Nice chap, lives in Broughty Ferry, and it turns out, after having a coffee with him, he works in IT, has a spare bit of cash (now the kids have flown the nest) and wanted to buy his first buy to let property.
His main question was … Do I buy a freehold house or a leasehold flat in Dundee?
Most people will say freehold every time, because you own the land. However, it’s not as simple as that (it never would be would it!). The definitive answer though is to research what Dundee tenants want in the area of Dundee they want! The tenant is ultimately your customer, and, if they don’t want to rent what you decide is best to buy, then you are not going to have a successful BTL investment. So starting with the tenant in mind and working backwards from there, you won’t go far wrong. In a nutshell, find the demand before you think about creating the supply.
Leasehold flats and apartments in Dundee are excellent in some respects as they offer the landlord certain advantages, including the fact a flat can be initially cheaper to buy. Yields can be quite good, offering better cash flow. The building will already be insured and yes there can be a service charge, but it’s still for a service at the end of the day and that cost is spread between many others (i.e. when your freehold house roof goes, its falls 100% on your shoulders) and one of my favourites is that there is often no garden to maintain or blown down fences to replace!
However, some Dundee leasehold flats can suffer from poor capital growth. Some leasehold properties have no cap on the level of the service charge and it may get out of control. The length of the lease will significantly affect value if not renewed before it gets too short. Thankfully there’s not many, but some Dundee apartments/flats have burdensome clauses, I saw one recently that said you couldn’t start an abattoir in the shared drying green, I don’t think the landlord thought that was an issue. Finally, with leases, there can be sub-letting issues – which means you can’t let them out.
So what do the numbers look like? Well since 2007, asking prices for the average freehold property in Dundee (detached, semis and terraced) has risen from £195,019 to £193,691, a slight drop of 0.6% whilst the asking price of the average Dundee leasehold property (flats and apartments) has gone from £124,021 to £96,162, a drop of 22%.
When it comes to yields, one bed flats have an average yield in the City of 6.4%, whilst two bed flats only achieve 6%, but two bed houses have an average yield of 6.3% per year. But these are only averages, because very Dundee apartment block, every terraced house or semi is different. Like I said at the start, the definitive answer though is to research what Dundee tenants want in the area of Dundee they want. Demand for city centre apartments, near the nightlife and transport links can be popular and can offer the Dundee landlord very good yields with minimal voids. However, Dundee terraced houses and semis, whilst not always offering the best yields (although sometimes they can), they do offer the Dundee landlord decent capital growth.
My advice to the prospective landlord as it is to you is do your homework. One such website, which only talks about the Dundee buy to let Property Market, is the Dundee Property Blog. Another source of info many Dundee landlords use is me! What many Dundee landlords do, irrespective of whether you are a landlord of ours, a landlord with another agent or a DIY landlord, if you see any property in Dundee, that catches your eye as a potential buy to let property, be it a terraced house, semi or flat … email me and I will email you back with my thoughts (although I will tell you what you need to hear .. not want to hear!)
