• Skip to main content
Property Investments UK Logo
Skip NavigationMenu
  • About
  • Blog
    • Latest Articles
    • Investing In Property
    • Locations
    • Media and Press
    • Property Experts
    • Strategies
    • Selling Your House Quickly
    • Selling Investment Property
  • Training
  • Buy a Property
  • Sell a Property
  • Contact

08/01/2020

Will a New Build Development Make a Good Buy-to-Let Investment?

Do new build developments make good buy-to-let investments? Well yes, they do, but you shouldn't get distracted from the fundamental principles of investing in property. For any buy-to-let to work in the long term, rental yield needs to be high enough to cover your running costs or you will lose money very quickly.

Contents

  • Is Buying a New-Build a Good Buy-to-Let Investment?
  • Investing in Off-Plan New Builds
  • Fundamental Principles
  • New-Build Developments
  • Maintenance and Running Costs
  • Snagging
  • See Also

Is Buying a New Build a Good Investment?

When you have been looking for property investment deals you will certainly have seen a whole range of new build developments and off-plan properties which could have been either houses or apartments, or both.

The question is, do new builds make good investments or not?

Back to contents

Investing In Off-Plan New Builds

Off-plan property means, simply, that the property has not been finished, insofar as it is not ready for tenants to move in.

The problem with investing 'off-plan' is that things can change as the development reaches completion. The development schedule might change or the works themselves. The value of the property could change.

So that's one thing you need to factor in with this kind of investment; the likelihood of change. But here, let's step back and look at new build investment as a strategy in itself.

Back to contents

The Fundamental Principles of Property Investment

When you are looking at new builds, with an eye to investing - whether they are on the market with estate agents, or off-plan and brought to your attention by a property sourcing agent - you should never lose sight of the fundamental principles of property investment.

So, you want to understand the area and be happy that it works for you. You need to understand the rental yield, the capacity for growth, the rental demand and the discount you are getting.

You need to take everything into account to see if a property is going to be right for you.

The truth is, that some new build developments can have quite low rental yields. Some developments I have seen have had yields as low as 3% or 4%. Now, that's far too low for a long-term buy to let strategy. With yields as low as that, and if you are mortgaged, your monthly income is either going to be less than your monthly expenditure or will barely cover it.

You have to check that the sums work in the long-term. Your rental income has to cover your running costs, your maintenance, your management fees. So, with any buy to let property, and not just new builds, you need to make sure that everything is balanced, that you have a contingency factored in, and that you are still able to turn a profit.

Back to contents

Join our Property Club, TODAY, for FREE, to become part of the Property Investments UK community.

Members get first dibs on exclusive, high-yield, off-market property deals, as soon as they go live, as well as access to all of our content. There might even be a few special promotions for investors, in there as well. >>>> LEARN MORE AND SIGN UP >>>

New Build Developments

We, certainly, see a lot of great off-plan new build developments. They are in the right locations, have the right tenant profile and have the right long-term potential for growth.

But I stress again, if you are considering these kinds of properties then, most importantly, you have to ask yourself, will the yields work, given your situation?

You also need to have a look at the developers undertaking the work. What is their reputation like? Do they have a long history, as a company, or are they relatively young? Do they have the right kind of pedigree?

And you need to think about time-scales. So, how long is the development going to take? The truth is, if you are buying a property that's going to be completed in a few months then it's going to be a lot easier to crunch the numbers than if the property isn't going to be ready for a few years. After all, a lot can change in terms of rental demand, house prices and the location in a few years.

The flip side to this is that you can often buy a property at a much better price if you buy earlier on in the development process. So it's a trade-off between gains and risk.

Back to contents

Maintenance and Running Costs

One advantage of investing in new build developments over existing housing stock is that new builds tend to be more energy-efficient and are therefore cheaper to maintain.

The existing, historic housing stock in the UK is great. It's very stable, longstanding and in the right areas, there is a lot of tenant demand.

But, the reality is, that if you buy a typical two-bedroom terrace or three-bedroom semi-detached, if it has not been through a recent refurbishment, the roof might be getting towards the end of its life.

This is not going to be a concern if you are buying a new build.

Then, there will be other problems with older houses such as the electrics, plumbing, the boiler, bathrooms, kitchens or the decoration. These might all be slightly dated.

All these things are fixable but there will be a cost, both financial and with regards to your time. A new build development, however, will not need any of this work doing and could be income generating on day one of your tenancy.

So, if you are considering a new build you need to weigh up the pros and cons. Certainly, new build developments can have lots of potential benefits and if it's the right deal, the right location, the right yield, the right tenant profile, then, absolutely, consider looking at new build developments over existing housing stock.

Back to contents

Snagging

A word of warning, however. While new-build houses or flats may be more energy efficient, have fewer problems and can generally cheaper, in the long run, to maintain, they are unlikely to be in a perfect condition at the point of purchase.

A survey by Shelter conducted a few years ago, found that just over half of all new-build houses have major faults or flaws.

As such, when buying a new-build house it is always a good idea to do a snagging survey of the property. That way you can identify what needs to be done, giving the developers the chance to put things right.

Back to contents

See Also

  • FastTrack (Free Course) Property Deal Analysis and Forecasting
A graphicical element, icon showing house keys

Secure your Future with Buy-to-Let

Investment Properties made Easy with an Average 8%+ Annual Yield, Beating the UK Average of 3-5%!

