Any investor searching for the next profitable property market may wonder: are new builds worth it?
Newly constructed homes offer appealing benefits like minimal maintenance, energy efficiency, and modern designs. However, certain downsides, like higher upfront costs, may discourage investors. Join us as we evaluate the pros and cons of new builds in some of the UK’s hottest buy-to-let locations to determine if the rewards outweigh the risks.
What Is a New-Build Property?
So, what is a new-build home?
A new-build property refers to a residential unit that has recently been constructed and has never been occupied.
But are new builds a good investment?
Yes, they are. This form of property investment is worth it; investors often prefer purchasing a new-build buy-to-let as it offers many benefits over an older property.
One significant benefit is capital gains — although new builds often come with a premium price tag, their potential for appreciation can quickly justify this. New-build properties are often located in up-and-coming property areas experiencing increasing urbanisation as well as substantial infrastructure and commercial development. This, coupled with their freshness on the market, can result in significant capital appreciation over time.
Investors can also benefit from builder incentives, which often accompany new builds. For example, property investment experts like API Global offer investors the opportunity to simply get started on a new build purchase by making a 20% downpayment. This lets investors enter the market early and boost the investment’s return potential.
In summary, while new builds require a large initial capital outlay, their potential for higher rental yields, lower maintenance costs, and greater capital appreciation makes them an attractive option for investors seeking recurring revenue and capital gains. However, as with any investment, proper due diligence and market research are essential to ensure a successful outcome.
4 Pros of Investing in a New-Build Buy-to-Let
A new-build investment property has significant advantages over older properties, including:
- Higher rental yields
- Lower maintenance costs
- Increased appeal
- Energy efficiency
1. Higher Rental Yields
Due to their modern design, updated amenities, and the latest technology, new builds typically command up to 41% higher rents than similar older properties. Tenants are often willing to pay a premium for the comfort, convenience, and energy efficiency that new builds provide. Moreover, the lure of being the first occupant of a fresh, pristine space is quite appealing.
This combination of factors results in higher demand and allows landlords to set more competitive rental prices, ultimately leading to increased rental yields. Therefore, new builds represent a lucrative opportunity for savvy investors.
2. Lower Maintenance Costs
Given that new builds have been recently constructed, every component—from boilers to roofs and windows—is brand new and usually under warranty. This means they’re less likely to require immediate repair or replacement, translating into lower maintenance costs for landlords. Furthermore, modern construction standards and building regulations ensure that these properties are built with durable, high-quality materials designed to withstand the test of time. As a result, investors can enjoy a longer period of hassle-free ownership, where the focus can be on generating revenue rather than addressing constant maintenance issues.
3. Increased Appeal
New-build buy-to-let properties, particularly those located in burgeoning areas, hold a certain allure for young professionals and families in search of rental homes. Their modern design, coupled with the latest amenities, offers a lifestyle that aligns with the aspirations of these demographic groups.
These properties also often benefit from being situated near local amenities like schools, shopping centres, and transportation links, further enhancing their attractiveness. As a result, the potential tenant pool for new builds is considerably broadened. This increases the likelihood of securing quality tenants quickly, reducing potential vacancy periods, and ensuring a steady flow of rental income.
4. Energy Efficiency
Energy efficiency is a key feature of new builds and offers a dual benefit. Firstly, these properties are built to meet stringent energy efficiency standards, which can include better insulation, advanced heating systems, and double-glazed windows. This results in reduced energy consumption, making utility bills more affordable for tenants — up to a 20% reduction. Lower utility costs can be a significant deciding factor for prospective renters, making new-build properties more attractive on the rental market.
Secondly, the reduced energy consumption of these homes is more environmentally friendly. As climate change awareness increases, more people are seeking eco-conscious living options. Therefore, the energy-efficient nature of new builds not only lowers costs but also aligns with the growing desire for sustainable living, thereby increasing the property’s appeal to a broader range of potential tenants.
New builds offer several benefits, making it the go-to choice for property investors looking for a high return on investment (ROI). For buy-to-let investors seeking strong, long-term returns, new-build properties in areas like Birmingham, Liverpool, and Manchester are worth serious consideration. With high demand and price growth potential, new builds in these locations can deliver exceptional capital gains and yields for savvy investors.
