Which property type is best to invest in right now?

 

Alongside location, property type is probably one of the most important things to factor into any good investment decision. But which one is best?

Buy-to-let property investors come in all shapes and sizes, from ‘accidental landlords’ to seasoned portfolio investors. The starting point for making an investment decision is often the same, though, and is driven by the goals of the individual investor.

Using a range of examples and evidence, Joseph Mews Property Group has come up with some advice aimed at prospective investors and landlords selecting the ideal property type for their next purchase.

One of the major conclusions it draws is that there are varying degrees of success for houses in one location, versus flats in another. Conducting thorough research on demand levels and average rentals in an area is therefore crucial to making the best choice.

Best city property type: flats or houses?

Joseph Mews points out that the average rental house in Birmingham – a tenant and property investment hotspot right now – brings in average yields of 4.42%. By contrast, flats in this location can generate rental yields of as much as 7%.

Andy Foote, founder and chairman of Joseph Mews, said: “Knowing what you want out of your investment will usually make choosing between houses and apartments much easier.

“Generally speaking, apartments offer more competitive rental yields than houses – especially if they’re in popular locations, such as city centres.”

Of course, while some investors are looking for short-term, high returns, others want to see a bigger price rise over time. Again, flats are often the favoured option for those looking to build up property value alongside good monthly returns.

Foote added: “For those looking to build higher capital and rental returns, apartments are usually the most popular option. That said, this property type also has a history of competitive price growth.”

Target tenants play major role

Another part of an investor’s overall goals is likely to involve a target tenant type. From students to graduates to families to older renters, there is a huge demographic of tenants in today’s ‘Generation Rent‘. There is no one-size-fits-all approach.

The largest proportion of privately rented tenants in England are aged 25-49, according to the English Private Landlord Survey. This is a wide age range, but gives an idea of the largest field of tenant type.

Number of bedrooms will affect who wants to live there, points out Foote. Bigger homes with several bedrooms will see interest from more families, while studios, one-beds and two-beds are likely to be filled with young professionals – particularly in city centres.

While there may be more demand in many areas for flats for youngsters, there are benefits to renting out houses to families, too. Often, families will stay put for longer, meaning a more reliable income and less void periods, for example.

Breaking down rental yields by property size

While this is just a snapshot of the current market, it is useful to know how different sized properties are performing. Joseph Mews has broken it down by rent, yield and market distribution, so investors can assess each property type.

Unsurprisingly, three-beds come in at the priciest, at an average of £1,576 per month. Two-beds bring in rents of an average £1,214 monthly, while one-beds fetch £891. Studios are only slightly less, with tenants paying an average £809 each month.

Where yields are concerned, the picture is flipped. By far the strongest average yields are found with studios, generating 7.33%. After this, one-beds tend to get yields of 5.41%, with two-beds just slightly lower than this at 5.26%. Three-beds bring in yields of 4.96%, the least lucrative property type by yield.

Availability is another key part of which property type to invest in. Joseph Mews finds that studios are relatively scarce, with just a 4% market share. The ‘other’ category (presumably larger properties), makes up 11% of the market.

After this, three-bed rental properties account for 15%, while one-beds (31%) and two-beds (42%) are the most common rental home.

BuyAssociation has more than 16 years’ worth of experience in property investment, and can help investors find the ideal location and property type for their individual needs. Get in touch to find out more.

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