Why landlords should consider investing in new builds

Why landlords should consider investing in new builds

Half the challenge when it comes to being a landlord is filling your properties with good, reliable tenants from the very start – tenants who will pay their rent on time, treat the rental home like their own and cause no issues.

To appeal to this type of tenant in the first place, you will need to offer the right kind of property, the type of property that catches the eye of would-be renters as somewhere they are really, really keen to live.

New builds are one type of property that has appeal to a wide range of demographics, not least students, young professionals and families with young children.

A new build property can offer them a cool, contemporary, nicely furnished, expertly finished living space.

It's a very 21st Century type of property, so it may have particular to appeal to millennials and those bracketed as part of 'Generation Y'.

Like anything, new build properties have their pros and cons. Below, we outline what some of the main advantages are.


Maintenance? What maintenance?

The clue is kind of in the name on this one. New builds should, in theory, require much less maintenance because of how new and fresh they are. They haven't had as much time to suffer from wear and tear, damp, mould and structural issues as an older property might.

New builds will have been built to the latest specifications, ensuring that major maintenance, remedial or restorative work is highly unlikely.

In addition, new-build homes come with a 10-year NHBC warranty covering structural defects.

Many developers will also offer their own two-year warranty packages so you can be safe in the knowledge that your investment is covered.

Of course, less maintenance means less money being shelled out on fixing such problems, something any landlord will be happy with.

Maintenance can be an issue when it comes to rental properties, so a home that guarantees fewer problems is bound to have significant appeal.

None of this cast-iron, but nine times out of ten new build homes are likely to need far fewer major repairs.


Energy, energy, energy

In most cases a new build home will be more energy efficient than an older one. In fact, a new build home built using 2006 regulations will use 40% less energy than an equivalent home built in 2002.

This will please both you and your tenants, as your (and in turn their) utility bills are likely to be lower.

People are also generally more aware of energy issues these days, and the need to be more energy efficient and green, so it's likely that tenants will appreciate a home that isn't wasteful or harmful to the environment.

It's also in your interest, as a landlord, for the rental homes you own to be energy efficient. From 1 April 2018 all rented properties in the private rented sector will need a minimum rating of E- on an Energy Performance Certificate (EPC).

Landlords who don't comply with the new legislation could be fined up to £4,000 for breaches. With that in mind, an already energy efficient property – that won't need to be upgraded to meet new requirements – will have significant appeal.

The average rental property tends to have an EPC rating of D-/E-, but the majority of new build properties are likely to be rated B- or C-.

Better energy efficiency and lower fuel bills – what's not to like?


Don't worry...about a chain

Any buyer and seller will tell you that breakdowns in chains is one of the most frustrating and annoying blockages to a house sale. They are, however, an all too frequent occurrence.

The advantage of a new build, however, is the total absence of any chains. You buy straight from the developers, which means you don't need to worry about the collapse of upward or downward chains.

Buying straight from a developer also means you could have a say in the fixtures, fittings and finishes of the new build.

Landlords should also know that developers sometimes offer new-builds at below market value (BMV). This could lead to you nabbing a bargain that rewards you with excellent rental yields in the future.

On the other hand, of course, it might not. Below market value properties can sometimes be in undesirable, unfashionable or out of the way areas, where demand is low.

You should bear in mind that there is usually a reason why below market value properties are below market value in the first place.

That said, this type of investment has its upsides too, so shrewd investors may wish to investigate further.


Tenant attraction

Without tenants, you can't make any rental income. So it's always of vital importance that your properties are pleasing on the eye, well-maintained and appealing.

If you get good, reliable tenants in place, the chances of a long-term, mutually beneficial tenancy are that much greater.

This, in turn, improves your chances of achieving excellent rental yields and making a good return on your investment.

Demand for new builds will be very high, so if you decide to invest in this type of property you should have little issue in filling your homes with eager tenants.

It helps, too, that new-builds tend to be very modern, chic and well-finished, with stylish décor, contemporary bathrooms and kitchens and all the latest modcons.

New build homes might not be as characterful, quirky or interesting as homes from an older era, but these things take time. And, with a bit of creative thinking, new builds can be made to feel very homely and snug.

When it comes to investing in new builds, it's also important to consider location. New builds situated close to a train station, university, or major town or city centre are likely to have significant appeal.

New builds further out, or in less trendy locations, might struggle a bit more to generate demand. New build homes in a busy, popular area might cost a bit more to begin with, but the chances of achieving good rental yields are very high – so the 'speculate to accumulate' argument works very well in this instance.

Investing in new builds doesn't come without its risks or complications – typically disruption, delays, smaller rooms and possible defects that aren't spotted by a snagging survey – but there are plenty of good reasons for landlords to consider it as a viable investment.