What a question! Everyone will have his or her own theory on this and the ‘right’ answer will only be the ‘right’ answer for them and their situation. Whatever your decision, there is money to be made. Let’s have a look:
When starting to consider an investment project, you need to think about:
> How long am I looking to invest for?
> What is my aim in investing?
The general pattern has been seen to be: the capital gains being better on a house but the yield being better on flats – but these are not the only areas you will need to consider.
+ No ground rent or service charge. This is one of the main areas that attracts people to investing in a house rather than a flat. The property and its land are yours and you are not having to pay anyone for owning the property.
+ You will have complete control of your property. If there are decisions to be made, they are yours alone.
+ Proximity of neighbours (!) Many people will see living in a house as giving that extra degree of privacy that living in a flat just doesn’t.
+ Generally attract longer-term tenants. This will be great for month-to-month cash flow. However, when the tenants do leave, there will most probably be a much higher figure required to spend on the property to prepare for your next tenants. This doesn’t have to be an issue if you make the allowances for it every month.
+ Potential for increasing the value of your property. If you own a house, there is always the oppoutunity to extend or even (with the correct permissions in place) to convert the property into self-contained flats or into a House of Multiple Occupancies.
− Generally higher purchase price and initial outlays including stamp duty.
− More wear and tear to repair. More space generally means more opportunity for wear and tear. This is especially relevant if you have rented to a family, which the larger living space will encourage.
+ Lower purchase price. This will give you the potential to buy more properties for your money and therefore increasing your portfolio enabling you to spread your investment risk.
+ Generally higher yields.
+ Lifestyle trends suggest that the renting of flats is becoming more popular. Flats or apartments no longer have the stigma attached to them that they once did.
+ Maintenance costs are shared and the freeholder or managing agent will organise everything for the work. While you pay for this, the peace of mind as a landlord that everything will be sorted is a great benefit of owning a flat.
− Potentially high ground rent and service charges. Make sure you find these out before purchasing!
− Increasing rents and charges over time. Check your contract with the freeholder to see if there is a percentage increase year on year.
− Smaller living spaces. As well as having fewer rooms, flats will generally have smaller rooms.
− Less opportunity to add value. If you don’t have a loft, basement or garden, then you can’t extend into them!
− Rental trends show that buy-to-let flats generally higher turnover of tenants. Take this into account when/if you choose your lettings agent. Look at how much they charge to find a new tenant and check them in/out.
− Concerns about lease length. The ability to raise a mortgage to purchase will depend on the lease length. The value of the property once the lease drops below 70 years will decrease greatly!
There are distinct advantages and disadvantages for buying either a house or a flat as an investment property. Take your time and work out which will be best your you and your situation.