2 Cons of New-Build Investments
While buy-to-let new-builds offer many promising opportunities, buyers should be aware of the potential downsides before purchasing, including:
- Likely defects and quality issues
- Additional responsibilities
1. Likely Defects and Quality Issues
Newly constructed homes may contain unseen structural or finish defects that surface over time, known as “snagging.” Investors should thoroughly inspect properties before purchasing and be prepared to address issues that arise during the defect liability period and beyond. Builders are not always responsive or able to remedy problems, which can impact rental income and resale potential. However, by partnering with UK property investment specialists, investors are assured of acquiring the best properties with little to no defects — investors should contact their wealth advisor for more details.
2. Additional Responsibilities
Investing in new builds may require more hands-on management to work through “likely” defects and set up the property for rent. Investors should budget additional time and money for snagging repairs, final cleaning, landscaping, and other details needed before renting or reselling the home. On the bright side, by partnering with a property management agency, investors can avoid the hassle involved in running and maintaining a new-build buy-to-let property. Redstone, for example, charges only 10% of rental income.
While new builds pose risks, they can also offer good opportunities for investors willing to choose properties wisely and manage them effectively. Conducting due diligence by seeking guidance from experienced property investment advisors and budgeting generously for additional responsibilities and expenses are keys to success. With the right approach, new-build investments in up-and-coming areas can generate solid returns.
3 Types of New-Build Buy-to-Let Investment Properties
New-build buy-to-let properties are attractive investment options for investors looking for capital growth and rental income.
That said, here are 3 types of new builds to consider:
- Student accommodation
Apartments, also known as flats, are a more affordable property investment option with lower maintenance costs. They tend to suit tenants seeking low-maintenance living, such as young professionals. New-build flats in commuter towns like Ashford (Kent) and Nottingham are attracting high rental yields and seeing significant price growth. Investing in these areas will ensure investors receive a consistent cash inflow and long-term capital appreciation.
Houses—whether detached, semi-detached or terraced—are a popular choice for buy-to-let investors. They appeal to a wide range of tenants, from families to sharers. However, houses typically have up to 60% higher maintenance and insurance costs compared to apartments.
3. Student Accommodation
Purpose-built student accommodation is a niche market with huge demand in university cities. These properties, like studio flats and en-suite rooms, offer hands-free investment with all-inclusive rents and on-site management. Locations within walking distance or a short bus ride from campuses will be most desirable to students.
While capital growth may be modest, rental demand is high. However, rental demand is typically lower during the off-campus season; hence, we advise investors to bank on apartments rather than student accommodations.
Tip: Investors should compare the pros and cons of each property type based on their investment goals. A mix of different new builds could help balance an investment portfolio.
New-build buy-to-lets in up-and-coming areas are poised to deliver solid returns. However, conduct thorough due diligence on the location, development, and builder to determine if the potential rewards outweigh the risks. With professional advice from property investment experts, new builds are worth considering as part of a long-term investment strategy.
4 Factors to Consider When Choosing a New-Build Investment
When considering a new-build investment property, several factors should be taken into account, including:
- Developer reputation
- Property type
The right location can significantly enhance capital appreciation potential and fuel strong rental demand. However, identifying these prime locations can often be a daunting task, involving extensive research and market knowledge.
At API Global, we’ve already done the legwork for investors, researching and identifying key areas that present promising investment opportunities. Birmingham, Kent, Liverpool, Manchester, and Nottingham have emerged as such hotspots. These areas are currently witnessing major infrastructure improvements and regeneration projects, which are already attracting a growing population of young professionals. These factors are collectively driving house price growth, making these regions particularly promising for property investment.
So, while searching for the best location might seem challenging, partnering with API Global via a wealth manager simplifies the process considerably. With us, investors can focus on investing while we provide the best new-build property locations backed by thorough research and insights. This way, investors can make a more informed decision, optimising their investment potential and building a profitable property portfolio
2. Developer Reputation
A reputable developer with a strong track record can significantly influence the quality and success of an investment. A careful review of the developer’s previous projects lets investors get a sense of their commitment to quality, the durability of their properties, and their overall reliability.
