Are Off-Plan New Builds a Wise Investment?

What are Off-Plan Properties?

Off-plan properties are properties that are not yet complete, or otherwise not ready for tenants. Purchasing properties early in this way might be a good idea if you are expecting the price of the completed property to increase, but it could also go the other way. There is also the risk of delays and other issues during completion of the build which may impact your investment.

Can They Be Profitable?

New builds are almost always good investments, but that doesn’t mean it is an easy process. There are important points to note and pitfalls to avoid if you are going to turn your new build purchase into a profitable buy-to-let investment.

As with any property investment based on letting, a successful strategy comes from rental yield outpacing maintenance and running costs. This strategy applies to both completed and off-plan properties, including houses and individual flats.

Buy-to-Let Basics

Whether the property is a new build or not, there are some principles you should adhere to if you’re looking to generate a return on your investment. Do your research before you purchase. Look into the area, at expected rental yields and property price trends. Investigate the property itself. Find out how far it is from completion, or if any refurbishment work is required. Take into account any fees that may apply during the purchase.

Rental Yield

Rental yield on new builds can be lower than you might expect, as low as 3% or 4% in some cases. If you’re looking for a long-term buy-to-let, this may not be viable. In this situation, your rental income may not cover your mortgage payments, let alone any maintenance or repair costs. If the property stands empty for a few months, with a rental yield of 4%, you may be forever chasing to recoup your investment.

If you’re looking at an off-plan new build, keep in mind that you will not begin to generate any rental income until after the property is complete and fit for tenants to move in.

With new builds and off-plan new builds, the rental yield can make or break your investment.

Can Off-Plan New Builds be Profitable?

Absolutely. The right property in the right circumstance can bring a solid return on your investment. In our time at Invest in Property, we have heard of numerous success stories regarding the purchase of new builds as buy-to-lets. The right location and the right price can go a long way to ensuring this.

Development Concerns

There are a few things to bear in mind if you are looking at an off-plan property that can affect your prospects and perhaps make it a good investment or not.

Is the development company a respected one? If the property builders have a good reputation and a solid track record, you can purchase with confidence.

As we mentioned before, the development time can be a major concern. If you are looking for a quick return on your investment, off-plan may not be the right route for you. Off-plan can mean anything from a few weeks before completion to a few years. Not only does this mean you won’t receive rental income during the development, you also have to consider the potential change in demand and prices.

Running Costs

Maintenance on a new build should be cheaper than older housing stock, with the added bonus that newer builds are generally more energy efficient. This should keep costs down. New builds, of course, should not require refurbishment for many years, further cutting back on maintenance costs.

Compare this to an older house, which may need a lot of work before it is in a suitable state to accept tenants. Even if it is in working order, an older build could have a less efficient boiler, an older kitchen or bathroom, and so on. This adds to the costs and time required to get the building up to a suitable standard. Something you will not have to deal with on a new build.

On the other hand, it is worth bearing in mind that new builds are not always in perfect condition upon completion. It is not uncommon to find faults and issues that need correcting before the property is suitable to let. This can be mitigated by carrying out a survey of the property before you purchase it.

If the property is not yet complete, that will give the developers chance to correct any issues found. If not, you will at least have warning that there is still work to be done once you purchase the property and you can plan accordingly.

To Sum Up

Buying an off-plan new build provides an opportunity to secure property before awareness and demand raise the prices, but comes with the caveat of having to wait for the property to be completed before you can begin to see returns.

Investing in off-plan new builds is another viable strategy to add to your portfolio, but ensure you fully understand the ins and outs before committing to a purchase.

Investing in property, similar to any other form of investment, involves inherent risks. Our website, services, or products do not constitute financial, tax, or legal advice, and should not be relied upon as such. Before making any investment decision based on the content provided on our website, products or services, we strongly advise seeking independent specialist advice from appropriate professional advisors.
Your capital is at risk. The value of your investment can go down as well as up. Historic performance and forecasts are not a reliable indicator of future performance.

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