Choosing the Right Property Type for You
While location is a vital consideration in any property investment, the type of property you invest in is equally important.
Having the right property type to suit your strategy can mitigate risk, inform future decisions and help you narrow down your potential locations.
Below we examine the different property types that are common with investors and how they can be adapted to your investment strategy.
Typically purchased during the construction phase of a development, Off-Plan property is a common investment for those seeking long-term growth and the potential for capital appreciation while the development completes.
Off-Plan property can usually be purchased at a discounted price to the actual completed value, making it extremely appealing for investors. Associated costs include a reservation fee and a deposit, which can be anything from 10 – 20% and upwards.
This property type is popular because it guarantees a new build property unit while also offering the potential for capital growth during construction. Investors that are seeking long-term growth in high potential areas will generally opt for Off-Plan property.
Off-Plan also ensures much more flexibility for investors – giving them the option to select a specific unit and size that suits their strategy. If you specifically want a 2-bed apartment for example, it’s easier to buy Off-Plan and guarantee the features you’re looking for.
A recently completed development – whether it’s new build or a conversion – is excellent for investors that are looking for immediate rental yields but want the flexibility of finding their own tenants or furnishing the apartment.
Ideal for the ‘hands-on’ active investor, completed developments are extremely flexible and can suit a number of different strategies.
One major advantage of a completed development is the opportunity to enter the market at the ‘here and now’, driving the returns that match up with current performance rather than having to wait for completion.
Completed developments make up the ‘bread-and-butter’ of most property portfolios, ensuring a balanced mix of rental yields and growth over time.
Fully Furnished & Tenanted
The next step up from a ‘Completed’ development, these property types ensure an investment that can deliver immediate returns but without the need to find a tenant or even furnish the property.
Ideal for ‘hands-off’ passive investors that are looking for a relatively easier investment process, a fully-furnished and tenanted property is ready-made for returns and can be a quick addition to any portfolio.
This property type is excellent for overseas investors that might not have the facilities to manage the investment on a day-to-day basis. While they’re less flexible in terms of choosing tenant, they mitigate the potential for any initial void periods.
As with the completed development type, fully furnished and tenanted properties enable the investor to start generating returns at present market value, which can be useful when identifying current high-performing locations.
If you’re looking for a fully-managed service, a furnished and tenanted property could be the answer to ‘what property type is right for you’.
1-Bed Apartments vs 2-Bed Apartments
When looking at what property type is right for you, it’s also important to consider the size of the unit you’re buying. The difference between a 1-bed apartment and a 2-bed apartment, for example, can be substantial.
1-bed apartments are especially popular with the younger renter demographics – such as graduates or young professionals just starting out. For investors, this can mean more affordability upfront, with plenty of potential for strong rental yields and capital appreciation.
According to a survey of UK landlords by Amicus Finance, 25% of the respondents tipped 1-bed apartments to offer the best capital growth over the next 12 months. Similarly, Zoopla data suggests 1-bed apartments are the second highest performer in terms of average rental yield, offering 4.94% – higher than 1-bed houses as well as apartments with 3 or more bedrooms.
2-bed apartments, on the other hand, are growing in demand as tenant priorities change due to Coronavirus. With available space moving up the list of priorities, second bedrooms across the country are being repurposed into home offices and hobby rooms, meaning they’re in much higher demand.
With this mind, 2-bedroom apartments tend to be much more popular with couples and as such, can deliver much more consistent, reliable rental returns. Zoopla suggests a 2-bedroom apartment can deliver an average 5.16% rental yield, the highest performing of the apartment asset class.