house, office building, factory or strip mall. They are leasing the tights for decades. You don't have to manage renters, or replace roofs. There are still risks: they could build a building, never find tenants and then go bankrupt.

Now back to the original assumption. Land can lose value. A flood can destroy it. The factory next door can leach poison chemicals that make your land worthless. Sure you can insure it. If the factory is to blame then after years in court you will get some money, maybe.

This is a law question. If the apartment complex has a company title, you are buying into a company. The Company holds the real estate.

Even Strata Title, whilst you can deal with it as if it is real estate, there is an owner's corporation.

Could the apartment in question be resumed in isolation? Are you still on the hook for that peppercorn, or only your share of the communal peppercorn debt?

Drifting off topic here. Liquidity and capital gain are different animal for apartments. You also have no real control over costs and delegated legislative powers. Of course houses can have an HOA too. In terms of liquidity, if you must sell, and there are half a dozen identical apartments for sale already in the same building, you need to undercut them to sell.

Mind how you go. If this was Reddit, Vanguard --- would have been brought up by now.

Yeah, you’re spot on with that logic. With a house, you’re not just buying the structure, you’re owning the land outright, and that land keeps its value even if the house is wiped out. An apartment might be functional while it’s standing, but your share of the land is tiny and tied up in the whole building. If the structure’s gone, your stake is basically a sliver of dirt under a pile of rubble. So yeah, from an intrinsic value angle, a standalone house definitely gives you more security.