DGlets

Never buy a flat! No, never buy a house!

If you want to start a ruckus at a property event, just say “so… flats or houses?” then stand back and watch the fur fly.

It’s as explosive as giving your grumpy uncle half a bottle of wine and getting him wound up about politics just before Christmas dinner.

Unfortunately, because people often absorb the strong beliefs they hear without challenging them, they can miss out on making what would actually be the perfect investment for them.

So here are 3 myths to put to bed:

Myth 1: Service charges mean flats are worse

We hear this all the time: “I’ll never buy a flat because of the service charge”

But the clue is in the name: it’s a charge for services.

These can include amenities like a gym, concierge or cinema room - which allow you to charge a higher level of rent.

And they also include maintenance of the building’s structure, the heating system, fixing leaks… all things you still need to pay for with houses. The only difference is how you pay.

The level of service charge for any particular block might make it unattractive as an investment, or it might not: you just need to find out what it is, and factor it into your numbers.

The hidden benefit of a service charge is that it makes these costs predictable: you pay a fixed amount each month. With a house, you could go for months with nothing then face a giant bill.

(It’s true that you don’t have control over how well the services are performed, and can’t be sure value for money is being maximised.)

Myth 2: Capital growth is better/worse for houses

I’ve repeatedly heard this confidently argued both ways, which tells you how true it is!

Some people believe houses have better growth because they’re more desirable for a larger target market of buyers.

Others believe flats have better growth because they tend to be located in city centres.

Maybe these cancel each other out because when you look at the data… basically no difference until 2020.

My suspicion is that the (presumably) Covid-related shift that’s seen houses out-perform will reverse over the next few years as people’s budgets are stretched, they’re more conscious about energy bills and there’s a return to city centres, but we’ll see.

Myth 3: It’s possible to even define “best”

There’s no such thing as “better”: only “better for you”.

If your strategy is adding value to force capital appreciation, houses are highly likely to be better for you. Ever tried adding an extension to a flat? You might also just be the type of person who wants to have complete control over everything – which would also make houses a more natural fit.

If your strategy is just buying and holding for a long time while you get on with something else, it’s possible that flats will be better - because more is done for you, so you can be more hands-off.

But why do we need to choose at all?

The easiest way to make a good investment is to start with the widest possible choice of investments, then filter down from there. That’s why I own both, and the most successful investors I know do the same.

This war on landlords is getting worse”

“'I don't know how I'll support my family': landlords' retirement dreams in tatters”

“Landlords will lose money by next year as buy-to-let Britain falls apart”

Are just a few headlines I’ve seen. But I just feel bad for them.

There are many reasons why they are scared.

They are not professional investors - Most only see it as an a way to top up a pension without any effort
They are stuck on variable rate mortgages - Now that interest rates are rising they are regretting their way of funding their properties
They are single property owners - With only one property, they put all their eggs into one basket.

This isn’t the way...