Thursday, 12 March 2020

Should you buy a new or used property?

comic style strip with modern and old house
I’ve spoken with many landlords who are either looking to buy their first buy-to-let or expand their portfolio. I often get asked whether it’s worth buying a new-build property when it comes to investment.

I point out that most landlords 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 ‘used’ property. A new-build also offers little scope in adding value through refurbishment, whilst 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.

Nationwide data suggests there is currently a 14% premium in price between new-build properties and the average UK home. This premium has steadily grown over the past decade; in 2010 you would pay just 3% more for a new-build home than the average house price. It seems the various incentives, such as the help to buy scheme, have artificially inflated the market for new-build properties. Many of these schemes benefit first-time buyers (and the house builders - just look at their share prices), whereas investors are left paying a premium without the government-induced financial enticements.
line graph of new build price premium vs average UK house priceHowever, 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 net yield from a new-build property will be much closer to the (albeit lower) gross yield than it would be on a potentially more problematic older property.

It can also come down to picking the right new-build site and negotiating the best deal possible from the developer. Discounts may be available in the early stages of a development as the builder seeks to boost their cashflow, particularly when the property is bought ‘off-plan’ i.e. 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 people would rather take on the project of an older property; adding value and maximising their return in the process. Others are happy to get a more modest return from a new-build property that comes with less effort and stress.

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

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