Well-established developers are less likely to compromise on construction standards or face business discontinuation before completing a project. They have a reputation to maintain and are, therefore, motivated to ensure each development meets high-quality standards.
Additionally, reputable developers often offer longer warranties, providing investors with an extra layer of protection. This means that in the unlikely event of a structural issue, the developer will bear the cost of fixing it.
Furthermore, reputable developers offer stellar after-sales service, ensuring that any post-purchase concerns are addressed promptly and effectively. At API Global, we only partner with a reputable network of developers with a track record of success to ensure investors invest profitably.
3. Property Type
The type of property an investor chooses to invest in can also significantly impact their return on investment. New-build buy-to-lets typically come in three forms: houses, apartments, and purpose-built student accommodations (as discussed above).
Houses and apartments often generate higher rental yields and capital growth due to their wider tenant appeal. They cater to a broad range of tenants, from families and young professionals to retirees.
Overall, apartments often emerge as a particularly attractive option. They’re generally more affordable to purchase than houses—with about £960 cheaper monthly mortgage payments—making them a popular choice for first-time investors. Additionally, they’re often located in urban areas with good transport links, shops, restaurants, and other amenities, making them attractive to a wide range of tenants.
Purpose-built student accommodations can also yield lucrative returns, with many students preferring accommodations that offer en-suite facilities and access to amenities. However, it’s important to consider factors such as changes in university funding and enrolment rates, which could impact demand.
Tip: Regardless of the property type chosen, investors should understand their target audience and the potential demand in their chosen location. All things considered, apartments are recommended for long-term investments due to their lower price and higher capital gains.
Property management is an often overlooked yet critical aspect of successful property investment, particularly for international investors or those seeking a hands-off approach. Opting for a new-build property with professional property management in place can be a wise decision, and for valid reasons.
A professional property management company ensures the smooth running of the new build, which in turn maximises returns and minimises potential headaches for investors. From dealing with routine maintenance and repairs to handling tenant issues and legal requirements, a property management agency lets investors enjoy returns from their investments without the day-to-day hassle.
Furthermore, these professionals can help in sourcing and vetting suitable tenants. They have the expertise and resources to conduct thorough background checks, ensuring that only reliable tenants occupy a property. This can significantly reduce the risk of rental arrears or property damage.
Tip: Investors should consider Redstone for their property management. They have the experience to ensure investors always have a consistent flow of tenants while charging only 10% of the rental income as their wage.
3 Best UK Cities for a New-Build Investment Property
When considering investment in new-build properties, several cities in the UK stand out for strong potential capital growth and solid rental yields. Investors should focus on the best UK investment areas poised for growth for significant returns over the lifetime of their investment.
Here are our top 3 UK investment areas for new-build property:
Birmingham, the UK’s second-largest city, is attracting major investment and development. The city centre has seen extensive regeneration and is less than 2 hours from London by train. New-build apartments, especially in the Southside and the Jewellery Quarter, offer investors the opportunity to benefit from forecasted price rises over the next five years.
Manchester, a leader in media, financial, and tech industries, has a fast-growing population and economy. Areas like Ancoats and Pavilion Wharf have new residential towers with flats ideal for buy-to-let investors. With major infrastructure improvements ongoing, including the £800 million NOMA regeneration project and extension of the Metrolink, property values in Manchester are forecast to rise significantly over the next 5 years.
Nottingham’s two universities and thriving life sciences sector support steady population growth. The city has a large supply of new-build flats, especially around the Trent Bridge Quays. Investors can expect annual rental yields of up to 6.5% and substantial price rises over the next decade.
While new builds often come at a premium, focusing on cities with strong fundamentals for future growth can generate solid returns for buy-to-let property investors in the UK. The potential for sustained demand, above-average yields, and substantial capital appreciation make new-build investments in Birmingham, Manchester, and Nottingham attractive options worth considering.
