Flats and terraced houses most favoured by landlords and tenants

Flats and terraced houses are the property types most favoured by buy-to-let investors, according to the latest landlord research from Paragon Mortgages.

On average, flats are by far the most popular property type amongst investors, making up 46% of the average landlord’s portfolio. They are followed by terraced houses, accounting for 34% of the average portfolio. Less than half as popular amongst investors are semi detached homes, making up 13% of the average portfolio, leaving detached properties as the least popular at just 6%.

Terraced houses are the highest yielding property type (according to Paragon’s buy-to-let index), as well as the second most popular investment property type. Terraced properties achieve average yields of 6.4% and are often cheaper to purchase than flats and maisonettes. As popular share homes for students and immigrants landlords can often optimise the rent receivable from the space by having several tenants, although in larger properties this can involve extra costs of licensing it as an HMO.

John Heron, managing director of Paragon Mortgages, explained how essential it is that landlords thoroughly research the type and level of tenant demand in their area before purchasing an investment property: “Small terraced houses, flats and maisonettes are popular rental property types amongst certain tenant groups – such as young professionals and students – particularly in busy cosmopolitan areas. In places where there is proven demand for this type of property, landlords can command high rents and attractive yields. Landlords are canny investors and the preference towards smaller investment properties reflects what tenants want. Of course there are areas, particularly in the suburbs around big cities such as London, where there is demand from tenants for family rental homes – often from people who work for international companies and stay in the UK for a year or two. In order to make good returns, it is essential that landlords know the market they are operating in, and how to appeal to those specific tenants.”

Despite flats having traditionally been a popular investment option – and consequently making up a large proportion of landlords’ portfolios, current rental yields are slightly below the average achieved on other property types. Many landlords who have portfolios with a large proportion of flats, bought the properties some time ago at low prices, so the yield they are achieving is much higher than if they bought now. This explains the relative lack of popularity of flats in new purchases by buy-to-let landlords.

John Heron advised caution when investing in new flats, particularly in the current climate: “With an increasing number of new build flats coming on to the market, investors need to be aware that they can often become the target for unscrupulous sales practices on the part of property clubs and other traders. Landlords who believe the sales patter without researching tenant demand and the local property market themselves can end up burdened with overvalued properties that are difficult to find tenants for. Flats can still be a good investment but landlords can not afford to take anything for granted – the area and the property must be fully researched before taking the plunge.”