Although every investment should be assessed on its own particular merits, there are some fundamental matters to be considered when deciding which is best – house or flat.
Supply and demand
Apartments are certainly much more popular with the mobile population of many inner city locations. Career orientated young professionals require the flexibility and ease provided by an apartment. Some also enjoy the status symbol of chic and fashionable style living that a modern apartment bestows on its occupier. Others just want the freedom to socialise away from their accommodation rather than in it, thus space becomes irrelevant and less is preferable for these busy individuals.
Houses gain in popularity out of city centres. Additional living space and a garden become important elements for couples that have or are planning to have a family. Others aspire to live on their own ‘estate’, without having to take into account or be irritated by those living above or below them.
Supply and demand is perhaps the most crucial of all considerations when deciding whether to invest in a house or an apartment. They are location specific qualities and thorough research before purchase is essential.
Bear in mind that because apartments are more popular and more profitable, developers build more of them – check with local letting agents to assess whether an oversupply exists in particular areas.
Experienced agents will also suggest the type and size of property to buy and where to invest to get the best returns, particularly if they think they may be employed to let and manage the unit.
Purchase cost
The days have long passed when the price of an apartment was usually less than that of a house. Style, size and location are now primary valuation driving factors, particularly within inner city boundaries.
Fashionable high-rises and des-res conversions outclass and out cost many of the more traditional family style homes, so the conventional theory that apartments are exclusively for the financially prudent is no longer the case.
While cost will always be a major consideration, if not the major consideration, the issue of which is cheaper to buy is more blurred these days.
It is worth remembering that while ground floor apartments cost about 20 per cent less than those on upper floors, they are perceived by tenants as being less secure and are therefore more difficult to let. The saving on capital expense at the outset may not cover the loss through voids over time.
Permissions to let
Most modern purpose built apartment blocks are leasehold and most leases prohibit letting; but the headlessor cannot withhold permission unreasonably.
There may be a one-off or annual administration charge associated with the headlessor granting permission and this fee will need to be taken into consideration when calculating the anticipated yield.
Those interested in buying an apartment should also investigate any leasehold restrictions such as being forbidden from keeping pets, as these will need incorporating into the tenancy agreement.
Leasehold house owners suffer from the same restrictions, but there are more freehold houses on the secondary market than freehold apartments – so it is less likely house buyers will have to deal with such complications.
Advantages
There are significant ‘set-up’ and ‘ongoing’ costs associated with investing in buy-to-let houses and apartments. There are also practical reasons why one type of property might be better suited to your own particular situation and circumstances.
The following represent the most prominent advantages and disadvantages of buying either a house or an apartment intended for letting:
HOUSES
Advantages
A garden area is an asset and encourages a wider range of tenants to apply
Tenants attracted to houses tend to move less frequently than those in apartments, so rental periods are longer, which means less time and money is spent finding new tenants
Unless situated on a recently built development, houses tend not to have a service charge associated with them
By avoiding service charge and management fees, the owner can tender for the most economical contracts for repairs, building insurance and other services
Although the initial purchase price may be higher, capital growth is likely to be greater
Owners and tenants will be less disturbed by noise from neighbours above or below
With no other households residing above, there is no risk of damage resulting from leaking pipes, washing-machines, etc
Disadvantages
Garden maintenance will be an added cost and inconvenience when the property is empty
It is often more difficult to find suitable tenants for houses, which results in longer empty periods and greater advertising costs
Houses cost more to maintain, because they are larger and have more exterior surfaces and materials associated with them
Houses are more vulnerable to intruders and vandalism, particularly while they are empty
More space means more furnishings and more items requiring repair or replacement per tenancy
More furnishings also mean creating a more comprehensive inventory … and more time to check it at the start and end of each tenancy
Council tax, gas, electric, water and buildings insurance are all likely to cost more. The landlord will be liable for these while the property is empty
APARTMENTS
Advantages
Generally, they cost less to buy
They are more secure and are perceived by tenants as safer to live in
Less space means less carpets, appliances and furnishings to buy, repair or replace
All on one level, so more suited for disabled or elderly tenants
Apartments are more popular amongst renters than houses are and they attract young professionals, who are the most ideal group to rent to
The hassle of dealing with most exterior maintenance is removed by virtue of a mandatory service charge and management agreement
Utility bills, insurance and council tax tend to be less expensive
No garden upkeep to worry about
Disadvantages
They are susceptible to damage from burst pipes, leaking showers and washing-machines from properties above
Tenants are more likely to leave rather than renew their tenancy, if they have suffered from noise or other adverse behaviour from neighbours living above or below them
Apartments usually offer reduced living space and less storage compared with houses
Some apartments do not have full gas central heating but have storage heaters instead – some tenants will perceive this as disadvantageous
Apartments invariably have communal areas such as gardens, a stairway and hallway. This may mean tenants will have to ‘put up with’ other people’s clutter, untidiness or unruly behaviour
Apartment blocks are a more mobile population, so people living in them don’t tend to develop neighbourly relationships
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Daniel Peacock