Future investments: Property type pros & cons
When thinking about future-proofing your property investments, it’s important to consider the different options open to you. What are the best types of property to buy for investment? Which will provide a better yield? What do I need to think about with regard to stamp duty? So many questions.
As Lettings Manager at Nicol & Co, I keep a close eye on the local rental market. In this article, I’ve put together a brief summary of different property types available to buy locally to help with your future investment plans. Take a look and consider which might work best for you as your next investment.
Flats, apartments and leasehold arrangements are a common choice for many landlords. This is for a wealth of reasons.
First of all, the upfront cost is usually much less and you’d also typically pay less stamp duty on the purchase. Usually, as long as the lease is in reasonable order, they are mortgageable too and are typically good at holding a strong monthly return.
Therefore, if you’re looking to work up a comfortable monthly income, you should certainly consider investing in an apartment.
2-3 Bedroom Freehold Houses
I’ve always considered a purchase of this type to be the sweet spot in the investing world.
Typically, in the right areas, 2-3 bed freehold houses are in the highest demand. Why?
- They usually carry a steady yield of around 5%.
- Tenants usually choose to stay for a comfortable period of time for all parties.
- Associated costs during the day-to-day tenancy are usually minimal.
On the flip side, you could pay more in set-up costs, for example stamp duty is likely to cost more.
Larger Properties (4 beds or more)
If renting out as a domestic letting, I often find that large properties usually have an accidental element to the arrangement. This could be that it was once the family home and family circumstances have changed meaning that letting became a consideration.
People who do this are imperative to the market as there is clearly a good level of demand for rental properties of this type, which can often gather as much interest as that of 2 or 3 bedroom properties.
The real benefit to this type of property is that they have without doubt seen the best capital growth over the last 20 years or so. As long as you have one in the right location, they could become a real money pot down the road.
The flip side is that the rent can often be lower yielding than the ideal value.
New Build Properties
As things stand in 2023, the government is facing significant pressure to build more homes.
For some time now, developments have been popping up everywhere, often where you least expect them.
From a landlord’s perspective, there can be substantial benefits to buying a new build:
- Extensive demand. New build properties stand out in the private rented sector as prospective tenants can rest a bit easier from an upkeep perspective. As a result, they’re often in high demand and the premium demonstrated on the purchase price can often transfer to the letting price.
- Low maintenance and repair costs. An excellent benefit to new build housing is that it’s all guaranteed by the house builder for at least the first year and then subsequently, an NHBC warranty which lasts for a further ten years. This can really minimise the cost of structural upkeep.
- Lower running costs. With modern construction techniques, new building materials and innovative technology like air and ground source heat pumps, day-to-day energy costs of new builds can be significantly lower. This is yet another reason they’re attractive to tenants.
In all instances, I’d recommend looking at the EPC first and determining the points necessary to maintain a grade C. This will ensure longevity in the investment.
Over the coming year, I would also urge landlords to consider the energy efficiency of their portfolio. Can improvements be made? Does your portfolio need to be adjusted to keep up with the gradual modernisation of the sector?
Not only would improvements in energy efficiency make a property more attractive to potential tenants, they could help future-proof the investment by adding significant value if and when you decide to sell in the future.
Thinking of restructuring or adding to your property portfolio? Or perhaps you’re looking at making your first buy-to-let investment? You can see the options we currently have for sale here:
If you’d like to talk about potential options and understand more about the different services we offer, please give us a call on 01905 675 999 or head to the Landlords page on our website.