A question of whether to choose a house or apartment can be simple when you know your end goals.
When investigating the best path for returns many of our investors question whether a house or an apartment is the best place to put their money. While the best place to invest is the place with the safest and highest returns we investigate the positives and negatives of each.
At Baron & Cabot we find many new investors who really like the ideal of a house, and a freehold house when starting to look at property. The logic is certainly there, many believe that a lease cannot be extended and so see a freehold asset as a safer position, while others see the likes of ground rent, or building management as a restriction.
Some investors simply feel that they would prefer to live in a freehold house and thus this should be the best place to put their money.
So what are the benefits of houses for buy-to-let?
Longer term tenants
Often if purchased right and you can afford the investment of a family home you will find that tenants will stay for longer. While a younger professional tenant will stay on average 20months in a rented property a family will often stay longer due to the burden of moving with children.
Autonomy over the property
Although most investors prefer to have a hands off investment, some landlords prefer to be engaged with the property, arranging to have the roof checked or maintained along with the building and gardens themselves. This can often save you some money and improve net rental returns in some instances.
Ability to change status of the property
In addition you may be able to change the status of the property from a house into separate flats to create a significant jump in capital growth. While most of us in the industry have done some sort of refurbishment or upgrade, new capital gains rules here should also be worked into profits.
Significantly the biggest benefit is not having to spend money or time extending your lease when it gets to the last 90 years. On average if your lease gets as low as 90 years you would pay £5,000 plus fee’s to have this extended, by owning the freehold you will never have to do this.
Benefits to buying an apartment for a buy-to-let
Ease of investment
Generally the biggest draw to an apartment with a long leasehold is the ‘arms length’ approach where a client can invest and spend as little or as much time as they want in managing the asset. Most investors want the property investment as a vehicle for better returns rather than additional work. If we are looking for passive income a managed apartment is often a useful route.
Ease of rent
As city centre locations are often the area where most apartments can be found as an investor there is often a bigger pool of tenants ready to rent. Although competition is higher, if priced right you should very rarely see void periods in a property if in a core city centre area.
For the investor looking to build a portfolio apartments often come at the benefit of being fully managed and therefore you are able to invest in area’s with the best returns not just area’s in commuting distance from your own property. This can allow a diversified portfolio to grow lowering your overall investment risk.
The bottom line with houses or apartments should be primarily the return you will get on your investment and then how much work you want to be putting in to it. Investors would be wise to disregard a house because it has more rooms or is bigger if over 5 or 10 years it doesn’t make you as much return on investment as a smaller better placed apartment. Conversely if a house can be easily managed, has a great growth potential and rental yield we should not disregard it just because it is a house.