Beware of investing in older properties

The pros and cons of existing vs. off-plan property

So far in this series of investment guides discussing the seven considerations before investing in UK property, we’ve looked at:

  • the need to plan for a larger deposit;
  • how to deal with rental income fluctuations; and
  • how to invest in property and reduce tax.

In this property investment blog, I’ll look at one of the most common questions asked by people considering property investment: “What’s the best investment property to buy – new build, off-plan property or an existing home?”

The case for (and against) investing in existing properties

The case for buying an existing home as an investment property is pretty strong. It’s established, in an established location, and very often there is room to negotiate on price. If you’re looking for a property investment that offers the potential to produce a rapid capital gain, then an existing property in need of some TLC could be the answer.

We’ve all seen the television programmes that take us from the moment a property investor buys an old, dilapidated property at a knockdown price, guts it, replaces the kitchen and bathroom, adds a couple of rooms by some nice remodelling work, and then sells at a fortune or lets it at a premium rent. The sad fact is that while these quick wins do happen, they aren’t as common as you’re led to believe.

Existing houses, even when they are the best places to invest in property UK, are notorious for hiding problems. Repair and renovation budgets are more often than not blown through. I’ve seen property investors buy what they thought was a great investment property only to discover the house is riddled with asbestos – and that’s very expensive to deal with.

Structural problems can appear from nowhere, and there’s no builders guarantee to fall back on. If you buy an existing property that’s in good nick, be prepared for higher maintenance and repair charges. Everything is older. Electrics may need replacing, boilers and central heating, too. Roof tiles get damaged by weather. Window frames may be wooden and rotting.

If you’re looking for property investment opportunities for short-term gain, and you’re prepared to repair and refurbish, then you might consider investing in existing property. Be prepared to blow through your budget, though.

As a long-term buy-to-let property investment, an existing property may offer what appears to be a better return, but expected income could be harmed by immediate and ongoing maintenance and repair costs.

The case for (and against) investing in new build properties

Okay, the first thing to understand about new build property is that it’s priced at a premium over existing. It costs more. For some property investors, this is a pill that’s just too difficult to swallow. Others are happy to invest in both new and existing property opportunities. Others, like me, only ever invest in new build (and mostly only off-plan property).

Another drawback to new build property is that nearby contruction usually accompanies it. That creates extra noise, traffic, and general disruption. On the other hand, if you’ve invested in off-plan property in one of the best places to invest in property UK, then the likelihood is that at least part of this new construction will be on infrastructure and regeneration projects. Old Oak Common, for example, is going to be a ‘building site’ for several years to come – but each week the vision of a modern lifestyle location gets a step closer.

So what do you get for a premium that averages around 20% over existing homes?

Well, for a start, it’s new. It’s clean. There’re no major issues (because you’ve read our advice about snagging off-plan property the easy way). It’s ready for move in, and that gives you a few weeks extra rent on an existing property.

It’s also modern. It’s got a great energy rating, state-of-the-art kitchen appliances and white goods, and is packed with all of today’s technological advantages. Millennials – a fast-growing rental sector – will love this. When you invest in property off-plan, you get the chance to customise for your target tenant.

Of course, because the property is brand new, you have a far lower maintenance and repair bill for the first few years. And the build will probably be under guarantee for ten years, too. So any unexpected structural defects will be covered.

A new build home as a property investment is easier to let, too (because of the factors I’ve mentioned above). It attracts the best tenants. The newness, cleanliness, and modern lifestyle qualities of a new build also invites the highest rents.

Suddenly the premium price looks like more than a price worth paying. But it gets better when you invest in off-plan property.

Off-plan property as a property investment opportunity

Buying something that isn’t yet built is a leap of faith for many. I’ve made it the mainstay of my property investment business, so I’m happy to put my faith in its qualities and advantages.

When you invest in off-plan property, you benefit from all the advantages of making a property investment in new build and a couple more on top. For example, you get to keep your money in the bank for longer, as the payments are staged through to completion.

While we’re talking about completion, remember the nasty SDLT (stamp duty) that you have to pay when you buy an investment property, which we discussed in our last property investment blog? Stamp duty doesn’t have to be paid on an off-plan property until completion. This gives the property investor extra flexibility, affording the ability to sell before completion (where contracts allow) and not having to pay stamp duty.

New build, existing, or off-plan property

For me, new build and off-plan property wins every time. But then I’m a lazy investor. I don’t like the hard work, higher running costs, and uncertainty of return that bugs an investment into existing property.

In the next part of this property investment blog series, I’ll look at how the best property investors start small and grow their property portfolios in a measured way. In the meantime, feel free to contact one of the team on +44 (0)207 923 6100, who will be pleased to answer any queries you may have.

Live with passion

Brett Alegre-Wood

Brett Alegre-Wood
November 10, 2016

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