Written by: Toby Limbrick | 21 Jun 2023

House or Flat: Which is the best investment?

It’s the biggest question in property investment: house or flat? Some people seem to think there is a trick to it or one sure right answer, when in actuality any property investment is a smart choice. What it mostly comes down to is personal preference and what works best for you in your position as an investor. Before you take a look at our latest auction catalogue, consider some of these pros and cons for each and see what’s the best option for you.

Advantages of a flat investment:

1. More central location
You’re typically more likely to find a flat over a house in a city or large town, making them the more popular option with renters looking for somewhere close to their workplaces, schools, and amenities, so you’ll never be short of applicants. Being on the smaller side over a house, they’re likely to attract young single professionals or students, who could be more likely to pay a higher rent price to secure a property that meets their needs.

2. Cheaper option
Even a good quality flat is typically less expensive than a house – sometimes up to two thirds of the cost. The cost of maintaining the building as a whole is shared and the freeholder (or the managing agent) will typically organise the any repairs or upkeep as is needed. You’ll more than likely be liable to pay management fees, but generally speaking, the maintenance and bills associated with owning a flat are less than a house.

3. Chance to buy more
As flats are less expensive than houses, you could buy several properties instead of just the one and build up your portfolio. It also means you are spreading the risk and reducing the impact if one property goes untenanted for a while, and not placing all your eggs in one basket.

Disadvantages of a flat investment:

1. Leasehold tenures over freehold
Most flats are leasehold properties. This means you have to be aware of any service and ground rent charges and related costs written into the contract. The length of the lease might also affect getting a mortgage and the properties resale value, so it’s worth checking the lease length before purchasing.

2. Less potential for expansions or improvements
There are limits on how much you can improve upon a flat. There isn’t much space to be converted and there isn’t any potential for extensions, or even some cosmetic upgrades. In some cases, you may also need permission from the freeholder before making improvements so would need to check your lease. There are modernising upgrades you can do but there is far less value to be added than with a house.

3. High tenant turnover
The type of tenant a flat is going to attract is typically going to be less fixed in their current situation than one seeking a house. Young professionals and students usually seek out flats, and are more likely to move on in a few years than a house that a family will settle down in. A high turnover rate can be costly, time consuming and generally, just extra hassle.

Advantages of a house investment:

1. Attracts long term, desirable tenants
Houses tend to be popular with families and those looking to settle down in the long term in quieter suburban areas. As houses are much more of a financial commitment, you’re more likely to find affluent tenants who are willing to stay for a longer period and will maintain the property themselves. Houses typically come with some kind of garden space, that attracts those with children or pets.

2. More potential for capital growth
Houses usually grow in capital value far more than flats. Freehold houses have no service charges, and no risk of having to pay hefty fees for lease extensions, if needed, later down the line.

3. Potential for expansion and improvement
There are many more ways to improve a house over a flat due to the much larger size and owning the property outright. They can be developed, converted, or extended, not to mention any modernisation or cosmetic changes that will make a drastic difference too and add much more resale value.

Disadvantages of a house investment:

1. High costs
Houses are simply more expensive than flats, so you are making a much larger, singular investment. Rental yields could be lower too due to the initial large investment, and there are also higher stamp duty and interest costs.

2. Much more maintenance
Houses can require far more upkeep and maintenance than a flat as they are typically larger and there’s more potential for things to go wrong. You are responsible for the entire building as the freeholder and usually a garden too, which adds to costs and time investment.

3. Costly repairs
Older properties can require extensive modernisation and upgrades to comply with current standards. Given the new energy standards being brought in, things like boilers, windows, insulation, would need to be improved. Older houses may also require expensive refurbishment to compete in the rental market.

As previously stated, buying a property – whether house or flat – is always going to be a good investment. According to the Guardian, in the current UK market, it is estimated that a third of millennials will rent a property for their whole life, so there is no lack of interest or commitment. Work out what type of property is right for you and get involved.

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