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I agree.

But one question that has been on my mind would be, if you were to buy a flat that had, for example a 50 year lease, or you currently own one but would like to pass over to your children one day for them to run business as usual. Could you look to extend the lease? If not what would be the options or consequences?

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I agree.

But one question that has been on my mind would be, if you were to buy a flat that had, for example a 50 year lease, or you currently own one but would like to pass over to your children one day for them to run business as usual. Could you look to extend the lease? If not what would be the options or consequences?

I would never buy a flat with such a short lease.

 

You should be able to purchase a new lease, but it would cost thousands of pounds (typically 10,000).

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I always look at the percentage of the service charge and ground rent to the annual rental income. A £2,500 p.a service charge is a lot more costly for a 2 bed flat in Liverpool than one in Maida Vale!

 

Best to avoid renting unless there is no alternative

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Personally, I think the flat vs house argument requires a bit more input to reach a meaningful conclusion than just the arbitrary 'flat or house'. To me it really depends on your strategy, as that will dictate your target market and therefore what property type is most suited.

 

There are definitely plenty positives for each, flats will be right for some and houses will be right for others :)

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This is an interesting discussion for me - I am considering property investment having been left a small amount of money.

 

Notwithstanding the arguments already submitted here, isn't a flat easier to maintain than a house - no garden, drive to worry about (or worry about whether the tenant will maintain), no roof, fewer external elements, etc?

 

Therefore, less risk, hassle, expense?

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As a rule we purchase 2 bed houses. Freehold, simple, secure market in terms of cost and rent ability. However we did purchase a 1 bed leasehold flat . Leasehold costs £1200a year so profit less on a £650 monthly rental but capital value has increased more than the 2 bed houses. We were able to re mortgage after the two year fixed interest rate came to an end and extract cash while still keeping the loan to value 25%.

My advice look at each individual property and work out what you are getting, the risks. Good luck and I hope you find something that suits your circumstances.

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Hi all,

 

What an odd, negative vibe to this thread! I am not sure what Anon_private's agenda is regarding this subject, or why they have raised the question and then chosen to unfollow the thread once Tim gave a balanced and fair comment to what seemed to be a very biased view. Possibly Anon is a billionaire and wants to put us all off buying flats so they can buy them all themselves?

 

My advice would be to be open to either, and even if one type hasn't worked in the past, going forward one type may work better than the other. Also dependant on the area one may work better than the other.

 

There are definitely many more arguments to be made for and against buying flats/houses - In fact there was a short thread and a podcast from R&R a few years ago that cover most points - Link here.

 

All the best

 

James

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We bought a BTL flat in 2007 for £150,000. Now 9 years later we would like to remortgage to raise capital to grow our portfolio. We have been told that to increase our lease term would cost us £23,000 and then the flat may be worth about £170,000 thus providing zero capital growth during the nine years. A lease is not ownership, it is merely an opportunity to occupy by paying a lump sum in advance. Unlike a freehold your investment reduces in value every year.

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Hi Noel,

You make a fair point about one of the risks when buying leasehold properties - which highlights the importance of doing good DD before purchase.

I would, however, question what it would have cost you 9 years ago to extend your lease? I would have thought it still would have been in the tens of thousands, unless you were unlucky enough to own the property over the period when the lease dropped from above 80 years to below 80, as then you'll be paying the hefty marriage fee too which would have bumped up the cost.

Without knowing more detail, I would speculate that your lack of capital growth could have been, in part, due to purchasing at the peak just before the crash.

From my experience, if a flat had a 125 years lease and after even 20 years, one wanted to sell that flat, the 105 year lease flat would have a very similar value to a similar flat with a 125 year lease. It wouldn't be until you start getting to around a decade away from the 80 year mark on the lease that it might become an issue - however these are only my personal conclusions that I've come too from experience.

As for my own preference on Flats vs Houses, I own a mix of flats and houses and I generally find that the capital appreciation on the flats is better than the houses, which outweighs the management fees + ground rent that is payable yearly on the flats. Additionally the ROI on a vanilla BTL flat vs vanilla BTL house, on the most part, is higher. I do, however, like purchasing houses due to being able to add value to them with an extension or, ironically, having the potential of converting them into flats or a HMO if the market dictates at some point.

3 important things I look at when buying flats are:

- Is the lease a good length, if not, what are the freeholders likely to charge for extending it.

- Are the freeholders/managing agents good/fair and do they have a good reputation for dealing with issues quickly and not gouging leaseholders for every last penny.

- Don't purchase flats where the yearly management fees would amount to more than 1 months gross rent, unless you are pretty confident that the property will have very good capital appreciation which, in turn, means the management fees would become less than 1 months gross rent.

All the best

James

We bought a BTL flat in 2007 for £150,000. Now 9 years later we would like to remortgage to raise capital to grow our portfolio. We have been told that to increase our lease term would cost us £23,000 and then the flat may be worth about £170,000 thus providing zero capital growth during the nine years. A lease is not ownership, it is merely an opportunity to occupy by paying a lump sum in advance. Unlike a freehold your investment reduces in value every year.

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Hi James,

 

I agree with everything you say and thank you for giving such a comprehensive response. My DD in 2007 wasn't of a very high standard and I had a lot to learn then, as indeed I still do. I guess I relied too much on the enthusiasm of the estate agent without realising that his only agenda was to sell us the flat! I must admit to my only having a short term plan namely just to diversify from houses and to acquire another property to add to the portfolio.  We had just sold a care home and I went on a spending spree investing the profits in several properties with a 15% deposit. Gordon Brown was the Prime Minister who boasted that he had beat the boom to bust and I believed him.

 

In hindsight I appreciate that many people would not have been so reckless as to max out on 85% mortgages in 2007 and my chosen saying then for a few years was 'If you live by the sword you die by the sword'. However at this stage in my journey things are looking good and I hope to continue running the property roller coaster for some time to come.    

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  • 2 weeks later...

Hi All,

I have been tracking 2 bed flats vs 2 bed houses in my area for the last 10 years. In 2006 a desirable flat was about the same price as a house with a garden in a decent area. This seemed an anomaly and it might not be surprising to learn that when prices fell during the late 2000's, flats were hit disproportionately harder.

The above isn't meant to be pro or against flats. The insight is that the stage in the property cycle, should have a bearing on your view at any given time.

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