Unlike other investment classes, for example, equities and bonds, residential property investment tends to evoke more emotion in people. When I talk to many would-be investors, their first criteria when embarking on a residential property investment are often:

“I’d only invest in a property that I would like to live in myself”

This is fundamentally the worst type of advice someone should give themselves, for the simple reason that you are not buying a property to live in yourself. By all means, the property should be of good quality and in a safe area, but it would be advisable to discard this way of thinking.

Despite me saying this, everyone has their own property investment style and provided the property offers a good rental return, we work with investors to secure an investment property within their budget with strong returns.

We favour a collaborative approach where suggestions are shared between the client and ourselves. An initial consultation discussing clients’ requirements and expectations forms the basis of our search.

At this juncture, we can advise on areas and strategies that the investor may not have considered. Below are some considerations:

• We aim for gross yields between 7 and 10%
• Expensive addresses are usually not aligned with comparatively high rents and generally offer low returns
• Areas near the city or other infrastructure, including hospitals, universities and airports offer high rents but don’t always come with a high price tag
• Poor orientation and small back gardens can put off owner occupiers but won’t affect the rent level, which can mean higher returns for investors
• Likewise, unfashionable streets in fashionable areas can have the same effect
• Tourist spots can evoke romantic ideas but often there is a lack of industry and commerce in these areas to generate strong rental demand
• Purchasing a property through a pension structure is very tax-efficient. For more information, see our Property and Pensions: The Benefits blog

Broadly speaking there are three main residential property types, namely; houses, apartments and mixed-use. Below I have expanded on each type.

Houses; are almost everyone’s favourite investment. The advantages are obvious, there are no block management fees and there is no risk of block-associated structural or compliance issues that can affect the whole development.

In a sense, you are the master of your own destiny and who doesn’t want this?

However there are downsides, we all complain about block management fees, but when the roof needs to be repaired, provided there is adequate insurance and a sinking fund in place, you don’t have the worry or expense of resolving the issue. This extends to the maintenance of communal areas, refuse and insurance.

A big consideration with houses is that suitable ones for investment need to have plenty of accommodation and this comes at a price. Small houses are often more expensive than apartments and usually offer lower rental returns.

Apartments; in recent years apartment developments have been the subject of some very negative publicity, particularly surrounding fire safety issues. This stems from the Grenfell Tower disaster.

Since then, Owners Management Companies (OMC), often instigated by insurance requirements, have been carrying out fire safety audits, which can result in costly fire remediation works.

Not only can this be costly for owners, but it also has the knock-on effect of lenders not willing to lend on apartments if the block is going through the fire audit/remediation process.

Thankfully there is a government scheme in place to help fund these works.

While this is something to be aware of, apartments still make good investments. The management fees need to be factored into the rental returns but items including common area maintenance, refuse and insurance are all covered within these fees.

Apartments are much cheaper and easier to turn around between tenancies. They are very saleable and often much more affordable than houses.

Mixed-use; isn’t for everyone, but can provide the strongest returns. A typical mixed-use property will have a retail unit on the ground floor and a residential unit above.

They can often be acquired more cheaply and more easily than houses as they only appeal to investors and business owners. Owner-occupiers prefer houses and may indeed struggle to secure lending on such properties.

As a rule of thumb, the commercial element will probably achieve a lower yield than the residence upstairs but the right tenant can increase the profile of the property and provide a consistent long-term rental income.

Another advantage is that the commercial tenant will be responsible for all maintenance within their unit.

When preparing commercial leases, they don’t need to follow a prescribed format as residential leases do and we recommend that landlords engage a solicitor to prepare one. A major consideration here is that after 5 years of continuous occupation, the tenant will be entitled to a new tenancy.

As a result, many leases are for 4 years and 9 months and a tenant will need to also sign a deed of renunciation, renouncing their right to a new tenancy.

However, if the tenant substantially renovates the unit, they will want the security of a longer lease. Often this is attractive for the landlord as they are increasing the capital value and are likely to stay for a much longer duration.

When a sale is agreed upon, we have recommended solicitors and surveyors that we work closely with to ensure that the correct due diligence is done before completing any purchase. Once the property is acquired, we have a team of contractors who can prepare the unit for the rental market.

Our comprehensive letting and management service ensures the smooth running of your portfolio and maximises your income.

Get in touch today to find out more.