It’s the age-old question that most investors are likely to find themselves wondering at one point or another – which property type is best for Buy-To-Let? Houses and apartments both have their own strong selling points, so knowing which one would work best with your financial goals can be one of the most challenging parts of investing, especially post-pandemic.
With more investors questioning their choices, as the property market adapts to the new post-Covid landscape, I have compared the respective merits of houses and apartments when it comes to Buy-To-Let investments.
While the UK property market weathered the storm of the last few years relatively well compared to other investment assets, the pandemic has nonetheless shifted tenant demands across the country, meaning investors need to be aware of what types of homes their renters are seeking.
CAPITAL GROWTH AND YIELDS
Choosing between houses and apartments is usually one of the first decisions an investor will need to make when Buying-To-Let but is also one that relies heavily on an individual investor’s investment goals.
You need to be asking yourself the question … “Are you looking for short-term returns or are you hoping for bigger price increases in the long-term?”
Knowing what you want out of your investment will usually make choosing between houses and apartments much easier. Apartments offer more competitive rental yields than houses – especially if they’re in popular locations, such as Sheffield, Leeds, and Manchester city centres.
For example, research has found that in Sheffield, houses are averaging a 4.42% rental yield, whereas apartments are reaching as high as 7%.”
So, for those looking to build higher capital and rental returns, apartments are usually the most popular option. That said, this property type also has a history of competitive price growth.”
While Covid-19 has seen almost every property in the UK increase in value, especially property in Sheffield, even Rotherham and Barnsley, research has suggested that in the 20 years leading up to the pandemic, average apartment prices grew by 256%, whereas houses increased by 245% in the same time.
IS SIZE IMPORTANT?
Ah the age-old question …
Regardless of whether you’re investing in houses or apartments, you’ll need to consider the size of the property. Compared to other decisions you’ll make along the way, this may seem like an easy decision to make, but like the houses vs. apartments debate, the size of the property – including the number of bedrooms – you choose will impact other areas of your investments
Bigger properties with several bedrooms typically appeal more to families, whereas studios, one- and two-bedroom apartments generally attract young professionals – who are thought to be the biggest demographic of renters in the local market, especially in Sheffield.
Couples aged 25-49 make up the largest portion of the rental market and stay in rented property for at least three years.
Two-bedroom apartments typically deliver yields of around 5.26% and make up almost half of the rental market. Meanwhile, one-bedroom apartments offer similar returns with an average rental yield of 5.41%, but only make up 31% of UK rental stock.
PROPERTY TYPES BY YEILD, RENTS AND STOCK DISTRIBUTION
Past and current market performance can tell you a lot about a property type, especially when looking at average rents, yields and market distribution. It provides the following stats for the UK at present.
WHAT TO LOOK FOR I A BUY TO LET INVESTMENT?
Whether you’re looking to invest in an apartment or a house – you should be researching the local area and consider the following.
Jobs Market: Half of British workers are willing to relocate for a job, so investing in an area with a strong employment base is key such as Sheffield with its thriving advanced manufacturing park, Doncaster with the Amazon Port distributing throughout the UK and Barnsley with the enormous brand new Hermes distribution centre which is just about to complete. In attracting more tenants to the area and boosting the demand for property, you’ll not only minimise your chances of void periods but it’s likely that rents will increase because of increasing demand.
Area Demand: What’s at the root of a successful buy-to-let?
Nine times out of ten, it’s tenant demand. Without tenants renting your property you’re at risk of void periods, so investing in locations that have strong demand is crucial! Such as Ossett near Wakefield, West Yorkshire.
Amenities: There are several thing’s tenants look for in a rental location – amenities being one of these. Aside from jobs and transport links, having easy access to shops, restaurants, bars, and green spaces is usually a priority for some tenants. This means that for investors, it’s often a good idea to be familiar with the local area or if you plan to invest outside your local area, you will need to form a relationship with a local agent who knows the area inside out and can advise on all up-and-coming areas, as I do for many of my out of area (and out of the UK) landlords/ investors.
Houses Vs Apartments: it’s one of the many debate’s investors find themselves having when buying-to-let, but it’s a decision that will be influenced by other factors. From your preferred tenant demographic to locations and financial goals, knowing exactly what you want from your investment will usually make your decision much easier. The most important thing to remember when building your property empire is diversification, which often means having both houses and apartments within a single portfolio.
If you would like a chat to find out more, feel free to get in touch and as always,
Thank you for reading
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