Should you buy the flat in Henry Close?

This article was featured in The Chichester Observer's property section on 14th August 2014.

I was asked last week to take a look at a property a landlord was considering purchasing to rent out.

It was a one bedroom flat in Henry Close that was “ideal for buy to let” according to the estate agent. For sale at £135,000 and with similar properties having rented for £625 per month, the flat would give a healthy gross yield of 5.6%.

I compared this to the three bedroom house for sale on the same street at £270,000 that would rent for around £875 per month. The house would therefore generate a less notable 3.9% yield.

On paper the flat is a quintessential buy to let property; one or two bed flats being favoured by landlords for their lower entry price and seemingly being tailor made for young professionals who either can’t (or don’t want to) buy their own property.

Delving a little deeper may take the shine of this supposedly ideal buy to let purchase though. Factor in the unavoidable ground rent and service charges and the annual yield slides closer to 4.7%.

We should also consider the long term impact of capital growth upon an investment. Comparing the historical performance of the one bed flat and three bed house on the same street gives an excellent reference point. In 2010 the 3 bed house sold for £230,000, meaning it has increased in value by 17% over the last 4 years. This compares to only an 8% rise over the same period for flats on the street.

Over a longer timeframe this discrepancy is magnified as the same 3 bed house sold for £71,000 in 1997, meaning it has risen 380% over the last 17 years. This compares to a rise of ‘just’ 321% over the same period for flats on the street.

I also like to consider how much value for money I’m getting by looking at the floorplan. The flat offers 487 square feet of space, meaning you’re paying £277 per square foot. Compare this to the house at 1,213 square feet and it’s a comparable bargain at £223 per square foot (plus it comes with a garden and driveway!).

There is also the fundamental argument that houses offer more flexible accommodation to a greater number of people, leading to longer tenancies and less void periods.

So, would I buy the flat or the house? Well, neither as it happens; I’d buy the 3 bed house around the corner on William Road at £240k. It’s virtually identical to the 3 bed house on Henry Close but it would save you £30,000 whilst boosting your yield by over 11%.

If you want to run a potential buy to let property by me, feel free to contact me on 01243 624 599 or via e-mail.

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If you are looking for an agent that is well-established, professional and communicative in Chichester, then contact us to find out how we can get the best out of your investment property.

E-mail me on clive@crjlettings.co.uk or call 01243 624 599.

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