Hello, and welcome to Property Investments UK.
In today's video we're going to be looking at, do new build developments make sense as
buy to let investments?
So, very often when you're maybe looking for property investment deals you might see a
whole range of new build developments, off plan sites, apartments, houses, that are available
as potential deals.
And sometimes it can be hard to try and understand whether they're good investments or not.
There certainly has been situations in the past where property markets and cycles have
changed during a development process or an off plan cycle and then that opportunity,
that property, that price range of that kind of potential project or development changes,
mid-purchase or mid-development.
So, there's some things to consider as to whether a particular development is going
to be worthwhile certainly.
But let's just consider whether the strategy as a whole is worth considering.
So, if you consider the strategy as a whole, I'd look at it with the same fundamentals
and principles that you would do any potential property deal, whether it's on the market
with an estate agent or whether it's an off plan opportunity has been presented to you
by a property sourcer.
If you look at the location and the rental yields and the price of the property that
you can purchase it at today, you get an understanding as to whether that potential deal is going
to be right for you.
So, that's whether the opportunity as new build or an off plan development might be
right.
To look at them in isolation whether particular site or particular property is going to be
right, is quite important.
So there are some developments that I've seen where the yields are as low as maybe three
or four percent and that's just way too low for a long term buy and hold strategy to maintain,
because if you have any form of finance, that's going to be wiped out on day one.
Obviously running costs, maintenance, management - things like that as well is going to impact
that potential yield.
So, if you consider off plan developments as a whole package and then the individual
sites as to whether they work.
Hopefully we'll get a lot closer to whether that particular opportunity is going to be
right for you.
We certainly see lots of off plan developments that are very good - they're in the right
geographic location.
They've got the right tenant profile.
They've got the right long term growth and potential aspect as a potential deal.
And then it's important, just in isolation, have a look at the deal and see, right, do
the yields make sense?
Is the developer good, longstanding, have they got the right kind of pedigree in that
type of market.
And then also the detail around the potential deal.
So how long is that development going to be?
If you're buying a site that's ready to be completed in maybe a month or two's time,
it's typically a lot easier to assess the values.
Whereas if you're looking to reserve a potential opportunity, but it's not going to be developed
for another year or maybe even two years, or 18 months.
It's a lot harder to try and assess what the potential prices of that property might change
over that time frame.
The flip side of that is very often that you can buy it at a much better price today based
on today's comparisons.
So it's a tradeoff trying to understand what the potential kind of downside and upsides
potentially are.
Some things to consider as well with new build developments, compared to existing housing
stock, is from an energy efficiency point of view and a maintenance point of view.
Very often they are much better over the long term.
Housing stock or historic housing stock in the UK is great.
Very stable, longstanding, lots of demand, typically, if it's in the right location.
But the reality is you might have a property that you buy that's a two bedroom terrace,
or a three bedroom semi.
If its not gone through a recent refurbishment, there's going to be an end of life cycle with
the roof, that's maybe a bit closer to being replaced than, certainly, if you were looking
at a new build development.
Other things like electrics, plumbing, obviously the boiler, bathrooms, kitchens, might be
slightly dated, or the decoration might be slightly dated.
Now it's all fixable, which is good, but there's a cost and time element to doing that.
Very often a new build development is much easier to make a decision and an assessment
on.
It's much quicker to get up and running as well and generating an income on day one.
So, it's a tradeoff.
We're trying to understand what the potential benefits are, of two given deals.
So, if you're assessing maybe an existing building compared to an off plan development,
whether you're particular requirements and aims maybe tends to guide you towards one
or the other.
But, certainly from a maintenance aspect, new build developments are a lot easier, going
forward.
They have less things close to the end of the lifecycle that need replacing.
And then also when a tenant moves in you're going to have a longstanding tenant, typically,
that's not going to have maintenance issues.
Finally just to recap on buy to let investments and specifically new build developments, I
would consider them, but not just as a particular strategy on its own.
Consider them in combination with other types of strategies.
Weigh up the pros and cons of both.
Certainly, new build developments can have lots of potential benefits and if it's the
right deal, the right location, the right yield, the right tenant profile, then, absolutely
consider looking at new build developments over existing potentially housing stock.
Hope that helps.
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