Is new or old property best for buy-to-let?

I’ve spoken with many landlords over the past year who are either looking to buy their first buy-to-let or expand their portfolio. I often get asked what I think of new-build property as an investment.

I point out that most investors shy away from new-build property as there is a premium factored in to the price, meaning there are normally better returns to be found elsewhere from a ‘second-hand’ property. A new-build also offers little scope in adding value through refurbishment and many complain they simply “don’t build houses like they used to”.

For others though, a new-build property is perceived as a safe and low-hassle investment, which is ready to rent immediately. They are popular with tenants wanting all the ‘mod-cons’ and it’s generally an easier job letting and managing a new property that comes with guarantees and warranties.

Like I tell my landlords though, if the property is purely for investment, you should really let the numbers do the talking, as opposed to what you might ‘like’ the look of.

In 2014, new-build properties in the U.K increased an average of 7% compared to 8.3% for all homes. This trend is entrenched longer term, as data shows the average price of a new-build property increased by 19.1% in the past 10 years, compared to a 23.4% average increase across all U.K property.

When you factor in the lower rental return due to the higher purchase price (Nationwide data suggests there is a 2% premium in price between new-build properties versus the average U.K property), you can understand why many avoid new-build properties.

However, when you consider the ease of letting a new-build home and the reduction in overall maintenance (once snagging is completed), my experience suggests the new-build’s net yield will be far closer to the (albeit lower) gross yield than it would be on a potentially more problematic older property.

It is also a case of picking the right new-build site and negotiating the best deal possible from the developer.

Discounts may be applied by developers to boost their cashflow in the early stages of a development, particularly where the property may be bought ‘off-plan’ before it is built.

Conversely, towards the end of a development, a shrewd buyer may be able to negotiate a decent discount as the developer seeks to sell their last few homes and move on to their next site.

As ever with the vast array of possible property investment strategies, it really is ‘horses for courses’. Some would rather take on the project of an older property; adding value and maximising yield in the process. Others are happy to get a more moderate return but with a lot less effort and stress.

If you’re looking to invest in a buy-to-let and would like some impartial advice about your various options, please get in touch.

(This article was featured in the Chichester Observer's property section on 11th June 2015)

Clive Janes, CRJ Lettings.  www.crjlettings.co.uk

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