Do new builds make good investment properties?
Whether you’re considering a house or an apartment, let’s take a look at the pros and cons of buying new builds and off plan developments as investment properties.
Issues to look out for
New build schedules can sometimes be delayed, and as an investor, you need a realistic time frame to work with. For instance, it’s easier to work out the finances of a property that will be complete in a few months than one that won’t be finished for years – considerable economic changes can happen in the space of a few years that will impact on rental demand and house prices in that area.
According to research by the New Homes Review, 40% of new build homes aren’t completed by the original deadline.
Another consideration with an off plan is that sometimes changes are made, and the completed development is not quite as you expected. The same research from New Homes Review found in 87% of new builds, homeowners said that after moving in they found snags that required further work. 55% had more than 10 snags and over a quarter said they went unresolved.
This is why it’s important to research the reputation of the developers undertaking the work. Take a look at other developments they’ve constructed and see how they’re rated by the householders actually living in their properties.
Fortunately, nearly 70% of householders are happy with their properties once the initial snags have been sorted out.
Benefits of new builds
These issues aside, there are many benefits to investing in new builds.
First, they don’t require any work. As you don’t need to spend time and money on decorating, you can start generating income as soon as you have a tenant. Plus, most new builds give you the opportunity to choose fixtures and fittings, colour scheme, flooring and other features.
Another advantage is that maintenance costs are low as new builds have to adhere to minimum standards for energy efficiency. As a result, your household carbon footprint is reduced, and fuel bills are lower. New builds also tend to offer higher levels of security as they’re constructed to strict safety standards.
In addition, a new build will have a 10-year warranty, usually provided by Local Authority Building Control Warranty or Premier Guarantee, so you have the peace of mind of knowing you’re covered if any major structural defects are found.
Questions you should ask
As with any buy-to-let, the rental yield needs to be high enough to cover maintenance.
If you’re tempted to invest in a new development, you need to ask:
- Is it in the right location?
- What’s the tenant profile likely to be?
- Can it generate a high rental yield?
- Does it have the potential for long-term growth?
Have a scout around, and you’re likely to find that many new developments will provide ideal investment properties as they’re being built in the right location, usually to meet existing demand.
Once you’ve weighed up the pros and cons of each, you may find there are plenty of reasons to choose new builds over the existing housing stock available.
Would you like to learn more about property investment?
At PMA, we run a Mentoring Programme to show you how to invest in property as well as a range of courses aimed at beginners and seasoned property investors.
Join us on one of our Discovery Days to find out more.
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