Property investors in the UK are increasingly setting strong yields in their sights, and investing in a flat could be set to grow in popularity for a number of reasons.
Choosing the best property type when investing in the UK can depend on a wide range of factors, from location to target tenant to your overall investment goals, including whether you want to rent the property out for a period of time to reap the rental income.
Opting for an area of high demand has recently been touted as one of the top ways of securing the best returns, as this can not only mean the strongest rental yields but also the fastest rate of capital appreciation.
New research has also indicated that investing in a flat in the current climate could be another way of maximising your returns – although this trend is nothing new, with flats and other small properties, particularly those with higher energy efficiency, proving hugely popular among tenants looking to save on their monthly living costs.
Is smaller better when investing?
If your target tenant is families in a suburban area of a town or city, for example, then that location might lend itself better to a small or medium sized house, which might see a higher level of tenant demand. Therefore, smaller might only be better if you are in the right location.
However, according to research from Inventory Base, investing in a flat can generate the best yields overall, offering an average yield of 6.4% for landlords across the country. Flats have also seen the greatest level of rental yield growth, says the report, with monthly rents rising at the highest rate of all property types with a 9.3% spike over the past year.
When comparing this to property values, where apartments have actually seen a greater dip in average property price than any other type of housing, of -0.9%, this actually means that the average rental yield for an investment flat rose by 0.6% over the past 12 months. This compares to 0.4% for a terraced home, and 0.2% for a semi-detached and detached property.
Other reasons to invest in a flat
While targeting the strongest rental returns is certainly a priority for a large majority of buy-to-let landlords and property investors at the moment, there are numerous other factors to consider to ensure you are meeting your investment goals.
Investing in an apartment is generally the most accessible option to investors, as it tends to be the most affordable property type in many areas. This means more first-time investors, or those with a smaller amount of cash to spend, can often still invest in a flat and reap the rewards.
For those looking to diversify their portfolios, the more affordable price point of apartments can be another major draw. Investors may be able to invest in multiple apartments and let them out to multiple tenants, as opposed to investing in one large property, for example, allowing them to spread the risk.
Energy efficiency is also a major talking point among buyers and tenants alike, and this looks likely to become even more crucial as time goes on. Flats tend to be much cheaper to run than houses, ensuring they appeal to tenants looking for lower monthly costs as well as a more comfortable home to live in.
A smoother process
Sián Hemming-Metcalfe at Inventory Base, said: “Flats not only offer buy-to-let investors a generally more affordable entry point for their initial investment, but they also benefit from a rental market that sees higher tenant demand and, consequently, stronger rental price growth.
“While the capital appreciation may not match that of other property types, flats come with a host of advantages for investors, including lower running costs and a smoother process when it comes to renting and managing the property.
“Efficiency is crucial for managing the bottom line, and this is where detailed and accurate property reports become indispensable. These reports document and maintain all aspects of the property, significantly reducing the risk of disputes and costly repairs.
