The good, the bad, and the new build

Whether you are a first time or seasoned investor, or a high net worth individual, property investment has always been considered a rewarding and secure way to protect your financial future, but with so many opportunities available, choosing which route to take can be a daunting prospect. The property market is bursting with potential buy-to-let purchases but it’s becoming increasingly popular for investors to opt for a new build property. So what does this entail, and is it financially a viable option?

A new build property has all the factors that a modern day investor would wish for – they are generally much more energy efficient, they are designed with contemporary living in mind and they are family focused. What’s more, after acquiring the property, there is no need for repair or refurbishment and minimal maintenance from the offset, giving landlords almost immediate return on their investment.

The make-up of a new build is also an extremely appealing concept to a potential investor; modern fixtures, attractive detailing, and security and safety built into the design. And with strict regulations imposed during the build process, landlords can expect fewer structural problems in the future. Add in attractive purchase incentives and deals, no chain issues, and excellent locations close to local amenities and travel links and you wonder if buying an older property as a rental investment is even an option anymore.
However, there are some red flags which investors need to explore before a final decision is made.

1. Are you hoping to buy cheap and do the property up yourself? It wouldn’t be a smart business move to buy new build if this was the case. Older properties offer scope for refurbishment.
2. Will the rental yield be comparable with older build properties in the area? You need to be sure that you can be competitive in the local rental market.
3. Is the location right for you? New builds might be built close to conveniences but if your target market is young professionals or students then you might be better off buying in a town centre location.
4. Could it be more beneficial to buy off-plan?

Purchasing a property before it has been built does bring with it a few financial benefits for an investor. Developers will let a plot go for a discounted price, which can be considerably less than an existing new build, meaning an investment might actually become more profitable by the time the house is built, providing a potentially stronger rental yield. However, this isn’t without some risk; no one can guarantee what will happen to house prices, and when you are reliant on construction timelines, it could mean a longer wait before you can start to earn back on your home.

So what is the best option for an investor who has chosen a new build opportunity?

– Get in there early enough and buy off-plan and you’ll normally be allowed some form of input into the finished design, including fixtures and fittings – great if you have a real insight on what the rental market is after.

– Buying off-plan means you are a relying on drawings, plans and the developer’s word on how the home will turn out; there is a chance that some things will look or feel differently upon completion, such as room sizes, kitchen layout or outdoor space. With an existing new build, you can physically walk around the home, and the location and estate to really get a feel for the investment you are making.

– Can you cope with potential construction delays, site issues and lengthy wait times before the home is built, both financially and personally? This could have an effect on your bank balance as well as being physically straining on you as a person.

– Is the price right? Yes, the price of an existing new-build could be more than buying off-plan but these can be negotiable and you can also take advantage of attractive incentives from developers.

Both options have great potential return for an investor but, as with any venture, ensure the appropriate due diligence is carried out ahead of the agreement. Research the stability of the developer if the intention is to buy off-plan, look into the project as a whole to see where further development will take place in the future, and invest in the help of a professional property management business, which can advise on the risk and benefits of potential developments in the area. Be pernickety with contracts and leave no stone unturned.

Ogilvy & Sneydprovide a residential property management and lettings service for property investors, buy to let investors and property landlords in Staffordshire.