Should You Rent Out A House Or An Apartment?

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SPV mortgage

If you are looking to rent out a property, build up your assets and collect rent in order to generate a profit then deciding if you should rent out a house or an apartment can be a tricky decision.

In this article SPV Mortgages will be delving into how to prepare for a property investment and which type of property would be best for you.

How Should You Prepare For A Rental Investment?

There are a number of ways you should prepare before buying a property and renting it out to a tenant. These include:

Choose The Right Location

If you are looking to rent out a property in an area, you should check estimated rental yields of an area and then compare this against the average house prices. This will help you work out how much you can rent out the property and how much profit you will generate.

To attract young families or working professionals then you should opt for a neighbourhood with a low crime rate, high quality of life and well serviced by public transport, shops and schools.

To attract students or young professionals, you could opt for studios or flats located in the city centre, close to transport so that they can move around as easily and quickly as possible.

Choosing the right area means thinking about the properties potential resale price, if one day you wish to sell the property then it is vital you are able to find a buyer at the right price and as quickly as possible, which will occur more naturally if the property is readily accessible.

Budget & Financing

When you begin your property investment journey, we would always recommend you seek the counsel of a financial advisor who will be able to better assist you personally.

Budget plays an important role when it comes to buying and renovating a property; if you have a low budget then you will need to buy a small apartment, but if you have a larger property you will be able to purchase a larger house.

There are numerous ways you can finance an investment:

Cash

If you already have the funds available in your bank account this is known as cash. This is usually not a viable option when you’re starting out but it’s an option for the future.

Usually cash buyers will buy properties 15% below the market value as they can secure faster selling processes.

Buy-To-Let Mortgage

A buy to let mortgage is a normal go to option for many, these have key differences from a conventional mortgage as they demand a higher deposit, come with larger interest charges, attract larger fees and operate on an interest only basis.

SPV Mortgage

A Special Purpose Vehicle mortgage or a limited company mortgage allows borrowers to purchase a buy to let property via an SPV company. They help keep investment and financing mitigated against risk.

Buy-To-Sell Mortgage

A buy to sell or flexible mortgage allows you to purchase a property, renovate it and sell it on wards. You can expect to pay for the privilege in the form of elevated interest rates, bigger fees and a heftier deposit.

Bridging Loans

Bridging loans have a short duration and charge high interest rates, commonly taken out by people who want to buy a new home, but haven’t yet sold their existing ones.

In terms of property development, bridging loans are often used to buy a property, renovate it, and then sell, paying off both the interest and loan amount in the process.

It’s vitally important to know that bridging loans are a form of secured loan and so you’ll most likely need property or land that the loan can be secured against.

A bridging loans lender will also demand a clear exit plan that explains how you will pay off the loan at the end of term.

Property Development Finance

Covers both specialised loans for established property development companies and loans that cover heavy refurbishment. Acceptance and rates depend on your property development track record, and the strength of your business plan.

Personal Loan

You can take out an unsecured personal loan if you are looking for light funds for a refurbishment or have inherited a property that needs a small renovation.

Which Type Of Property Should You Purchase?

Deciding which type of property to choose can be challenging as both come with a wealth of positives and negatives. Houses tend to have a lower turnover rate while apartments often have a low rental vacancy.

Should You Buy A House?

Although the price per m² is generally higher for an apartment, a house often costs more. Houses guarantee a low turnover because they are often families and they move less — with the average rental period before moving is 4 to 5 years.

One way to advance this, would be to renovate the property into a House In Multiple Occupancy (HMO) which will allow you to have multiple households under one roof and generate multiple rents from multiple families instead of just one.

A disadvantage of renting out a house is that maintenance costs are quite high as costs related to the roof, heating and equipment are the owner’s responsibility. Since you are the sole owner of the property, you will not share certain costs as co-owners of a building can do.

Should You Buy An Apartment?

If you opt to buy an apartment the profile of tenants can be broader. Smaller apartments are always high in demand as they are highly sought after by students, young professionals or even young families.

Investing in an existing home makes it posse to receive immediate income with clarity on the charges. However, care must be taken to ensure the condominium fees are manageable.

Whether you opt for a house or an apartment, the criteria for success are the same. Investing in an area with strong rental demand closed to public transport, shops and schools will be necessary.

How Do You Find A House Or Apartment For Rental Investment?

When you begin researching to find a property to rent, you can use online property portals like Zoopla or Rightmove and you can search by location. If you want to cut out the hassle, you could directly contact a property sourcing company or a specialist estate agency who will also be able to guide you in finding appropriate property.

Alternatively, thanks to technological advancements, you can use AI technology to research property and delegate it to search for your property. There are AI-run property sites that use AI to find the perfect property for you. One example of this is Lia, an AI chatbot that can answer any questions you may have and pair you with property directly.

This article was written by SPV Mortgages who are experienced, knowledgeable and impartial mortgage brokers who help hundreds of landlords find their ideal mortgage.

Tom is a Digital Content Writer passionate about sustainable property & property trends. Regardless of the subject, he will always write blogs of the best calibre. Read more about Tom here.

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About Tom Condon 126 Articles
Tom is a Digital Content Writer passionate about sustainable property & property trends. Regardless of the subject, he will always write blogs of the best calibre. Read more about Tom here.

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