What kind of property makes the best investment? House or flat?
When looking to purchase a property as an investment, it is important to weigh up the pros and cons of each type. For some investors, houses may be the preferred option as there is more control and no ground rent and for others, flats are preferred as they have a lower purchase price and less ongoing maintenance.
Here is a list of pros and cons for each type of investment property.
Advantages of buying a flat as an investment
- Lower purchase price
Flats typically have a lower entry purchase price than comparable houses. The additional benefit of this is that it creates the opportunity to buy more properties and build a portfolio.
- Shared cost of maintaining the building
Fixing larger scale property issues such as roofs or gardens is shared among all owners in a block of flats.
- Strong demand for flats
Flats are easier to rent, especially in metro areas where there is a high demand.
Disadvantages of buying a flat as an investment
- Ground rent and service charges
Unlike houses, flat ownership includes paying ground rate and service charges. Ground rents can increase every year.
- It can be harder to qualify for finance
Some lenders see flats as higher risk. It is also difficult to obtain finance for flats that have leases that are less than 80 years,
- Harder to obtain finance on leases less than 80 years
- Less opportunity to add value
There is no ability to extend, add a conservatory or loft. Any renovations will require the consent of the freeholder.
Advantages of buying a house as an investment
- Longer-term tenants
Houses tend to attract longer-term tenants such as families with children so there is less tenant turnover.
- More potential to increase value
Houses have larger land sizes so there is usually an opportunity to extend. Internal space is also bigger allowing for renovation projects such as loft conversions.
- Houses appeal to a larger cross-section of buyers
Houses appeal to a larger proportion of the housing market including first time buyers, investors and young families.
- No high service charges
Buying a freehold house means that there are no additional ongoing service charges to worry about.
Disadvantages of buying a house as an investment
- Higher investment and start-up costs
Houses are generally more expensive than flats so require a larger investment.
- Maintenance costs
Owning a house means brings many maintenance costs that only the owner is responsible for such as garden maintenance, roof and external pipes. The higher the square footage of a property the more maintenance is required.
- More wear and tear
Houses are more likely to be rented out to families with children which generally causes more wear and tear than a single person or a couple.
As you can see there are clear advantages and disadvantages with buying houses and flats as investment properties. There is no right or wrong type of property overall, only the right property for you. The type of property that is right for you depends on your personal requirements and plans for the property. It is important to always consider what property will deliver on your objectives and bring you the highest return on your investment.
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