The UK property market is booming, with investors capitalising on areas of the UK with high growth potential and high rental yields, but many investors frequently ask “should I buy an apartment or a house?”
Within this article, we explore what the benefits are of buying apartments and houses for property investment and also what the areas are that investors should consider.
What are the benefits of buying an apartment?
Apartments offer many benefits for property investors, including:
- Apartments are typically cheaper to buy than houses
- Apartments have higher rental yields due to them being cheaper to buy
- Apartments are easier to manage as there is typically a management company who
- maintain the building and the grounds, which is great for investors not living in the area
- Apartments are in high demand from tenants looking for a home in a central location close to local amenities and their workplace
- Modern purpose built apartments typically benefit from a wide range of hotel grade amenities including gyms, co-working spaces, concierge services, which are massively appealing to tenants
- New apartments are designed with a layout to meet the demands of the modern living, which again is widely appealing to tenants
- New apartments tend to have longer Lease terms and lower ground rent due to Leasehold reform
- New apartments tend to be cheaper to maintain as they typically have 10-year new build warranties and fixtures and fittings are brand new, requiring less replacements when compared to a house
- New apartments have to meet new fire safety standards before they can be occupied, so you know there are no issues with unsafe cladding
- New apartments are required to meet higher levels of energy efficiency, ahead of new regulation coming into effect in 2025
- Supply of purpose new build apartments is still insufficient to meet the demand for good quality private rental accommodation due to the UK supply and demand imbalance
- Diversification is easier with apartments as they can be managed remotely making investment into different cities much simpler
What are the benefits of buying a house?
Houses can also offer benefits for property investors, including:
- Houses are typically sold Freehold where you own the land that it sits on and the building, so could extend or make alterations to add value
- Houses will appeal more to families, which can result in longer-term tenancies
- Houses can offer more space both outdoors and indoors
- Capital growth can be higher, however, as apartments are typically sold whilst under construction investors will see the benefits of capital growth during construction with a small deposit
What should you consider when buying an apartment for investment?
Not all purpose built apartments are the same; therefore, property investors need to ensure that they undertake their due diligence when investing:
- Ground rents can be higher on older apartments, where new apartments tend to have much lower ground rents
- Service charges can be high on older apartment buildings where more maintenance is needed
- Shorter tenancies compared to houses, but good quality apartments in central locations are in high demand and tend to have short rental voids
- Major alterations to the interior of the property are likely to need permission from the Freeholder
- Older apartments may not meet the new minimum energy standards coming into force in 2025, meaning that they could not be rented out
- Older apartments may be subject to cladding issues, which would result in them being un-mortgageable
What to consider when buying a house for investment?
- Houses are typically more expensive and are likely to require higher levels of cash to invest
- Rental yields are likely to be lower with houses as they are more expensive
- Houses can require more maintenance as you are responsible for the whole building and the garden, which can decrease the cash flow from your investment – with apartments, costs for replacements and maintenance is shared
- Houses can be harder to manage for property investors who do not live locally to the property, with trivial maintenance issues costing more as a professional would need to remedy the problem
- Older houses may require very expensive upgrades to meet new energy standards coming into effect in 2025, including replacement windows, doors, insulation, boiler, etc.
- Older houses may require expensive refurbishment to compete with other rental properties on the market
The UK Rental Market
In the UK, it is estimated that a third of millennials will rent a property for their whole life, but property prices aren’t the only factor for this.
Buying a property has become more unaffordable for a lot of people, however, there are other benefits to renting a property to live in. Renting provides a greater level of flexibility, with renters able to move into a more suitable property or different area without the costs of moving if they owned the property, including legal fees, surveyors costs, mortgage application fees and stamp duty land tax.
Moving home is also more of a hassle and time consuming if you own the property, so renting is the ideal option for a lot of people.
Renters can also live in a property that they may not have been able to afford to buy and enjoy living in a larger property in a better area compared to what they could afford to buy with a sizeable deposit and a mortgage.
After the COVID pandemic, many tenants moved back into the cities as the UK re-opened. Many are enjoying their new lifestyle with flexible working and having the amenities of a big city on their doorstep. New developments designed for renters are designed for modern living with on-site amenities including co-working space and bright open plan apartments.
Should I buy an apartment or a house for investment?
Buying an apartment or house will depend on your circumstances and what you are looking for with your investment property.
Typically, investors who buy apartments are looking for:
- High rental yields
- Lower purchase price
- Less maintenance costs
- Lower refurbishment costs
- Hands-off property investment
- Diversification of their portfolio
- Energy efficient property that meets the new regulation
Typically, investors who buy houses are looking for:
- Opportunity to add value with an extension / refurbishment
- Average rental yields
- Lower turn-over of tenant
- Hands-on property investment
- Diversification of their portfolio
We believe that apartments offer a great opportunity for property investors, especially those that are sold under construction where investors can secure excellent savings and incentives. Diversification of a property portfolio is also key to ensure that as a property investor, you aren’t over exposed in one market or to one type of asset.
Explore our range of excellent property investments and book your consultation with one of our property experts today.
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