If you’re a property investor or interested in investing in property, and you’re wondering if new-build homes make profitable properties, the answer is ‘Yes’. Read on as we look at the benefits of new-builds for property investors and share the pros and cons of choosing a new build as a buy-to-let.
Check the market
Before we delve into the benefits of investing in new-build homes for buy-to-let purposes, we must take a closer look at the state of the current rental market.
It’s crucial to understand the issues in the rental market at present, plus the rule changes which the new Labour government are enforcing, as laid out recently in the King’s speech. So, before buying or committing to any investment property, doing your own due diligence is vital.
Shortage of rental properties
There is currently a huge shortfall of renting housing stock in the country. Why? Well, regulatory changes and high interest rates in recent years led to an exodus of landlords. Quite a worrying level of landlords selling up, in fact. Add to that the lack of new properties being built at a rate fast enough to meet demand, and you can see why the rental market is struggling.
And of course, when there’s high demand for something in short supply, we see price increases. The uplift in property prices over the last few years has impacted both buyers and renters alike. So much so that the difficulty to buy has put even more strain on the rental market.
Who is renting?
If you are serious about investing in new-build property, then you should do your research on a given area and answer this question. Who is renting? It’s important to know, because across the country, the demand for rental properties has changed.
Here’s a quick profile of some of the types of people, or the reasons why people, are looking to rent privately.
-First-time buyers. People looking to buy their first home are struggling with property prices and high interest rates. And the knock-on effect of these issues, has led to increased private rents, which makes it even harder for people in this category to save for their initial deposit. People are needing to have to rent for longer before they can afford to buy.
-Ageing population. Older homeowners who are moving out of their family home, either as a couple or individually, are either renting before they find a suitable smaller property. Or they are choosing to rent in the later years of their lives.
-Single person households due to family structural changes. There is growing demand for single person households driven by a change in family structures. Often renting is the only affordable option and most of the time, people in this category prefer to remain in the same area where their previous family home is located.
-Citizens in immigration. People coming to the country for the first time look to find rental properties for themselves while they find their ideal location to call home. They may well have an interest in renting close to schools and places of work.
-School applications. This category with school age children is keen to move to a new area to get their child/children into a new school, but they haven’t yet found a house to buy. They need to rent a good-sized property in the relevant area for school applications, while they go through the house buying process.
These are just some of the examples of who and why people need to rent. The positive take-away for any property investor is that demand remains high for rental homes, especially in areas where amenities, schools, and transport links are nearby.
New rental laws to be aware of
Finally, property investors should be aware of legislation changes under the new Labour government, which were confirmed in the recent King’s speech.
The Renters’ Rights Bill has been designed to give stronger protection for tenants. It includes the following:
-Abolition of Section 21: Landlords must give ‘clear and expanded’ grounds for reclaiming properties.
-Improved tenants rights: To allow tenants the right to challenge rent increases, while prohibiting the practice of rental bidding wars.
-Pets in lets: Landlords must consider and cannot unreasonably refuse a tenant’s request to keep a pet, at the same time landlords can request insurance for any potential damage.
-Decent Homes Standard: Ensuring there is a minimum standard for living conditions before a property can be let to tenants.
-Awaabs Law: Making sure there are legal expectations and timeframes with regards how and when landlords and agents respond to property issues during a tenancy.
-Anti-discrimination measures: It will be illegal to discriminate against tenants who have children or receive benefits.
The benefits of new builds
Even if you only took the new legislation changes in to account, it’s clear to see how and why new build-homes are good options for property investors.
But let’s make clear what the benefits of new builds are, when you compare them to older properties.
1.Meeting the new standards
2.Easier to maintain
3.Energy efficiency
4.Higher rental yields
5.Greater appeal
6.Desirable locations
1.Meeting the new standards
With a new build, there won’t be issues when it comes to ensuring your buy-to-let property meets the necessary new minimum standards for living conditions. Being completely brand-new throughout, with all the latest heating, insulation and ventilation solutions, your buy-to-let investment property ought to remain at a high standard for many years.
2.Easier to maintain
The beauty of a new-build home is that everything within it is brand new, from the boiler to the roof, the windows to the solar panels (if your property has them), which are all usually under warranty for a given initial period. Plus, the property will be built to the latest modern building standards and regulations using high-quality materials. All this means items in the property are less likely to need repairing or replacing. As a landlord of a new-build home, you won’t be inundated with maintenance issues. Instead, your management will be more hassle-free for a longer period of time.
3.Energy efficiency
This is undoubtedly the key prime benefit of a new-build home, and one which will guarantee your new-build buy-to-let is a success. New-build homes are built to meet the latest, stringent, energy efficiency standards. Improved insulation, advanced heating systems and double-glazed windows all contribute to reduced energy consumption. And this means tenants get to benefit from reduced energy bills. That in itself is a very lucrative selling point when your property is listed on the rental market.
And cost-savings aside, you may have tenants who are keen to reduce their own carbon footprint, preferring to live in a new-build home with excellent energy efficiency. Sustainable living is an attractive offer for another group of tenants.
Plus, there is some degree of expectation around the Labour government increasing the minimum energy efficiency of rental properties in the near future. With a new-build home you can be sure of a minimum energy efficiency rating of at least B. And more and more new builds are coming through with the maximum ‘A’ rating. Buying a new-build home as a buy-to-let will put you one step ahead of any changes to minimum energy efficiency requirements.
4.Higher rental yields
Key to any investment is what you can expect to get back. And the good news is that with new-build homes, thanks to their modern construction using the latest technology and materials, you can command rents higher than those of older properties. From a tenant’s perspective, everything from the cleanliness, comfort, energy efficiency and convenience of a new build is appealing.
But, doing your homework on the area and the average rents and types of rental properties that are there, is crucial. Affordability is a big factor in today’s world, so you don’t want to go too high and not secure any tenants.
5.Greater appeal
As we have just touched on with regards higher rental yields, new-build homes really do have greater appeal. Who wouldn’t want to live in a brand-new home that’s just been built, with all the latest modern features and contemporary design. But it’s not just that. The location of new-build homes offers just as much appeal. You will more than likely find new-build homes in developments which are close to amenities like shops and schools. They are usually close to excellent transport links, making commuting easier. And we see a lot of new developments with cycle paths and walkways, leading to wider green spaces for walking, jogging and cycling.
The downside of a new-build home as a buy-to-let
There is only one downside to investing in a new build as an investment. And this is only minor in comparison to the many benefits new builds offer.
But, dealing with ‘snagging’, i.e. any defects or quality issues which can arise once a new home has been built, can be more difficult. If you are buying a new-build home as an investment, you need to do a thorough inspection of the property to make sure issues are addressed and problems remedied. By not doing so, you risk delaying getting tenants in, especially if any snags render the property an unsuitable standard. Your rental income could then be affected if there are delays with housebuilders addressing and fixing issues.
Are you a property investor keen to find a new-build home to add to your property portfolio? Or are you considering getting started in property investment and have an interest in a new-build as your first property? Our handy new-build property search tool allows you to quickly and easily search for new homes available on developments large and small, across the country.
Simply search by the location you’re looking to start your investment in, here.
