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Off-plan property has provided successful property investors with some of the most profitable investment opportunities in the UK for many years. Developers have been able to build in amazing locations. Investors have banked consistently high rental yields and capital gains.
As with all investment markets, the UK property market has its ups and downs as it moves through the property trend cycle. Over the longer term, though, investors have made some incredible profits, with property values doubling on average every eight to ten years. Take any isolated five-year period, and there will be some capital appreciation. When property values have fallen across the UK, they have bounced back quickly.
Our unique Hotspots Algorithm studies 108 data points across 324 areas of the UK. It helps you to hone in on the best places to invest in property UK. Having identified where to invest, the next question for many investors is whether to buy existing residential property or invest in off-plan property.
In this article, we break down the pros and cons of each type of property investment. It will help you decide which property best fits with your investment objectives.
Existing residential property
Existing residential investment property is usually cheaper to buy than new build. Many investors falsely believe that a lower price equals lower risk. You could find yourself with expensive renovation bills, and rental income may be lower than for off-plan property once completed. Let’s look at the main advantages of investing in existing property first:
- Because it’s already built, you don’t need to worry about the developer going bust and your investment deposit disappearing.
- It may be possible to add value by modernising or upgrading. It could increase its rental potential, too.
- You could negotiate a good deal, especially in a buyer’s market. If the property needs some renovation work, your negotiating position is stronger.
- Existing property tends to hold its value better in weaker markets. It isn’t to say they won’t fall in price, but the fall may be less pronounced than that experienced by off-plan property.
What about the disadvantages?
- Finding great property investment opportunities with exisiting property can be difficult. Existing property tends to be away from shops, schools and transport hubs. It limits demand and capital growth potential.
- There is no guarantee that you won’t need to spend more than budgeted for on renovations. You may get away with a lick of paint and a few minor repairs to bring an existing property up to scratch. On the other hand, big problems often rear their ugly (and expensive) heads after you have signed on the dotted line. It’s not cheap to replace plumbing, rewire an entire home, repair roofs, and shore up subsidence.
- Even if you don’t need to replace all the plumbing and electrics to be able to let your property, maintenance on existing property is more expensive. You could receive more ‘emergency calls’ from tenants. The older the property is, the more its upkeep costs tend to be.
- Older property tends to be less popular with renters. People like new, shiny things. They will probably pay a premium rental price to live in a newer property. As more established property tends to be further away from transport and recreation amenities, this also serves to decrease demand from would-be tenants. It increases the likelihood of extended void periods. While a property sits empty, it begins to deteriorate faster. When a property deteriorates, maintenance costs rise.
Off-plan property hasn’t yet been built. You are buying the promise of a completed home at a specific time in the future. Many of the best developers are building on brownfield sites in city centres. These areas have been earmarked for regeneration, and are often at the heart of massive infrastructure investment. Demand from renters is likely to be higher. But what about the downside of investing in off-plan property?
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- There is a chance that the developer could go bust. In this case, your investment is at risk. Your investment goals could be pushed back. Investing in a development built by a trusted developer with a good track record will mitigate this risk.
- Completion could be delayed. Adverse weather conditions or unforeseen issues with planning are the most common reasons for delays.
- Financing an off-plan property investment can be difficult. Lenders are not obliged to extend a mortgage after a period of (usually) six months. If the lender believes the value doesn’t match the purchase price, you may not be able to raise the money to complete.
Here are the main advantages of investing in off-plan property:
- You buy at a price based on today’s value, meaning there is the opportunity for a substantial capital gain by the time you complete the purchase in perhaps two or even three years.
- Not only do you have this advantage, but you’ll also buy with a discount to current market value. This acts as a cushion should the market fall, and increase capital gain should it rise.
- When completed, an off-plan property will benefit from builder The property and major maintenance issues will be under warranty for 10 years.
- You get to choose the finish, furniture, fixtures and fittings.
- You might be able to benefit from rental guarantees, which aren’t available on existing property.
- New build properties are more energy efficient, with modern appliances, and lower maintenance needs. These make them highly attractive to renters. It should translate into shorter and less frequent void periods, longer tenancies, and higher rents.
- Capital gain and rental income potential tend to be high, as developers build in city centre locations with the advantages of being in regeneration areas, near shops and major transport hubs.
Invest where people want to live
This last advantage of off-plan property allows you to benefit from the trend of more people wanting to live in city centres. They want to live near to where they work, and with recreational facilities close. The value of land and property in inner cities has been rising faster than elsewhere. This trend could continue.
As you can see, off-plan property investment has some significant and unique advantages that are difficult to match when you buy existing property. But even with off-plan property, not all inner city apartments are equal. Your investment choice must tick all the right boxes – location near shops, schools, transport links, major employers and major investment.
Contact one of the Gladfish team today on +44 (0)207 923 6100, and we’ll be pleased to help you find the best off-plan property in the best places to invest.
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