Find Out More

Filed Under: Off-Market and Off-Plan

Reader Interactions

Comments

  1. Anthony says

    25/10/2018 at 11:52 am

    My biggest concern is uncapped service charges/ground rents. How do people get comfortable with this? I have seen properties in city centres pulling in say £6-7k income but with £1500-2000 pa service charges (not even management fees, actual service charge for running the building).

    That’s a scary amount of rental income to give away vs a freehold and with inflation it’s technically uncapped. Yet these new builds keep selling like hot cakes. Am I missing something?

    It makes sense in London where rental income is c £18k pa, but in lower rent areas surely it doesn’t make sense?

    • Robert Jones says

      31/10/2018 at 10:04 am

      Hi Anthony it’s a valid point and is important to check the service charges and ground rents and make sure they don’t do anything silly like double in value every ‘x’ years or are very high to start with. There will always be a maintenance cost of a building and apartments are no different to houses with having to forecast a possible future cost, the upfront and more established nature of new build apartments maintenance costs make them stand out to existing houses where it is likely more of an unknown, so forecasting like for like deals is very important so you can see what the true yield and return will be.

      • Robert Jones says

        31/10/2018 at 10:05 am

        If it helps we have forecasting sheets and videos in our Fast Track training here –

        https://www.propertyinvestmentsuk.co.uk/fasttrack/

  2. kris weaver says

    04/03/2018 at 1:05 pm

    Im considering buying a new build flat (already completed, not offplan) in a town centre location , its a 2 bed but has no allocated parking space as seems to be the case with new builds in town centres. Is this still a wise investment?

    • Robert Jones says

      06/03/2018 at 10:30 am

      Hi Kris,

      It’s hard to say for definite as there are so many variables.

      Things to consider could be

      – What is the competition like for other apartments to rent and buy in that area, do they all have parking spaces and is yours unusual, or is no parking not an issue for the local market and is expected

      – Do the yields and buy price make sense and work for you

      – Whats the reason for sale if it’s a completed new build, how long ago was it completed and any issues that you can see

      Here is a good checklist to help get you started

      https://www.propertyinvestmentsuk.co.uk/investment-property-checklist/

      Hope that helps

    • Adiel Stephenson says

      11/03/2018 at 11:36 pm

      It’s not usually a problem if it doesn’t have parking. As you yourself have said, parking is nearly always an optional extra with new builds, and in London, developments are not allowed to offer more than 40% parking, so a full 60% of the flats will not have a parking space to go with them anyway. Check that transport links are very good, however. If you’re going to rent it out, many tenants will not have a car, but they will want good transport links pretty much on the doorstep. One very important point about completed new builds is that they very often lose their shine quickly, i.e. they start looking dated within a couple of years, and new stock comes on the market which only accentuates the difference. Therefore, in my experience, you’re often taking possession of a depreciating asset in new builds, and you’re not getting the benefit of buying offplan with the attendant discounts that you often get for that. In other words, you’re paying top dollar for an asset that is likely to lose value over time. One general disadvantage of new builds is that you can’t add value, as you can with houses, and therefore you can’t remortgage at a higher value six months up the road, as you would be able to do with a house that you’d improved through renovations or extensions. One final point is the – often – huge service charges you have to pay (on top of the ground rent, as you don’t own the freehold as you do with a house) – service charges really eat into your rental return and they can be increased, often by a lot, from one year to the next, thus also lowering the resale value of the property. For these reasons I would stick to offplan apartments and houses. I wouldn’t buy already completed new builds – the guy selling it is probably wanting to make a quick profit on the uplift, and you’re the muggins who’s missed out on that and, as I say, is now lumbered with a depreciating asset. Stay away. There are better options for an investment.

      • Robert Jones says

        13/03/2018 at 10:07 am

        Hi Adiel,

        From what we are seeing with new builds, both on personal experience and also data from across the UK, whether or not a new build is a depreciating asset, is very much determined by the local market. If the local market has stayed static or has gone down in value, then like other properties the new builds will too. If the local market has increased in value then like other properties new builds will increase also.

        Add to this the context of the purchase prices , ie: if your purchasing at a discount whether it is an existing build or a off plan development then you can lock in value that way.

        It all very much comes down to the detail of each deal, but we have seen and continue to do so, some very good new build developments and if you buy with the right fundamentals they have been performing very well

        Hope that helps

ON THIS SITE
  • Buy a Property
  • Sell a Property
  • Courses and Events
  • Property Crowdfunding
  • Blog
  • Reviews
LEGAL
  • Privacy Policy
  • Terms Of Use
  • Cookies
  • LOG IN

    Current members of any of our training programmes and courses can log in here:
    The Property Investor's Handbook
    The Buy-to-Let Masterclass

    PROPERTY INVESTMENTS UK

    Westminster House,
    10 Westminster Road,
    Macclesfield.
    SK10 1BX

    Company Number: 08852962
    VAT Number: 293 4194 80

    rob@propertyinvestmentsuk.co.uk

    DISCLAIMER

    Property investing, like any investment, carries risks. It is important to note that results achieved in property, from following our training courses may vary from user to user.

    For full details, disclaimer and policies click here.
    To contact us click here.

    MEMBER OF
    member-the-property-ombudsman

    2020 - Property Investments UK - All Rights Reserved

    Sitemap