Buying a property as an investment, a buy-to-let could be an incredible opportunity. Weighing up the option of purchasing a new versus an old-build property may be on your mind. This article will help debunk any myths you may have heard surrounding this topic, so you can make an informed decision on which path to take.
The great things about buying a new build property
The hint is in the name, ‘new build‘, the building, and all its fixtures and fittings will be brand new. Kitchens, bathrooms, integrated appliances, windows etc.
Most new build developers offer a 10-year guarantee on these properties as an assurance of their quality. Snagging checklists can be found online, or there are plenty of expert snagging companies that can be instructed to scrutinise any new homes for imperfections, even to the tiniest of details! These reports can then be shown to your developer to be recorded and rectified.
Most new build developments in the UK will be built as a new ‘community’, usually a small village of similarly aged properties surrounding it. Supermarkets, schools, barbers, gyms, and other small businesses would be situated there for the convenience of the new residents. This all adds attraction to both individuals and families that are looking for a new area to live in.
Due to the above, the demand for rental properties on new development estates is soaring. Most tenants will be looking for a property that suits all their needs, in a long-term house they can call ‘home’.
Buying off plan will usually mean making purchasing decisions mainly based on show-homes and drawn plans, to give you an idea of quality and the space offered. Getting in on this stage could potentially mean negotiation on price, as well as the opportunity to customise the features and fittings of the property to your liking.
The not-so-great things about buying a new build property
The first hurdle to consider will be being patient. If going with an off-plan build, there will be a timescale you’re given outlining the build schedule and steps to completion. It will usually take a while until it’s completed and ready to be tenanted to get an initial return on your investment. There have been numerous occasions in which the build process has been delayed. This could be contributed by various factors, such as weather and environment or availability of materials and labour at any given time. So be prepared for potential setbacks.
There will be a lot of variable factors surrounding a newly built property, such as, who is the local council to handle bin collections and council tax. Has the property been registered with the likes of royal mail? What is and isn’t included in the sale? Is it on freehold or leasehold and if so, what are the incurred ground rent and/or service charges? Negotiation may be started to have some items included in your purchase.
New builds are usually mass-built, as mentioned earlier with snagging reports, there could be small flaws or overlooked items by the building contractors. Tenants will usually expect a perfect property seeing as it’s a ‘new build’ and could get frustrated if, for the first few months, small fixes are being done by visits made from contractors. It could mean your first set of tenants is less likely to stay long-term.
As the building will be almost brand new, there may not be much scope for improvement for adding value to the property. With most new build properties, you will be paying a premium for the fact that it is new. Once bought, the property will immediately be worth approximately 10-20% less than what you purchased it for. It’ll be worth hanging onto a new build property long term, as in the short term you could be disappointed with the drop in value.
The great things about buying an older build property
Unlike new builds, older built properties have been tested over the decades that it’s stood. Any small issues that arose from building it new, will have been rectified years ago.
A new build property is usually duplicated, you’d have rows of houses spanned over multiple roads that look identical! Older homes could have the characteristics and features that you desire, meaning a cosier place for someone to call their home. It leaves your tenant the opportunity to make it theirs by putting their own stamp on it.
Renovating, and improving an older home is more attainable, and generally more beneficial too. Whether it be an extension, loft conversion, conservatory, kitchen, bathroom, or even a conversion to an HMO. Most of the mentioned will be subject to planning permissions and/or licences, but is easier obtained on an older property than on a new build!
With an existing built property, there is a larger database available for like-for-like properties that are in that area to make comparisons with other sale and rental prices. This’ll help you, especially when negotiating a price for the purchase of the property.
You’re also more likely to find a property that is freehold. Meaning the property, the land it sits on, and any of the space above it on it solely belongs to you, meaning no need to get permission from leaseholders to change the most minor of things. Also, there wouldn’t be a time when a renewal of the lease comes up needing to be paid. Depending on various factors, the cost of an extended lease can be very costly.
In these instances, there would be no applicable ground rent or service charges payable to anyone, seeing as you own the land.
The not-so-great things about buying an older build property
The small issues mentioned above from when it was built new? Well, if the property is say, 80 years old, there should be a consideration of deterioration that is not able to be seen with your eyes.
Whether it be damaged roofs or fascia, degrading damp-proofing, electrical, gas works, and plumbing. As well as various other factors, an expert in the field should be instructed to survey the current condition and make recommendations to repair or improvement, this information should be paramount in your purchasing decision.
Older homes generally need more attention when it comes to wear and tear, there will have been occupants there before your purchase and it’s likely some sort of repairs will need to be done to make it a comfortable place to live.
Any repairs can be the opportunity to improve and increase the value of your property, but it will mean a small void period with no paying tenants living there whilst it’s being done.
Older properties aren’t usually as efficient as the newer ones are, lack of insulation, inefficient lighting & white goods, and dated or single-glazed windows could contribute to a low EPC rating (Energy Performance Certificate). There is a minimum standard rating required for a property to be rented out, and investors may need to be made to improve it and get it tenanted.
Additionally, a low EPC rating will contribute to higher fuel bill costs. Electricity and gas bills will suffer on an inefficient property, which could lead to complaints from your future tenants.
Freehold properties you come across will usually be houses, flats are quite uncommon on a freehold and are usually more expensive to purchase.
As most flats are leasehold, bear in mind the remainder of the lease length left. A shorter than expected lease could lead to difficulty obtaining a mortgage.
Also, bear in mind if you plan to sell in the future and whilst the lease length obviously decreases throughout your ownership. You’ll notice a drop in value as others will be weary from purchasing a property with a short lease, just as you would. In this case, you’d need to plan to fund for the lease to be extended, and the cost will vary, anything from thousands to tens of thousands!
Well, which should I choose!?
Well unfortunately I can’t tell you what you should or shouldn’t do. The decision will vary from the perspective of different people, and there isn’t a right decision to suit all.
Weighing up the points given in this article should give you, as a reader, an indication of which option you feel more comfortable and competent with. Worst case scenario, If not, delving out there and going round to speak to new development teams and estate agents marketing older properties, will spark your gut feeling on what avenue you should venture down.
Whether that be purchasing a new build or an existing built property, get in touch with us to see if we can help. We sell properties too!