The different types of buy-to-let property investments
Single asset (house, flat) – let to a single person or family on one tenancy agreement.
House of Multiple Occupation (HMO) – a property where each room is let separately.
Multi-unit block – you purchase the freehold of a building, which contains multiple self-contained flats.
What is the difference between freehold and leasehold?
Freehold – means you own the property and land beneath. Freehold ownership is into perpetuity. Most houses are freehold title.
Leasehold – Leasehold properties are predominantly associated with flats. In this arrangement, you possess the leasehold title for a specified duration, such as 999 or 99 years. As time progresses, the remaining length of the lease diminishes. As a general guideline, once a lease falls below 70 years, it is advisable to investigate the costs associated with extending the lease. A short lease can adversely impact the property’s value, as properties with shorter leases tend to command lower purchase prices to account for the expenses related to lease extensions. If you are contemplating a property with a short lease, our solicitor partners can provide you with comprehensive advice and a detailed report.
Share of Freehold with Underlying Lease – This arrangement is common for flats situated in converted properties. For instance, a large house converted into four flats may have its freehold owned by a UK company. Each flat owner would hold a 25% share in this company, thereby owning a corresponding 25% share of the freehold. Each flat will still possess a leasehold title, ensuring that each unit is recognised as a separate legal property.
Building insurance, service charge and ground rent
When you purchase a freehold house, you assume the responsibility for insuring the property, which entails paying the annual insurance premium.
For flats, a service charge is applicable. Each flat owner within the block contributes to an annual service charge, which covers their share of expenses related to:
- Insurance for the block or building
- Maintenance of communal areas
- Additional services, such as concierge or gym facilities
Additionally, ground rent is an annual premium payable to the freeholder for flats. However, in April 2022, the UK government announced legislation aimed at banning ground rent on all new properties.
New build
A new build property is defined as one that has been constructed within the last 24 months or is being occupied for the first time. Important factors when considering new build properties include:
- Reputation and Quality of the Developer: Assessing the track record and credibility of the developer is essential to ensure the property meets high standards.
- New Build Warranty Provider: All new build properties are accompanied by a 10-year warranty, which provides peace of mind regarding structural integrity and defects.
- Market Dynamics: Understanding the supply and demand in the local market can significantly influence the property’s value and investment potential.
What is the expected return on investment (yield)?
Average yields vary across the UK:
- Prime and central London – 3%
- Greater London – 4%
- Other cities – 6%–7%
- How long to let?
UK tenancy agreements:
- AST – 12–36 months
- Short let – Airbnb
- Typical fees (letting agents, property management)
Agents offer a spectrum of services, ranging from simply finding a tenant to comprehensive property management, which includes rent collection. The fees charged by agents can vary based on the level of service provided. Your Springtide broker can recommend our preferred panel of agents to suit your needs. The typical fee structure is as follows:
- Flat Fee for Finding a Tenant: On average, this service costs around 6% of the annual rent.
- Viewings and Rent Collection: This more inclusive service averages about 10% of the annual rent, covering both tenant viewings and the collection of rent.
- Viewings, Rent Collection, and Full Management: For a complete management package, which includes all the aforementioned services plus ongoing property management, the average fee is approximately 14% of the annual rent.
Landlord responsibilities
When acting as a landlord, several key responsibilities must be diligently upheld to ensure the safety and satisfaction of tenants, as well as compliance with legal obligations:
- Maintenance and Upkeep: Landlords are responsible for the regular maintenance and repair of the property. This includes addressing issues such as plumbing, heating, and structural integrity, ensuring that the property remains habitable and in good condition.
- Fire Safety: It is imperative for landlords to adhere to fire safety regulations. This includes installing smoke alarms, ensuring clear escape routes, and conducting regular fire risk assessments to protect tenants from potential hazards.
- Electrical Safety: Landlords must ensure that all electrical installations are safe and compliant with current regulations. This involves conducting periodic inspections, providing safety certificates, and addressing any electrical issues promptly to prevent accidents.
- Energy Performance: Landlords are required to provide an Energy Performance Certificate (EPC) for their properties, which indicates the energy efficiency of the building. Maintaining a good EPC rating not only benefits tenants through lower energy costs but also enhances the property’s marketability.