A blocks of units investment (an apartment complex with 2 to 10+ individual rental units) is one of the highest-yield, highest-leverage opportunities available to Australian property investors. Unlike a single-family home, you own multiple income streams under one title, benefit from significant tax depreciation, and unlock substantial development potential. For Melbourne investors seeking diversification and cash flow, blocks of units deliver superior returns compared to traditional houses.
Why Blocks of Units Are High-Commission Goldmines
A single-family home sale in Melbourne typically generates around 2.5% commission, equating to $12,500 on a $500,000 sale. A 4-unit block valued at $1.2 million? The same percentage yields $30,000 in commission. Beyond the immediate transaction value, blocks of units offer development potential. If you subdivide or redevelop the site, property values can jump 20 to 50%, multiplying both your commission and your client’s returns. This combination of upfront value and future upside makes blocks of units an essential offering for any property professional.
High-Yield Potential: Blocks of Units vs. Single Dwellings
Consider a 4-unit block in Fairfield, one of Melbourne’s emerging investment hotspots:
- Purchase price: $1,200,000 (equivalent to 4 units at $300,000 each)
- Gross annual rent: $80,000 ($5,000 per month per unit × 4 units)
- Gross yield: 6.7%
- Net yield (after property management at 2%, council rates, insurance, and maintenance): 4.8 to 5.2%
- Monthly cash flow (with 30% deposit and 5.8% mortgage): +$480
Compare this to a single $1.2 million house in Kew:
- Annual rent: $28,000 ($2,300 per month)
- Gross yield: 2.3%
- Net yield: 1.8 to 2.1%
- Monthly cash flow: -$650 (heavily negatively geared)
The blocks of units deliver triple the yield, positive cash flow, and four times the diversification (4 tenants instead of 1). This diversification reduces vacancy risk, as losing one tenant still leaves three paying rents.
Depreciation Benefits: A Tax Goldmine
New apartment buildings depreciate at approximately 2.5% annually on the building value. A $1.2 million block with $400,000 in depreciation-eligible building value generates a $10,000 per year tax deduction. For a high earner in the 37% tax bracket, this saves $3,700 annually, effectively delivering a 0.3% annual rebate on your investment.
Single houses have limited depreciation that phases out over time. Blocks of units maximize depreciation across multiple dwellings, providing sustained tax benefits that improve cash flow and after-tax returns. When combined with negative gearing tax benefits, the tax efficiency of blocks of units becomes even more compelling.
Development Upside: Unlocking Hidden Value
A 4-unit block situated on a large parcel of land might be subdivided into 6 to 8 units. Typical development costs run around $400,000, but the new value could reach $1.8 million (6 units at $300,000 each). Your profit before costs: $600,000. Alternatively, you can sell the property to a developer for a $300,000+ premium, as they recognize the subdivision potential.
Single houses rarely offer development potential. Blocks of units are goldmines for developers and sophisticated investors who understand how to unlock value through strategic subdivision or redevelopment. This is where a well-executed property development strategy can multiply your initial investment several times over.
Best Melbourne Suburbs for Blocks of Units Investment (2026)
| Suburb | Typical Block Value | Typical Yield | Development Potential | Investment Score |
|---|---|---|---|---|
| Coburg | $1.1M–$1.4M (4-unit) | 5.5–6.8% | High (subdivision to 6–8) | 9.1/10 |
| Preston | $1.0M–$1.3M (4-unit) | 5.8–7.2% | High | 9.3/10 |
| Fairfield | $1.0M–$1.2M (4-unit) | 5.2–6.8% | Very High | 9.0/10 |
| Thornbury | $1.3M–$1.6M (4-unit) | 4.8–5.8% | Medium | 8.2/10 |
| Brunswick | $1.2M–$1.5M (4-unit) | 4.5–5.5% | High | 8.5/10 |
These suburbs combine strong rental demand, established infrastructure, and favorable zoning for future development. Preston and Coburg stand out for their high yields and development potential, while Thornbury and Brunswick offer more established markets with lower vacancy rates.
Financing Blocks of Units: What You Need to Know
Lenders typically require a 20 to 30% deposit for blocks of units, with loan-to-value ratios (LVR) capped at 70 to 80%. Interest rates are generally 0.2 to 0.5% higher than standard residential loans due to the perceived higher risk. However, the superior rental income from blocks of units often offsets the higher interest cost.
Most investors use a combination of equity from existing properties and savings to fund the deposit. Cross-collateralization is common, where multiple properties secure the loan, allowing you to leverage equity across your portfolio. According to the Australian Taxation Office depreciation guidelines, structuring your loan correctly maximizes tax deductions and cash flow.
Portfolio Strategy: Blocks of Units as Core Holdings
Experienced investors often hold blocks of units as core portfolio assets, providing steady income while accumulating capital growth. The strategy is simple: acquire a block in a high-growth suburb, hold for 7 to 10 years while collecting rent and depreciation benefits, then either subdivide for development or sell for capital gain.
For those pursuing positive cash flow property strategies, blocks of units are ideal. They generate surplus income that can be reinvested into additional properties, accelerating portfolio growth. Combining blocks of units with single dwellings and dual occupancy properties creates a balanced portfolio that maximizes both yield and capital growth.
Key Takeaways for Investors
Blocks of units investment in Australia offers unmatched income diversification, tax efficiency, and development potential. With gross yields of 5 to 7% in Melbourne’s best suburbs, positive cash flow, and multiple exit strategies (hold, subdivide, or sell to developers), blocks of units represent a cornerstone investment for serious property portfolios.
Whether you are building your first investment property or expanding an existing portfolio, blocks of units deliver the returns, cash flow, and future upside that single dwellings simply cannot match. The key is selecting the right suburb, structuring your finance correctly, and understanding the long-term development potential of each asset. For more foundational concepts, review property investment fundamentals to ensure your strategy aligns with proven wealth-building principles.
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