Should I invest in an established Freehold house or an off-plan Leasehold apartment?
Are off-plan Leasehold apartments a good property investment opportunity? Or should you look for an established Freehold house? This is a question that we are asked often at Closefield Property. Whether you are a UK resident or you’re investing from abroad, it’s one to really consider
In this blog post, we’ll get straight to the point and highlight the positives and negatives of both off-plan Leasehold apartments and established Freehold houses as investment opportunities.
What’s the difference between an off-plan Leasehold apartment and an established Freehold house?
Buying off-plan Leasehold apartments is when you choose to purchase or invest in a property before it’s been fully built. On the other hand, investing in an established Freehold House means purchasing a home that is already built.
Off-plan Leasehold apartments for Buy-To-Let Property Investment
Advantages of Investing in Leasehold apartments
Price – You might be able to negotiate a discount with the developer if you’re one of the first to buy.
Accessibility – New build schemes tend to have good transport links and amenities nearby.
Amenities – Leasehold apartments can sometimes come with more amenities such as off-street parking, a gym, and nearby supermarkets.
Deposit – Often you will only pay a 10% deposit upon reserving the property. Meaning you’ll potentially be benefitting from capital growth with a smaller down payment from the start.
Disadvantages of investing in Leasehold apartments
Time – You will have to wait until it’s built before you can rent the property out and earn a rental income. This can sometimes take months if not years.
Setbacks – There are often snagging problems with Leasehold apartments, such drafts in windows, faulty wiring.
Delays – A lot of developments can experience big delays in the building process, meaning you will have to wait longer before you can earn a rental income. These delays have been known to take years in some cases.
Extra Costs – There are other extra costs to factor in when calculating your return on investment, i.e service charge and ground rent. Over time these costs can be increased whenever the developer wants to, further decreasing your ROI
Trends – New builds can go out of fashion very quickly, with tenants wanting newer and more fashionable amenities.
Investing in an established Freehold house for Buy-To-Let
Many tenants will prefer living in an older property over a new build property. There are a number of reasons for this. For example, they normally have more character and they have their own private garden. Additionally, you can normally park outside your house which is much easier if you have a family.
Advantages of investing in a Freehold house
Timeless – Older properties come with the knowledge that they withstood the test of time.
Character – Features in older properties can be very attractive to tenants such as oak beams, original wooden floors, sash windows, original front doors and tiling etc.
Adding Value – It is easier to add value and renovate an older property further down the line. Whether it’s converting the attic into an extra bedroom or adding an extension.
No Hidden Costs – Freehold houses have no service charge or ground rent costs, meaning you will get a better ROI overall.
Disadvantages of investing in a Freehold House
Wear and Tear – Older properties can have issues with wiring, heating and even damp. These can all become quite expensive to repair and replace.
Energy Efficiency – Older properties are not as energy efficient as Leasehold apartments as they may lack insulation and have inefficient lighting and white goods. This could contribute to a lower EPC rating (Energy Performance Certificate).
Here are two examples of cash flows comparing a 2 bed Leasehold apartment and a 3 bed freehold house. We’re assuming the purchase price, rent and all other costs are the same for both investments. However, the leasehold apartment has the extra service charge and ground rent added to the calculation, showing how this affects the overall Return on Investment (ROI). Remember the service charge and ground rent will more than likely increase over the years which further decreases the ROI.
Should you invest in a Leasehold apartment or a Freehold house?
At Closefield Property, we appreciate that both property categories have their positives and negatives. However, in our experience, more Freehold houses lead to the best ROI for our investors in comparison to Leasehold apartments. This is based on the immediate return for our investors as well as the long-term possibilities.
If you are looking to invest in UK property, get in touch with one of our specialists and we will help you start your investment journey.