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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