Investing in new development homes has made leaps and bounds in recent years to create properties that are energy efficient and modern in design. As residential construction continues to increase all across the UK, the increasing number of new-builds available, have a wide range of choices. So that begs the question – Do you go in for a new-build or an existing property?
While many property investors are constantly on the hunt for run-down, dilapidated properties to fix and flip, there is a category of niche investors who do the exact opposite and invest in brand new-builds and typically, they have been proven to have higher returns in the long run.
The new developments investment strategy works well for getting noticed in the market. When you do something really well, people notice and while everyone usually looks for run-down homes to repair, an investor willing to buy a brand new property says a lot!
When you want to generate profit fast and get your investment ready for the next deal, the buy, refurbish, refinance (or resell) (BRR) strategy might sound the best way to do it.
But this depends on your ability to increase the value of the property by refurbishment. When you’ve increased the value, it’s time to remortgage the property based on its new value. However if you don’t do it right, you’re up against some pitfalls.
No need for long searches for the right deal in the current market
It goes without saying that when buying a new development, all the fixtures, fittings and home decor will be brand new, modern and unused. Most new appliances come with their own warranties too. Developers install the latest smart technology as a selling point, with the most up-to-date energy efficient and ventilation technologies. This is a great deal for meeting the demands of 21st century renters/homeowners. However when looking for houses for the BRR business model, the better deal and the right price is always somewhere around the corner and surveyor’s costs and valuation costs can add up, leading to a lot of time wastage and additionally incurred expenses.
Time Factor
The refurb and remortgage process can take upto 6-9 months. The timeframe may vary depending on the property and how efficient your refurb team works, but with your new property you can put it up on the market and start generating rental income right away. New developments are great for turning into serviced accommodation spaces as well, thereby raking in higher returns.
Less Maintenance
New construction homes have less maintenance than older homes that have been around since Victorian times. You won’t have to worry about your roof leaking, or your AC breaking down. You can enjoy all the perks of living in a brand new home without maintenance headaches. Also,when things do break down in newly constructed properties, they are usually covered by the builder’s warranty, for upto 2 years.
In BRR, short-term renovation financing is not only expensive, it’s also short-term. Real estate investors can find themselves in hot water if their renovation loan is due, but no long-term financing shows up.
Sourcing Fees/Agents
Sourcing fees or agents are not applicable when buying a new home.
At Pluxa Property, we’ve built a strong network of letting agents and investors who are always on the lookout for the best properties in Birmingham, and we can help get you amazing new developments without paying any sourcing fees.
In BRR properties though, it’s almost always an agent who finds these hidden properties and then puts them on the market, so to get the deal, you end up adding more expenses to your initial investment.
Normally sourcing agents can charge £500-1000 for finding the place, then you pay extra for maintenance too. Off the bat, the entire renovation process could easily go over a huge percent over what you estimated, then your numbers won’t add up in the end.
Wave a cheery ol’ goodbye to hard negotiations with vendors
No one likes tough-cookie and contentious negotiations that go on and on. They can be the start to a poor partnership, and are not necessary when nowadays things can be done in a better way. Your new development builders will not negotiate on their price, but they may be willing to cover closing costs or upgrade amenities at no additional fee.
No need for long drawn out refurbishment projects with expensive material costs.
Down Valuations on Refurb Projects
A down-valuation is where your buyer’s mortgage surveyor values your property, and declares it lesser than the price you’ve agreed to sell it for. Let’s say you agree to sell a house for £175,000 but the mortgage surveyor only values the property at £160,000, that’s a £15,000 down-valuation, and you’re stuck. Also, down-valuations don’t come to light until you’re done with the entire refurb project.
Better Price Points
New-builds are substantially cheaper to run than the majority of existing properties. They are built to the latest environmental standards:
- Better Insulation
2. Efficient Heating Systems
3. Better Appliance Wiring
According to the Home Builders Federation, more than 80% of new-builds have an A or B energy performance rating, while only 2.2% of older homes have the same.
Data shows 82% of new homes were given an A or B rating in 2020. When buying a property, an (EPC) Energy Performance Certificate will indicate any improvements needed and with old properties, these can be costly.
Happy Tenants
Compared to older, tired rental properties, new-builds are much more appealing to tenants because they won’t have to worry about issues like damp walls, condensation or unreliable old boilers and heating systems that sometimes plague older rental properties. The fact that utility bills are much lower is an added bonus for tenants.
If you’re ready to invest in new development properties, keep these golden tips in mind -
- Work with an agent familiar with new construction and who ideally has a relationship with the builder. Finding the best brokers who are experienced in negotiating with builders is going to be one of the most important things you do in the home buying process. You must make sure that your broker is someone who is going to work well with you.
- Be creative when you negotiate. Builders may not be willing to drop their prices, but they might be willing to upgrade amenities and cover closing costs (like application fees, attorney fees, inspection fees, and other costs that can add up to 2-5% of your purchase price)
- Shop around and mind your due diligence before choosing a loan. The builder’s lender may not always be the best option for you and your business.Do your own homework and research future plans for the community. If no initial blueprint has been made for the surrounding area, you may be buying in a neighborhood that has no room for growth. Choose wisely.
- Don’t assume a home will be without issues just because it’s brand new. Perform inspections as you would with any investment property.
- Consider working with the builder’s people. Oftentimes, builders have relationships with title companies, mortgage brokers, appraisers, etc. Using people from the builder’s network will allow you to reap some substantial discounts. You know the old – ‘I know a guy who knows another guy who is your go-to guy!’ And you’re in the game!
Take your time and consult with letting agents to get the best results. Their experience and knowledge will help you through the process seamlessly, and eliminate confusion as you decide on the correct property investment strategy for your individual and financial goals.
Pluxa Property is built by a team of property investment experts who have revolutionized the real estate landscape with their knowledge and business acumen. Put your savings towards securing future income by choosing us as your go-to property investors.
Go through some of the exemplary reviews given by our previous clients, so you can get an idea of where you’ll stand with us
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