Houses or apartments: which makes the best buy-to-let investment?

One of the most common questions asked by all investors, especially those looking for a change in their portfolio or just starting out in the property industry is: "is it better to invest in houses or apartments?" (Your Move). The simple answer? This completely depends on what you would like to achieve and what your overall investment plans are.

One of the most impactful differences between investing in houses and apartments is the tenure - houses are freehold, meaning that you as the investor will own the land that the property sits on; whereas apartments tend to be leasehold, meaning that you will have to take into consideration the cost of 'renting' the land from the owner, and possible additional service charges (although within reason these can be absolved in the rental charge to tenants). With this, investors may also have to consider how much work they would like to do to a property. While you will most likely be permitted to make changes to any property that you purchase, there may be stricter restrictions on apartments, especially if you don't own all of the units in the block.

If you are considering investing in apartments there are a few things you should consider: how many years are left on the leasehold; are there any restrictions for possible tenants e.g. parking restrictions; and how much is the service charge and ground rent (Your Move)? It is, however, important to consider that typically the purchase price of apartments is lower than that of houses, meaning that you may still be spending less on your investment even with ground rent and service charges. There is usually also higher discounts on apartments bought in bulk than houses, which could also add to the rental yield or capital gains you can expect (Progressive Property).

Rental yield is something that can make a big difference in an investors decision to go down the route of investing in houses or apartments. Research conducted by Mortgages for Business (2017) found that houses in multiple occupation (HMOs) - covering both houses and apartments but with a higher number of apartments under this type of rental) had the highest rental yield in 2017 at 8.9%; mainly accommodation with students, young professionals and young couples without children. This was closely followed by multi-units (for example, apartments in student accommodation) with yields of just over 8.1%.

While these figures may be essential to investors looking for long-term rental yields, investors who are looking to sell their units on after renting them for a number of years should also consider capital gains when deciding what type of property to invest in for buy-to-let. Recent research from Zoopla (2017), which looked into the capital gains growth of different types of properties over the last 5 and 20 years discovered that semi-detached houses had the highest capital gains growth in the last 5 years, while apartments had the highest growth in the last 20 years.

It's also important to consider the overall profit from your investment; while apartments have seen the slowest capital gains growth in the last 5 years, the higher rental yields that can be gained from this type of accommodation should be taken into consideration in the final sale price you could get for the property if you plan to sell on (Simply Business).

There is no clear better option overall for whether it's better to invest in houses or apartments - it completely depends on the type of investment you want to add to your portfolio, how different types of properties will affect your portfolio, and your long-term goals as an investor.

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