One of the most common questions asked of property experts such as John Howard is what type of property should they buy. Should they look at residential or commercial, town or country, houses or flats? When you also throw newbuilds, leaseholds and freeholds into the mix it can start to get fairly complicated. John Howard’s book “Property Investment and Development for Newcomers” offers an insight into the attractions of different types of property. This book is based on the experiences of the man many refer to as simply “The Property Expert”.
Town or rural
There are many different factors to take into consideration but at the end of the day you are really interested in how easy it would be to sell the property. In many ways, whether in a town or rural area, the price of the property will reflect the confidence in the market and underlying demand. So that “under-priced” village property might look good value, and on paper you may have got it for a song, the real market price is what a buyer would be willing to pay. This simple quote from John Howard puts everything into perspective:-
“They may be lovely places and people may wish to visit them on a regular basis, but it doesn’t mean they want to spend the winter in the village, with no local shops or pub, or amenities that are under threat of closure. Not to mention the poorer Internet connection!”
This section of John Howard’s book makes for very interesting reading and expands on the pros and cons of town and rural properties. You will be surprised!
Residential or commercial
If you had asked this question 20 years ago the chances are that the arguments for and against both types of property would have been more balanced. The situation today is very different, high streets up and down the country have been decimated by Internet shopping, councils continue to pursue ever increasing business rates and for many small, medium and large shops the high street is just not viable anymore. The situation is a little different with regards to office developments but even then we have seen a significant increase in home offices.
Looking at the cold hard facts you will see that over the last 50 years residential property prices have increased dramatically while commercial property has struggled even to maintain value. There have obviously been periods of recession but on the whole the trend in residential property prices has remained positive, supported to a great extent by a shortage of newbuilds, while shops and the high street are in serious trouble. Many property investors attending John Howard’s one-day seminars are often under the impression that redeveloping high street shops into flats is easy money. The reality can be very different.
Houses or flats
John Howard’s book offers a very interesting insight into the option of houses or flats as property investments. This brings into play freehold and leasehold, with freehold usually applying to houses while leasehold tends to apply to flats. In reality the situation has changed a little in recent times with many newbuild houses being sold as leasehold which can include punitive long-term charges. This is a problem currently being addressed by the UK government but it will not be a simple issue to resolve!
The idea of leaseholds flats is fairly straightforward, there are communal areas and for example the roof from which all flat owners benefit. As a consequence, all flats in one block will pay towards general repair and maintenance of communal areas. When looking at houses or flats it is imperative that you look at details of the leasehold/freehold and it may be advisable to hire the services of a specialist solicitor. You don’t need any nasty surprises further down the line.
Leases
This comment from John Howard should be considered as a warning shot across the bows for property investors:-
“If you’re buying a flat, be very wary of the length of the lease left. If it has less than 80 years left to run, then most building societies won’t lend on it. You can, however, apply to extend the existing lease back to its original length.”
The key point here is that most building societies and other lenders would not even consider a mortgage on a flat with less than 80 years left on the lease. The point at which a lease falls below 80 years appears to be the tipping point for a reduction in value and more importantly a diminishing pool of potential buyers. If potential buyers can’t get a mortgage then you are simply down to cash buyers – who will often have the upper hand in negotiations.
Thankfully, as John covers in more detail in this section of his book, there are ways and means of extending the lease. Even if the freeholder of the property refuses an extension they can be taken to a land tribunal where the decision reached will be final. So, while there are some issues to be aware of with leasehold properties, it is certainly not all doom and gloom.
Other topics covered
This chapter of the book also covers an array of additional subjects which are also discussed at length during John Howard’s very successful one-day seminars . The subjects covered include the likes of:-
• Service charges
• Sinking funds (repair and maintenance)
• Purchasing new builds off-plan
As the UK population continues to grow, prompting additional demand for private rental properties, there are now numerous options open to property investors. Choosing the right type of property in the right area is not easy. We recommend taking a look at John Howard’s book “Property Investment and Development for Newcomers” and his popular one-day seminars. Remember, knowledge is power…..