Property Investing: Flats or Houses ? Up North or Down South ?
Investing in Flats or Houses ?
Investing Down South or Up North ?
Having purchased a good portfolio of flats around 12 years ago in Manchester/London and throughout UK using gifted deposits, and then in the last 3 years purchased houses in Manchester I am well versed to answer the eternal conundrum of whether to invest in FLATS or HOUSES and UP NORTH or DOWN SOUTH.
I will state, hand on my heart, I will not invest in flats again, especially not in London (unless it was an amazing out of this world deal) due to several reasons:
The mgmt. charges of many flats are high, some are ridiculous. I have flats in Leicester worth £ 150k and the mgmt. charges are close to £ 2k due to them employing a concierge for the cars (MY TENANT DOESN’T EVEN HAVE A CAR). Currently we are going to tribunal in several cases due to ridiculous overcharging of service charges.
In some cases I have purchased the freehold of residential buildings so I can have full transparency for the mgmt charges and trust me there are good savings to be had. Savings of 50% on accountancy fees, and lesser savings on gardening, lift maintenance, etc. Basically there is a saving on most property maintenance expenses.
This is another one of those mystery costs of purchasing flats. So, generally many of the flats in my portfolio are 125 year leases, some are 999 too. Leaseholders tend to pay an amount to increase their leaseholder term. I’m fed up with leaseholds, so have been starting to purchase the freehold of residential buildings in which I have flats. Now this is one of property’s hidden gems, not many people talk about this, but it is absolute dynamite and no brainer in the right circumstances. I will write my next blog about purchasing of freehold, it is not as difficult or expensive as one thinks. The advantages of purchasing freehold properties are:
No need to pay leasehold extensions
Leaseholders would pay the freeholders (us) for leasehold extensions
Value of the property goes up once it is freehold rather than leasehold
We have a say in who is the mgmt. agent, and also there is more transparency in service costs.
No need to pay ground rent, and leaseholders ground rent would come to us
Purchase of freehold can be a WIN, WIN situation and it is not as difficult or as expensive as you would imagine.
Ok, now I have answered the question of whether I personally would invest in Houses or Flats, I would like to discuss the debate about investing UP NORTH or DOWN SOUTH ?
There has always been traditionally the divide that if Northern prices were increasing then Southern prices would be down and vice versa. Well, currently Northern prices are up. The places I invest in the outskirts of Manchester the equity growth is around 9%, I know that because investors are remortgaging every 6 months and these increases have been validated. London by comparison has seen house prices fall, but they will increase after all Brexit anxiety as this is LONDON after all.
Rental Yields in Manchester tend to be around 7.5% to 8%, whereas in London they are maybe 3% to 4% unless they are HMOs.
Manchester has also seen an average rental increase of 5.76% against just a couple of percent for London.
Also, pure logic dictates that Manchester is more affordable housing, a ¾ bedroom terraced house in Oldham may cost £ 95k and a similar property in Zone 4/5 London would be anything from £ 750k to millions. Even in Central Manchester one can purchase a 1 bedroom flat for £ 250k very easily. So, the point I am making is that properties in outskirts of Manchester are more popular generally than properties in London for rentals. We offer tenanted properties to our investors, and there are always several tenants for every vacant property.
Manchester has developed into one of the most dynamic cities in the UK with great investments being made into transport, education and economic growth to name just a few key areas.
Manchester has everything that London offers – culture, higher education, beautiful cityscapes with historic canals – but without the fierce property prices and with a vast scope for future growth.
In addition, one chapter in the Manchester success story looks exceptionally promising, and that’s the job market. Manchester is also fast becoming a prime location for specialist and highly sought-after jobs in media, design and tech. As the chosen home of many start-up networks and the majority of FTSE companies having a presence in the city, Manchester encourages further investment and is of great appeal to talented graduates.
More than half of graduates are choosing to stay in the city after their studies are complete to take advantage of the range of quality job prospects – and the vibrant social scene. It now boasts the highest graduate retention rate outside London but without the high property rental prices of the capital.
With young professionals one of the prime target markets for private rental property, demand already exceeds supply. Major developments continue to be planned across the city, and the quality of new accommodation is improving all the time with remaining affordable, the latter of which cannot be said for London.
Also, another bugbear of mine is the colossal estate agency charges for finding tenants. In Manchester we pay 6% of the 6 month rental fee, and then after 6 months we in many cases don’t owe the agent for renewal or in some cases we pay £ 30. In London, estate agents tend to charge 7% of annual rental fee, and charge this repeatedly if the tenant renews annually. Even if one changes to a rolling over monthly contract they still charge this due to the small print in the contract.
I hope this gives you some insight why I am currently selling many of my London flats and investing in houses in Manchester. On average my income increases by around 125%, now that is nothing to be sneezed at.
'You only know what you know'