Houses vs. Flats: A Landlord’s Investment Guide
Over recent years, there has been a charted rise in landlords seeking to expand their property portfolios. If you are one of them and you have already listed properties via an online property agent or letting agency and are looking to add another to your string, then there’s not doubt you’re currently mulling over whether to invest in a house or a flat. Both have their advantages and their drawbacks, and below we will explore each in a little more detail.
What Type of Property Is Best for Investment?
Houses are extremely popular with tenant families who are looking to lay down roots somewhere – particularly if they come with a garden, as many houses do. If the family has a car, they may also be looking for somewhere with a garage which can be used to store everything from their main car to bicycles, exercise equipment or family clutter. Houses also often come with a parking space too, making them doubly desirable if they are located in a place where parking is hard to find – like London.
Houses also tend to have a freehold tenure, making you, the landlord, then owner of the land the house was built on as well as the property. This will make all of the paperwork needed to complete the exchange a lot simpler, and lead to less legal costs. Critically, it will leave you in control of absolutely everything, unlike a flat. Houses also grow in value much faster than flats, which are often leasehold and can see value diminish as the tenure itself diminishes, making them tougher to sell. Houses also have the potential for structural renovation, improvement and expansion, albeit often with planning permission.
The most treasured and desirable aspect of a house regarding potential tenants, is the space. Renters with a healthy income won’t want to be lacked like sardines into a property – save that for the students. Instead they’ll want a home with plenty of room and from which they can work, if needed.
Is It Worth Investing in Flats?
Flats are certainly not to be discounted when it comes to investment. In prime town and city locations they can be extremely desirable, particularly if they’re close to tenants’ work, amenities or local nightlife.
They are also much, much cheaper to buy than a house and particularly prudent for the first time landlord – not to mention any financial incentives which may be a factor when purchasing a new-build. They are highly flexible living spaces and often sought out by working professionals.
One thing to watch out for regarding flats is that they often come with restrictive covenants. Whereas houses sometimes do, too, there are far less likely to affect you as a landlord. An old house for example, many have a restrictive covenant that states it can’t be used as a public house. A flat, however, may have one that forbids a certain type of tenants from renting it out – such as a family member or subletter, or something which states that you’re not able to alter the infrastructure in any way.
Flats do also sometimes come with less maintenance worries. As a landlord of a private house, everything is down to you. Yet with a flat, there may be many communal areas such as hallways and outdoor spaces which fall on the shoulders of the development’s owners. However, you may have to pay ground rent and annual service charges on a flat. These are related to above services and maintenance issues which are taken care of on your behalf, leading to unexpected charges for those who have not studied the paperwork.
As you can see, both types of property have both advantages and drawbacks, making it extremely prudent to consult property agents as well as mortgage brokers before you make up your mind.
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As a landlord you will gain passive monthly rental income from your buy to let and capital appreciation as the years flit past. And it’s exactly this capital appreciation ...
February 12, 2021
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