Guides Houses or Flats? What Kind of Property Makes the Best Investment?

According to Zoopla, there is now a growing divergence between the value of houses and flats. In my experience, this gap becomes especially noticeable when the market gets tougher, as it is right now.

At present, there’s an oversupply of flats in towns and cities. In fact, we’re seeing more properties on the market than at any point since 2012.

So, where does this leave the investor who’s weighing up whether to buy a house or a flat? And what are the key differences between the two?

Housing Standards

Flats have had a tough wrap for the last few years, particularly high-rise blocks. This is largely due to the tragic Grenfell Tower fire and the subsequent requirement for many buildings to be re-clad to meet updated fire safety standards. Even mid-rise and lower-rise blocks often now require an External Wall System certificate to show they comply with current building regulations.

Management vs Maintenance

Another common concern is service charges. I believe many blocks receive unfair criticism in this area. While there are some rogue freeholders and poorly managed buildings, most blocks are professionally and responsibly run. When compared to the ongoing maintenance costs of owning a house, including repairs, insurance, and exterior upkeep, a reasonable service charge can represent good value.

These factors have put significant downward pressure on flat values, but that could present a great opportunity to pick up a flat at a low price.

Renting vs Purchasing

When it comes to rental yield, the return you get from rent versus purchase price, flats typically perform better. Of course, you do need to factor in service charges. But many investors overlook the ongoing maintenance costs that come with letting out a house, which can be substantial.

The Strategy

With the current oversupply of flats, it’s clear they’re struggling in the market. But there’s a potential strategy here: consider buying more than one unit at a time. For instance, purchasing a house converted into three flats could give you flexibility. You might sell two of the flats and retain one, leaving you with a strong yield on the remaining unit, having made a profit from the others.

As I often say, owning more than one unit gives you flexibility that a single house purchase doesn’t offer. In many cases, you can currently buy three flats for the same price as one house.

In recent months, I’ve noticed an increase in the number of multiple-flat deals coming to market at more realistic prices, presenting some strong opportunities for investors.