5th September 2022
If you are thinking about buying an investment property, one of the key decisions you will have to make is whether to opt for a brand new home or a ‘period property’ – an older house built in the Georgian, Victorian, or Edwardian eras.
Both options have pros and cons as a property investment. New builds are low maintenance, have the kind of contemporary look that appeals to younger renters, and tend to be cheaper to run.
But period homes can offer you better value for money, they have more potential to add value through improvements, and may also see stronger price growth making them a better long term property investment.
Whether you are a veteran investor or need a beginner needing a guide to property investment, these are the issues you need to weigh up to find the best property investment for you.
As the property will be brand new when you buy it, you will be able to move tenants in straight away rather than wasting time and money on repairs and refurbishment. Buying new makes managing rental properties easier as they will require less ongoing work than an older home.
The vast majority of new homes come with a guarantee from the builder for ten years, which should cover all major structural problems giving you peace of mind.
New homes are generally far more energy efficient than period homes. This means running costs will be low, a great selling-point when letting out a property, and good news if you plan to let the property inclusive of bills. Energy efficiency is going to become increasingly important to buy to let landlords over the next few years. From 2025 the Government has said that all rental properties will have to have an Energy Performance Certificate (EPC) rating of at least C. Most new build homes have a rating of A or B – and bringing an older home up to standard could be difficult (and expensive).
Many renters like the contemporary layout offered by new build homes, which tend to have ensuite bathrooms (particularly practical if you are considering the HMO option), open plan kitchens, large windows, and balconies.
From a logistical point of view, if you are building a rental portfolio, you could consider buying multiple flats in a single development. This will make buying and managing the properties easier, reduce stamp duty rates, and you may be able to negotiate for a discount from the developer.
If you buy off-plan property, you typically put down a deposit initially (usually ten per cent) followed by staged payments over a period of a year or two which can help with cash flow.
New homes do tend to have less character than Georgian, Victorian, or Edwardian period homes – and some tenants, and future buyers, will inevitably prefer the idea of an older home with high ceilings and period features.
Because a new home is already immaculate there are fewer opportunities to add value to it by upgrading or extending it. There may be more opportunities to extend a new build house, although bear in mind that the developer will already have done everything they can to maximise floorspace (and in some cases may have imposed restrictions against further extensions).
New homes tend to cost more than older ones. Developers charge a premium because a property is brand new but as soon as it has been let out it loses this selling point. If you decide to sell soon after buying you may find it is less than you paid for it although if you have a longer term strategy it should recover its value as local market values rise.
The premium price of a new home will have an impact on the property yield – its rental income expressed as a percentage of its total value. You might be able to charge a slightly higher rent when letting out a brand new property to help cover that, but once your first tenants have moved on you won’t be able to do so again.
You will have to pay an annual service charge on a new build home to cover day to day maintenance of the building and amenities including concierge services and lifts. These can be very expensive, and the more facilities, the higher the charge. Period apartments have less communal space and service charges will therefore be considerably lower. And if you buy a freehold period property (or a flat with a share of freehold) there is likely to be no service charge at all – although you will have to arrange and pay for necessary maintenance works.
If you buy on a large-scale development you will inevitably find yourself in competition with other landlords. If tenants have plenty of choice you may have to offer a lower rent in order to stand out.
Buying property is a skill; buying a home off plan is an art. Even with plenty of computer-generated visuals and scale models it can be hard to visualise exactly what the property will look like when finished, and to understand exactly what the views will be like. This is especially true if you are buying in an area where lots of building work is going on and you will need to find out as much as you can about planned new buildings in the area and the impact they could have on your property’s outlook.
And if you buy off plan you could end up waiting up to three years for the property to be completed. A lot can change in that time – the value could rise, but if it drops finding mortgage finance could be a challenge.
Tenants may be willing to pay more to live in a home with great character features, which is also in good condition. When you think about selling a buy to let property, the same will apply to buyers.
There is evidence that period homes hold their value better than newer ones – these are designs which have stood the test of time already, while new builds can start to look extremely dated after a few years.
Very few period properties are perfect. While this means you may need to carry out upgrades it also means that you can add value to the property, whether by adding an extra bedroom in the loft or enlarging the living space. This will pay dividends when the property is rented out and, add to its resale value improving your capital gains.
While upgrading and extending a period property will add value, you may be limited in what you are able to do if it is listed, or in a conservation area.
Building works are becoming increasingly expensive, as the price of labour and materials rise.
From repointing brickwork to having chimneys regularly swept, older properties tend to require more maintenance than new ones.
Good quality period housing is in short supply, particularly in sought after locations, and finding a property could take considerable time and effort.
Whether you pick a brand new home or an older property as a buy to let property investment, it is crucial to consider the fundamentals of the location.
Homes will be more rentable if they are within an easy (ten minute) walk of a London Underground or overground station.
Tenants – and, indeed, future buyers – will be attracted to homes close to a good quality high street with plenty of coffee shops, restaurants, and bars, as well as everyday shopping.
If you are buying a family-sized property then consider the standard of the local schools, both state and private. While Ofsted ratings can change, a well regarded local school is a big tick in a property’s favour.
Green space has shot up renter and buyer wish lists since the pandemic. Outside space plus proximity to a good quality park is a major selling point.
If you are considering buying a property in a regenerating corner of London you need to weigh up the potential impact of nearby building works on tenants versus the longer term gains to be made of buying early in an up-and-coming location.
‘Period property’ is a catch-all description for older properties, usually referring to homes built before the First World War.
The most expensive property purchase is usually a brand new home, but once a contemporary home is even a little bit ‘shop soiled’ it will tend to be worth less per sq ft than a period home with character.
Yes, you can usually extend a period property. You will need to seek professional advice from an architect or planning consultant and may well need planning permission from the local council, but most typical period homes can be extended. Ground floor flats and upper flats with lofts can also be extended, subject to planning.
Listed homes can in theory also be extended, although you will need special permission (known as Listed Building Consent). from the local council.
A ‘period conversion property’ is an apartment within a period house which has been converted into flats, typically with one flat per floor.
This entirely depends on your priorities. If you want a low-maintenance, energy efficient home you can start renting out instantly and plan to keep for some time than yes. If you are prepared to put in work at the start to add value, and tackle ongoing maintenance, then a period property might offer better value for money.
Buyers must pay Stamp Duty on both new and period properties. And as new homes are likely to cost more than older ones the tax burden is likely to be higher
The best way to add value to any property is to add floor space, but this will be almost impossible to achieve in a new property. You may be able to rethink the layout a little – adding sliding doors to give a main living space more flexibility, perhaps, or inserting a shower room and into a guest bedroom.
In the short term the answer is yes, they do. A home which is absolutely brand new attracts a premium price. Once it has been lived in, even for just a few months, it can no longer be classed as new, and prices will dip.
We would be delighted to hear from you to discuss your own property requirements. For a non-obligatory consultation, please contact us.