Is a flat a good / bad investment?

[coffeeandbiscuitlover]

Thinking of buying a flat as I can't currently get enough money together to buy a house. Is it better to wait or us a flat a good investment? Looking for pros and cons.

Well no one can predict for sure. But it is likely to be a good investment, it is likely to go up in the long term, and may give you a chance to buy a house in the future. In any case I was very happy in a flat for 11 years, and still miss it, flats can make great homes, the security of having your own home is so great for your quality of life. You can't afford a house so whether a house would be better is irrelevant. Maybe choose a flat with a seperate kitchen and living room if you can, that way you could rent out a room if you need to.

Negatives:

Depends hugely on service charges. My wife has a flat that she now rents out and the service charges pretty much wipe out any profit she'd be making. She's holding onto it only because it isn't a great time to sell in that neck of the woods.
A friend has a flat in her home town that she uses when visiting from abroad and the service charges are about 30% of what my wife is paying. It adds up.

Also consider unexpected maintenance in communal areas - anything above expected costs is basically divided up between the number of flats and charged pretty sharpish, and we aren't talking pennies. My wife's block had awful problems with the facade and damp, the cost came to about 2k per owner - had to scrabble about a bit for that.

Check the length of the leasehold and if it's short what the projected fees to extend are.

Management companies range from OK to ineffective but harmless to downright shoddy.

Benefits? More secure (depending on block size, other residents), lower heating costs in a well insulated block, chance to live in a 'naice' area that you couldn't afford a house in....?

A better bet than renting.
As long as service charge, ground rent and maintenance arrangements are sensible.

For e.g I would choose A flat on the first floor (ground floor if you can afford it) of a converted Victorian terrace with a share of freehold over a flat in a big block with a big service charge.

Generally speaking, if you are planning to live there 5+ years, you will be a lot better off than if you had been paying commercial rent for 5 years.
OTOH, if you are living very cheaply with parents and getting on with them and on a decent salary that means you would be able to afford a house where you are by saving hard for 2 years, then you are probably better off (financially) doing that.

As others have said - you have to be careful about service charges / maintenance charges with flats. Some can be ridiculous.

Save and buy a house

Our son made around 30k profit in just over two years and is now in a four bedroom house, so it definitely helped him onto the ladder.

However, in the end he hated living in a flat because there was no outdoor space, he had no control over neighbours behaviours (frequent partying when he had work), There was no parking and the communal areas created minor conflict about things like bicycle storage and tidiness of bin stores.
The agents handling shared responsibilities charged excessive amounts by a low first year/ on purchase and then raising the ground rent. They were not responsive about repairs and needed a degree of pressure to get essential things done.

He doesn’t regret the flat, it was a very good first buy, a fun bachelor pad allowed him to move up in the same area, but he’s very glad to be in a house.

If you can live with parents rent free and in comfort, stay and save. If you can tolerate neighbours in close proximity and the challenges that brings, a flat can be a very good investment usually. Prices are very high at the moment so might be worth doing some research about likely trends and optimising when you purchase. Also research the agents well to ensure they are fair and do what you pay for.

@MarianneUnfaithful

A better bet than renting. As long as service charge, ground rent and maintenance arrangements are sensible.

For e.g I would choose A flat on the first floor (ground floor if you can afford it) of a converted Victorian terrace with a share of freehold over a flat in a big block with a big service charge.

Around here (SW London) there are a lot of Edwardian 2 bed maisonettes, each with their own private little bit of garden, so steps down from the first floor one.
We have one, but I never considered a ground floor one because of security issues - I.e. inadvisable to have bedroom windows open at night. Ground rent and service charges are typically peanuts. They typically both rent and sell easily.
That sort of thing would be my choice if I were buying again.

I own a 2 bed flat and want to upgrade to a 3 bed flat. I live in a part of zone 3 london where a nice house would be in excess of a million, and I would rather live in a flat than move out tbh. IMHO, you should buy a flat in an area where a decent house (not ex council or tiny) costs in excess of a million because the disproportionately high opportunity cost of investing in a freehold kinda justifies buying a leasehold (and you can pay the service charges with the money saved). Which is why I would veer towards buying a flat in London but not in the north. I would also avoid buying a flat in the Home Counties because I think most people who move to the Home Counties want a house (and have the cash to do so). In London, its pretty much unaffordable for a FTB to buy anything but a flat, so the demand would probably be there even if leaseholds become less popular.

I would go for a long leasehold, a share of freehold/a building where the residents have taken over the management of the building/preferably period. And I would go for a period flat (but there are very few new builds in my neck of the woods so not really an issue for me personally).

It's hard to say whether it's better to buy a flat now or save for a house. If you're paying rent, the mortgage on a flat could be lower than the rent you're paying. If you're living at home, it's different. How long before you could buy a house is also a factor; waiting 1 year is different from waiting 5 years. If you really want a house, can save enough to get one reasonably quickly and are OK with you're current living conditions, wait. Otherwise, the case for buying a flat now is stronger.

No-one can say for sure whether property will continue to increase, stagnate or fall, or which type of property / what location will prove the best investment over the next few years.

Be wary of new builds, they are often over priced and won't appreciate in value as much as established properties. Not all, but be wary. An advantage of new builds are generally lower heating bills (better insulation). Watch out for high service charges and ground rents (check for escalation clauses). Beware of cladding / fire risk issues.

@eightlivesdown my mortgage isn't much lower than what I would be paying in rent (london). but inflation is expected to be very high, interest rates on savings accounts are dire and debt is fairly cheap. So I am able to use my savings to overpay the mortgage which is much better than letting it sit in a savings account and lose value which is probably what would happen if I rented.

We have just bought a 2 bed flat in South London. When we were looking, there were so many couples having to settle to sell for what they had paid - there was a boom in S London about 5 years ago and those people were ready to move on in Covid times, when buyers ideally want outdoor space, there has been the cladding scandal fallout etc so prices have stagnated. The zone 2, 1 bed flats where we currently rent have been selling for 40k less than 2016 prices too. We paid 25k less than what an identical flat sold for in 2016, but ours needs cosmetic work and a new bathroom. Lots of landlords leaving the buy to let game too. We looked at lots of flats and ended up with something far better than we expected.

Depends on so many factors. I sold last December an investment flat in a large complex. It had two balconies and a harbour view, no facilities (like a gym) but was in a larger development which had everything within walking distance. Service charge was about average - equivalent to six weeks rent.
Sold it to first viewer for 20% more than I paid for it in 2016.
Another flat I fell in love with - gorgeous listed building and sea views. No problem renting it but I sold it earlier this year for just a few thousand more than I paid in 2018, considering the upgrades and agent/selling fees made a small loss. It also took four months to sell. So, location and what it is counts, you can't make a blanket statement about it.