Houses vs Flats – Which Make the Best Investment?


Ask anyone who invests and they will likely have an opinion on the “house or flats” debate.

You’ll often find one camp who believe that houses make the best investments because they don’t like paying ground rent or service charge on flats, perhaps they don’t like the lack of control/dealing with the freeholder on what they perceive as costly maintenance issues or the proximity of other tenants/noise in the building.

Some old school investors assume (incorrectly) that you have to give flats back at the end of the lease so are therefore a wasting asset, (in reality you can always force the freeholder to extend the lease).

Then you will have another camp who assume that Flats make better investments because they often have higher yields (lower purchase price) and less maintenance to deal with as the freeholder organises external works for them.

As you may know, I’ve had some experience investing in both types of properties and although not meant to be exhaustive, the list below reflects some observations of each type of investment property.

Advantages of Flats as investments

Below are some bullet points with the advantages of buying a flat as an investment property.

  • Typically lower entry purchase price than comparable houses
  • You can find good quality flats for two thirds of the cost you would pay for a house
  • Traditionally higher cash on cash returns and yields
  • Lifestyle trends may mean renting flats become more popular thereby reducing voids as young people/people without children often like them
  • Cost of maintaining the building is shared & the freeholder (or the managing agent) will typically organise the work
  • Short leases, absent freeholder, can all make the investment an attractive proposition if you work on wrestling the freehold from the owner by getting others in the block to join with you,enfranchise and buy the freehold.
  • Buying flats with management companies that have gone bust can be cheap as they are often unmortgagble, fix the problem and the value increases.
  • The cheaper nature of buying flats means its easier to buy a large number to build up your portfolio
  • You can spread your risk wider which enables you to reduce the impact of one of your properties being untenanted
  • Secure bigger discounts by buying in bulk
  • Strong demand in metro areas can cause prices to soar
  • Easy to convert a flat to add an extra bedroom if flat currently has a separate kitchen by moving kitchen into living room

Disadvantages of buying a flat as an investment

Below are some disadvantages of buying flats as investments.

  • Some have High ground rent and service charges
  • Harder to qualify for financing on a certain type of flats and LTVs meaning lenders see flats as higher risk
  • Smaller living spaces
  • Less opportunity/freedom to add value without consent of the freeholder (no ability to extend, covert a loft, add a conservatory)
  • Lower unique factor when the flat is situated in a large block
  • Higher turnover of tenants
  • Hidden high maintenance costs you didn’t perceive or anticipate that could effect your investment returns as freeholders can use this as a profit centre.
  • Harder to obtain finance on leases less than 80 years
  • Value of the flat will drop quite a lot once the lease goes below 70 years, so a payment will need to be made to the freeholder to extend, say £10k-£15k on a £100k flat to take lease from 70 to 125 years
  • Ground rents can increase a lot over time
  • ”Share of the freehold” can give the best or worst of both worlds depending how well others work together to maintain the property
  • High rise flats attract slower capital growth, council high rise blocks are often nearly unmortageable.
  • Concentration risk of lots of flats in a block can create a short term oversupply meaning voids or lower rental and capital values.
  • May not be able to convert the property into a HMO to reduce voids and increase cashflow

Advantages of buying a house as a buy to let:

  • Finance for single family units is more readily available
  • More privacy and feeling of space for tenants and buyers
  • They will attract longer term tenants such as families with kids who won’t uproot after 6-12 months and are more likely to maintain the property themselves
  • More potential for capital growth
  • They have a larger land size value giving you flexibility to develop, convert or extend to add value to flip or refinance
  • A house will always appeal to a larger cross-section of buyers such as first time buyers, investors and young families
  • No high service charges or issues with ‘common areas’ not being maintained
  • Ability to buy the property at market value, convert into multiple flats, create leases and either sell/remortgage or a mixture of both

Disadvantages of buying a house as a buy to let:

  • Typically higher investment and start up costs
  • A Garden you may need to maintain
  • Higher stamp duty & interest costs
  • More wear and tear if families have children
  • A house is more likely to be vandalised/boiler and pipes stolen if empty
  • Potential for more frequent maintenance and repair bills as there's more square footage to maintain
  • Because of the lower yield the cashflow may be lower

As you can see there are clear advantages and disadvantages with buying both as investment properties.

So what type of investment property is right for you?

There is no ‘right answer’.

Investors who are stuck on this question should instead be asking: “What property will deliver on my objectives and return the highest return on my investment?”

What is clear is that regardless of your decision, you’ll most likely find that both houses and flats will be a wise decision if purchased with a high enough yield and at the right price.

Mark Homer

Co-founder at Progressive Property, 600 + properties bought & sold.
Full time property investor/analyst/geek & World Record Holder

Author of No.1 Amazon best-selling book Uncommon Sense, Low Cost High Life and Commercial Property Conversions.

About Mark

Co-founder at Progressive Property, 600 + properties bought & sold. Full time property investor/analyst/geek & World Record Holder Author of No.1 Amazon best-selling book Uncommon Sense, Low Cost High Life and Commercial Property Conversions.

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