Should I invest in a unit or a house?

Property investors are faced with an important choice: whether to purchase a house or a unit.

While both options can offer excellent investment prospects they each have pros and cons that need to be assessed – with your own objectives and financial circumstances in mind.

Return on investment – An old real estate mantra is that houses offer stronger capital growth prospects because they incorporate land – which is a finite resource.

Units however can also offer solid returns if selected carefully; they are also currently showing growing investment appeal as more and more Australians become attracted to inner-city living.

In terms of whether a house or unit will be right for you, this really depends on the individual property itself.

Houses are usually more popular with families and may attract longer term and relatively stable rental incomes. Moreover, as a family home your tenants may be more akin to showing some ‘house pride’ and look after your investment.

Units on the other hand may be more popular with younger people who may be less inclined to look after your property. They may also house more people than set out in the lease agreement, adding to additional wear and tear and subsequent increased maintenance costs.

Yet with units typically closer to the city centre, demand may remain strong, allowing you to keep rental rates high – this particularly holds true in the current market.

These are very general guidelines so it’s important to assess rental prospects on a case-by-case basis, looking at factors such as location, amenities, future infrastructure plans, transport and local entertainment options.

Price point – If you’re on a budget units are often a more affordable choice for investors.

For example, the median Brisbane unit value sat at $325,757 in October 2008, according to Residex – $125,566 less than the value of a median house. However some well-priced homes may be available on city fringes and in the suburbs, so do your research to see what’s available in the current market.

Maintenance – Investing in a house will generally require more hands on time and effort. For example, as well as the house itself (which are typically larger than units) you’ll need to keep maintenance up on the land. Moreover, council rates and other levies may cut into your rental returns. On the flip side, units can incorporate hefty strata fees.

Remember, choosing your investment property is very much an individual choice – the rule of thumb is to look for quality, location and be sure to do your homework.