The initial months of 2021 saw the greatest number of new homes be built in over two decades with approximately 50,000 new properties being built. With recent months seeing a slight omission in soaring property process, October saw the price of new build properties jump to £335,227; an increase of almost 2%, leaving Landlords looking to expand their portfolio need to evaluate if buying a new build as an investment is worth it.
ContentsBefore investing in any rental property, it is essential that landlords first evaluate what their rental yield is likely to be. This simple calculation will not only give owners an indication as to what their rental income could be, but also if the rental opportunity will generate a profit when accounting for the typical expenses that come with letting a property.
Whether or not buying a new build house to rent will generate a good enough rental yield will depend on the interest paid on any buy to let mortgage taken against the rental, any landlord insurance fees, and any agency or management charges the owner will incur on a monthly basis.
With this being said, buy to let opportunities typically see landlords pay a higher upfront cost, but save in the long run thanks to a lack of needed repairs. This alongside buy to lets generally presenting an attractive opportunity for aspiring renters means that landlords could start generating a rental income faster, and with less upfront costs.
Landlords do not exclusively consider the potential rental yield of a property before investing. Many owners look to secure more long-term profits by concentrating on seeing returns through capital appreciation. This is the amount by which a property has grown in value since its purchase, with landlords that wish to focus on capital appreciation typically purchasing property in areas that will be seeing recent refurbishment and regeneration, sending demand and prices surrounding the location soaring.
Research carried out by Stone Real Estate in 2019 revealed that over the ten-year period from 2009 the growth in value seen across new build properties outperformed traditional stock by as much as 25%. Although in the past some may have been quick to dismiss new builds as a valid investment due to the premium buyers will pay upon their purchase, this is easily recouped not only through consistent rental income, but by the capital appreciation being seen on the property themselves. The nation’s capital of London has seen the most dramatic difference between new build value and existing stock, with prices rising by 124% and 108% respectively.
Data gathered by WhatHouse? Has revealed that October 2021 is still seeing increased demand from buyers looking to purchase the quickly diminishing number of available new build properties. This demand is a startling 19.8% surge on the typical market conditions witnessed across 2019, with Managing Director of WhatHouse?, Daniel hill commenting: “Competition for new homes remains healthy this autumn, with average prices increasing by almost £6,000 in the month. Although more new build properties are coming to market, the level is still not enough to meet demand. Consequently, price uplifts have been experienced across the UK, with nine of the eleven regions of Great Britain recording an uptick.”
Whether or not it is worth it to invest in new build houses to rent is determined by the particular approach the landlord wishes to take. It is not uncommon for landlords to choose to favour investing in “off plan” properties, simply meaning that their desired rental is not yet ready to house tenants and still has some way to go until construction is completed. Naturally, this allows landlords and property investors to provide their tenants with a bespoke vision of a rental opportunity, but will come at a heavy cost. New builds can make an attractive rental prospect for many tenants often being found in desirable areas for the spectrum of rental demographics, alongside providing occupants with the latest amenities.
It goes without saying that when purchasing a new build to rent landlords will naturally be spared any immediate refurbishment or repair costs due to the youth of the property, also seeing some tenants pay a slightly higher monthly rent due to their practicality, increased energy efficiency and lack of wear and blemishes.
Buying off-plan is when the development hasn’t been built yet but is just that ie a plan. There are some very clever 3D and AR technology around these days which allows you to ‘walk through’ your home, despite the fact the first brick hasn’t even been laid. It gives you a good idea of what it will look like though, and it includes dimensions. Buying off-plan is often a good idea because the value of the property may have risen by the time it’s built.
It’s often easier because you may be able to access financial help in the form of a Help to Buy scheme (which is only open to New Builds). This means you don’t have to save up for such a big deposit. Another bonus when it comes to securing the property is that you’re not in any chain. It’s straightforward, ie you either want to buy it or you don’t.
Typically new build houses for rent will have a higher Energy Performance certificate rating than older properties, meaning that landlords will be saved the expenses of making significant renovations to the rental in an effort to increase its efficiency.
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