Houses VS Flats: Where should you invest?

Unfortunately there isn’t a right answer to this one! It really does come down to your own preferences and current position. Many investors will only invest in houses whilst others swear by flats. To help you decide on whether to invest in houses or flats we’ve created the infographic below to highlight the key differences:

Houses-VS-Flats-infographic

So where should you invest?

Personally, we have always invested in houses. The majority of houses are freehold and that’s the main reason we prefer them to leasehold flats for investment purposes. With freehold ownership comes control and peace of mind, the property is wholly yours to do as you wish with it (within reason!). There is no risk of leases running low and impacting the properties value, nor is there there the worry that the freeholder will not maintain the outbuildings and communal areas sufficiently. In addition, with houses there is often the potential to extend or add value via a loft conversion or conservatory, something that is impossible with flats.

However, this is not to say you should avoid flats like the plague! Flats can be a great step onto the property ladder and a cheaper way to get your first investment property. Often the asking price between a 2 bed flat and a 2 bed house for example can differ by tens of thousands, yet the potential rental income can remain similar. For obvious reasons, this can seem very appealing! If you are thinking about buying a flat we would recommend following a 3 simple steps to avoid problems further down the line:

  1. 125 years lease: Always check the length left on the lease. When it gets down to around 70-80 years, the properties value is likely to start suffering. If you plan to hold the property long term this may not be a problem. However, do consider that selling the property further down the line with a 50-60 year lease may prove difficult. Some properties come with a 999 year lease, whilst most others started with one lasting 125 years. Leases can of course be extended but as a precaution we would always avoid buying anything with a lease less than 125 years.
  2. Due Diligence: As usual, make sure you do your due diligence with regards to the area, local prices, potential growth and likely rental income. With flats, you need to pay more attention to the figures and work in ground rents and service charges to your monthly costs. Although you do not have to pay buildings insurance (the freeholder will cover this), the service charges, particularly in central city locations can often turn a positive gross yield into a poor net yield! Make sure you check the current charges on day one.
  3. Research: Speak to other leaseholders in the apartment block if you can. Find out if there have been any issues with neighbouring residents in recent years. Also, try to find out how well the freeholder (and other leaseholders!) look after the property. Are repairs often left ignored? How well is the building maintained? Has there been issues with other leaseholders not paying their service charges?

We’d love to hear your experiences with flats and houses, and what your preferences are! Please leave a comment or contact us if you have any questions.