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Should you invest in a buy-to-let house or flat

by | May 23, 2017 | Advice, Brokers, Client Lenders, Clients

Just Landlords provided us with advice on when an apartment or house can be the best investment option.

Should you invest in a buy-to-let house or flat?

When you are investing in buy-to-let property, one of the first things you will have to decide is whether to invest in a house or flat.

Just Landlords, a provider of 5 Star rated Landlord Insurance, looks at the two options:

Deciding between a house or a flat is mostly dependent on where you want to buy, your budget, what stock is available and tenant demand in the area. You must also bear in mind what type of tenant you want to let to and your overall investment plans.

If you require assistance in making the decision, it is important to speak to a local expert, who will be able to tell you which type of property is most likely to suit your goals and advise you on what you need to consider when purchasing a house or flat.

Although every investor and situation is different, there are some basic principles that you must consider:

  • Houses typically achieve higher capital appreciation than flats, but flats can be more readily available and are in greater demand in cities.
  • Houses are more suited to families and student tenants, while flats are generally more in demand from young professionals and single renters.
  • You are responsible for all of the maintenance and repairs of a house and its grounds. With flats, there is a requirement from all owners in the building to pay for maintenance communally. This means that you share the cost of bigger works, but you must check whether there is a sinking fund in place to cover the cost of the next batch of work – you don’t want to end up with a surprise bill for thousands of pounds worth of work that you didn’t know about.
  • Flats may be subject to restrictive covenants that dictate whether the property can be let, how it can be let, and what residents can and can’t do. Assuming that a house is not listed, you’re likely to be able to do pretty much anything you want to it, but always check if you require planning permission or building control checks.
  • There will more likely be the opportunity to add value to a house through extending or converting. Improving a flat is usually limited to interior decorative/cosmetic changes, although sometimes you can create another bedroom or en-suite.

The greatest difference between a house and a flat is the tenure. Houses are typically freehold, which means that you own the land on which the property stands and are therefore almost completely in control of what happens with it.

Flats, on the other hand, are leasehold, which means that there are certain things you must investigate before buying one:

  • Check how many years are left on the lease, as mortgage providers are less likely to lend when a lease length drops below 80 years. This is because the uncertain future can reduce the value of the flat significantly, as only cash buyers can typically bid for the property.
  • Find out if there are any restrictive covenants. For example, you may not actually be able to let the property at all, or only be allowed to let to one tenant. There may also be restrictions on parking, use of the communal grounds and the type of renovation work you can carry out.
  • Research how much the service charge is, what it covers and whether the ground rent is included. Also, check if there are limits to annual increases.
  • Ask whether there is a sinking fund and when major works (such as roof repairs, water tanks and painting of the exterior) were last conducted.
  • Find out how many of the other flats in the building are let. If none are, then you may receive complaints from other residents, who might not appreciate having tenants in the building.

If you do decide to invest in a flat, it’s important that you make sure the solicitor or licensed conveyancer you use is experienced in dealing with leasehold properties. Bear in mind that their fees are usually higher than for handling freehold transactions, due to the additional legal paperwork involved.

Whichever property type you choose, always target the right tenants to ensure that you prevent void periods and achieve the right rental income.