The life of a property manager is never dull!! I love what I do and every day is different as you never know what you can wake up to (although I do try to plan my day). What makes it extra special are the interactions I have with potential clients on a daily basis with new people looking to enter the buy to let market.
One such case was of a lovely gentleman I had an initial email enquiry from. His children had grown up and flown the nest. Some extra cash was to hand; he saw my blog and became interested in entering the market. We later met up for a coffee. He was considering making his first purchase and amongst the usual questions, one question stood out for me:
Do I buy a freehold house or a leasehold flat in Walsall?
Most people will say freehold every time, because you own the land. However, it’s not as simple or as straightforward as that! Allow me to explain the pros and cons.
The definitive answer is to research what tenants in the area want. The tenant is ultimately your customer, and if they don’t want to rent what you decide is best to buy, then you’re not going to have a successful buy to let investment. So starting with the tenant in mind and working backwards from there, you won’t go far wrong. In a nutshell, find the demand before you think about creating the supply.
Leasehold flats and apartments in Walsall are excellent in some respects, as they offer the buy to let landlord certain advantages, including the fact a flat can be initially cheaper to buy. Yields can be quite good, offering better cash flow.
The building will already be insured and usually there is a service charge, but it’s still for a service at the end of the day. The cost is spread between many others (i.e. when your freehold house roof blows, it falls squarely 100% on your shoulders). Also, if the block is being managed correctly then perils should be covered by the insurance and any major works should be covered by the sinking fund. One of my favourites is that there is often no garden to maintain or garden fences to replace. If there is then it’s a collective responsibility usually taken care of via the service charge/ managing agent.
On the other side of the coin, some leasehold flats can suffer from poor capital growth. Leasehold properties have no cap on the level of the service charge as they are calculated annually with a mixture of actual and projected spend. Therefore, the fluctuation in the budgeting of the service charge could leave you feeling blue, making it difficult to budget. My advice is to always look at the historical data and analyse current and previous service charge accounts. Identify any hidden trends to ensure future car crashes can be avoided. Visit the property to inspect the communal areas which will give you a good idea about how the current services are being managed.
Watch out for the other stuff such as the length of the lease which will significantly affect the value if not renewed before it gets too short. Banks and building societies differ in their lending criteria. Some draw the line at 75 years remaining on the lease; others may be happy with anything over 70 years. Below 60 years, it may be difficult to get a mortgage at all. Finally, with leases there can be sub-letting issues – which means you can’t let them out!!
So what do the numbers look like?
Well since 2003, the average freehold property in Walsall (detached, semis and terraced) has risen from £111,476 to £168,579, a rise of 51% whilst the average leasehold property in Walsall (flats and apartments) has gone up in value from £50,643 to £69,667, a less attractive rate of 38%.
I was interested to note that of the 12,617 rental properties in the Walsall Council area that the Office of National Statistics (2011 Census) believe are either let privately or through a letting agency, 3,716 of them (or 41.7%) are apartments. However, there are only 18,653 apartments in the whole council area (including owned, council-rented or privately-rented), which represents 17.3% of the whole housing stock in the area.
This really intrigued me in so much as that as the figures seem to suggest, a high proportion of Walsall’s leasehold apartments and flats are rented to tenants compared to detached, semi’s or terraced houses in the city. It is crucial to remember that every apartment block, terraced house or semi is different in various sub areas. What may work well in one area may not perform as well in another.
The definitive answer is to research what Walsall tenants want in that particular area of Walsall.
What many landlords do, irrespective of whether they are a landlord of ours, a landlord with another letting agent or a DIY landlord, is if they see any property that catches their eye as a potential buy-to-let, they simply email me the link. I will email you back my thoughts although I will always tell you what you need to hear, not what you want to hear.
Phone: 01922 311016