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Flats - Should I invest?

Posted on Thursday, September 6, 2018

A regular question I am asked by investor clients of ours is, do you think flats still make a good investment? The concern most tend to have are the high service charges, ground rents, low leases for instance. 

So I have put together some statistics for some guidance.

Within the DA7 Bexleyheath area, I have researched both 1 & 2 bedroom flats, looked at the average asking prices against the asking rents and have discovered the following; 

The average asking price for 1 bedroom flats in the DA7 area is £210,332.66. Compare this to 2 bedroom flats and you could expect to pay £259,770 on average. 

Now for the rental values, you could expect to pay £912.50 for a 1 bedroom flat in DA7 whilst a 2 bed would typically rent for £1,098.05 on average. Thats a 5.07% Gross yield on a 2bed compared to a 5.20% yield on a one bed. 

The one bed flat does look extremely attractive on paper, but consider that the average tenancy for a one bedroom flat is shorter than you could expect for a 2 bedroom, meaning tenant find fees could be paid more frequently, which eats into your overall return. You could also expect a 2 bedroom flat to grow in value higher than a 1 bed. 

With that in mind, compare the yields of a 2 bed terraced house for instance in the same area, where you could expect to pay £304,444, receive £1,100pcm rent with a return of only 4.33% on average. All of a sudden the flats become a lot more attractive, even with the service charges. 

My advice would be, don’t purchase a flat with a low lease, unless you know what you’re doing and try to avoid high service charges where possible (the average in the area is around £1100 per annum) 

If you require any advice or assistance on your next acquisition, get in touch, I would be happy to help. 

Aaron Kirk