Flats can look attractive as an investment based on the lower purchase price and the ease of maintenance. But… a flat is very different to a house when it comes to it being part of your lettings portfolio and requires a different set of management skills and some due diligence when purchasing.
So where is your money best placed? It isn’t as straight forward as you might think – let’s take a look at some of the pros and cons for each.
Flats – the advantages
If you are looking to invest in an area where there is strong demand for rental accommodation from single people, young professionals, or even young couples who are looking to start out with a small, affordable property, particularly in town and city centres then a flat can be a sensible choice and easily marketable when you’re looking for a tenant.
In leasehold flats you pay a fixed annual service charge and ground rent so you can budget effectively against the costs where the freeholder or management company will be responsible for the upkeep of flats and communal areas with the cost split between all of the flat owners in the block.
They are easy to maintain, without the worry of external maintenance, you can often budget for cosmetic works and smaller upgrades limited to kitchens and bathrooms.
Flats tend to be on one level therefore easier to remodel and for tenants to move furniture particularly when they are open plan.
You can normally accurately assess the rental return that you are likely to achieve with easy comparable evidence from similar flats often located in the same block.
Houses – the advantages
Houses are freehold which means you own the land and can generally do what you want with it. You can extend the house outwards and upwards as long as you obtain the relevant planning consent which adds value and you can be flexible on the types of tenant that you are looking to attract whether it be families, sharers, corporate lets etc. with the relevant permissions. This gives you more flexibility, a wider access to the market and reduces potential void periods.
Houses tend to appeal to growing families, the benefit of having some outside space provides flexibility, we tend to find that the tenants will stay longer in houses reducing void periods. With more people now working from home, the benefit of outside space is an important consideration.
In a tougher market where you have competition from other rental properties and less of a supply of tenants, you have much more flexibility to make changes to a house to make it stand out from the competition than you can with a flat.
Houses typically include some form of parking, whether it be on street, driveway or garage parking.
Houses can be appealing to longer term tenants if offered on an unfurnished basis enabling tenants to bring their own furniture with them. Saving the landlord the cost of furniture.
Flats – the disadvantages
Lenders sometimes view flats as a higher risk and so are less willing to finance them.
Leasehold flats where you own the flat but not the building it sits in, will have a diminishing lease term and over time may not increase in value to the same extent as a similar sized house.
It can be expensive to extend the lease when the time comes.
Flats are most often found in city and town locations and may not have allocated parking or if they do it is normally limited to just one space.
Flats can have a higher turnover of tenants, tenants will often change to a different environment or outgrow the existing space. Be prepared for the added cost of more frequent end of tenancy cleans and redecoration so that you can attract new tenants. On the flip side, flats are less likely to be empty for long.
Unlike a house you generally can’t extend a flat to add more space, so you are limited to cosmetic improvements only. So it might be harder to increase the value for sale. Other than general modernisation, such as kitchens, bathrooms, and windows, unless the flat is in desperate need of modernisation, it is not a good investment for profit. In this case, the value is all in the rental yield.
Water leaks and noise issues from neighbouring flats can cause problems.
As the landlord you are responsible for ensuring that your tenants comply with the terms of the headlease when occupying the property.
Ease of access and the number of stairs, lift access etc. can all have an impact on the type of tenant you are looking to attract and whether you should consider furnishing the flat or not.
Houses – the disadvantages
Houses require more maintenance, it is inevitable that repairs will be required to the fabric of the building over time and unlike a flat, the cost of these repairs is generally your sole responsibility and therefore it can be harder to budget.
Garden maintenance will be required during void periods particularly in the growing season. Not all tenants enjoy or have time to maintain a garden so if the property has a large garden this can off putting to some but a benefit to others.
Fences, trees and tall hedges are generally the landlord’s responsibility to maintain and can be an added cost that wouldn’t be an issue with a flat.
Houses can cost more to run and therefore you may have higher utility bills when the property is vacant.
House or flat?
Whether a house or a flat is a better investment really does boil down to your particular circumstances - the area you are in, and the amount of money and time you are able to invest.
We are always available to answer questions and give guidance on particular properties for Landlords who are looking to invest in rental property so if you have any specific questions, then please do get in contact. 01865 292032.