5 Tips for Maximizing New-Build Investment Return
Investors should consider the following tips to help maximise their return on investment in a buy-to-let new build:
- Focus on up-and-coming areas.
- Consider different types of properties.
- Negotiate the best deal.
- Market aggressively.
- Maintain and improve.
1. Focus on up-and-coming areas.
Seek out locations that are poised for growth and gentrification. Cities like Birmingham, Kent (Ashford), Liverpool, Manchester, and Nottingham currently offer promising opportunities, with increasing infrastructure investment, business relocation, and community revitalisation efforts. Buying in a neighbourhood undergoing early stages of renewal means investors can benefit from substantial capital appreciation over the coming years.
2. Consider different types of properties.
There are several investment options for new-build property developments. Apartments/flats are a popular and affordable choice, appealing to both students and young professionals. Townhouses offer more space for families and typically higher rents. Commercial units like shops or offices also present an attractive buy-to-let option for investors looking to diversify their property portfolio. However, we generally advise investing in apartments.
3. Negotiate the best deal.
Negotiating the best deal is a significant part of property investing. However, investors who partner with API Global via their wealth advisor won’t have to worry about this. Our network of experienced professionals is adept at guiding investors and providing advice to ensure the best deals and maximum returns on investment.
Investors who choose to navigate this terrain themselves would have to go through the hassle of negotiating incentives from the developer. These incentives could include stamp duty contributions, rental guarantees, furnishing packages, or even discounts on the purchase of multiple units. Investors should conduct thorough research to understand the current market value of the properties they’re interested in. This will enable them to secure the best possible price.
Again, working with API Global via a wealth manager relieves investors of this stress. Our experts have an in-depth understanding of the market dynamics and property value, ensuring that investors get the best deals without the hassle of negotiation and research. We take pride in providing expert advice that puts our client’s interests first, ensuring they get the best returns on their investment.
4. Market aggressively.
To ensure consistent rental income, investors should market their new build aggressively to find quality tenants as quickly as possible. Highlighting features like new appliances, contemporary design, proximity to amenities, and energy efficiency is key. Investors may need to set rental rates slightly below the neighbourhood average at first to fill vacancies, then raise rents over subsequent renewals as the area becomes more established.
5. Maintain and improve.
New builds require relatively little maintenance initially, but over time, wear and tear reduces curb appeal and rental potential. Investors should schedule routine inspections to check for any needed repairs or upgrades, however minor. By keeping properties in prime condition, investors can maintain steady occupancy rates, enabling them to continue raising rents to match the local market.
Tip: A more efficient way for investors to market and maintain their property will be to employ a lettings and management company like Redstone.
With the right property in a promising location, competitive purchase price, and effective management, new-build buy-to-lets can provide investors with a reliable source of income and capital gains for years to come.
Frequently Asked Questions
Is buying a new build a good investment?
Buying a new build is a good investment in the UK. This property investment option offers a host of benefits that make them a strong choice for property investors, including the following:
- New builds often come with warranties, such as the 10-year warranty from the National House Building Council (NHBC), offering peace of mind to investors.
- New builds are typically built to high energy-efficiency standards, which can be attractive to tenants and can potentially save them money on utility bills.
- New builds usually require less maintenance and repair work compared to older properties, reducing potential costs for the landlord.
Still, it’s crucial for investors to thoroughly research the area they’re considering investing in to ensure there’s sufficient demand for rental properties. Working with a reputable property investment expert can help in securing the best deals and maximising returns.
Is it better to buy a new build or an old house in the UK?
Both new builds and older houses in the UK have their unique advantages. New builds often come with warranties, require less maintenance, and offer energy-efficient features, making them an attractive investment. Older houses, on the other hand, can offer character, larger spaces, and potentially greater scope for adding value through renovations. While we generally recommend new builds, it all comes down to the investor’s investment goals, budget, and personal preferences.
What brings down the value of a house in the UK?
Several factors can diminish the value of a house in the UK. These include a poor state of repair, outdated interiors, lack of parking, proximity to busy roads or commercial areas, and a high crime rate in the neighbourhood. Additionally, a weak property market or economic downturn can also impact house prices.
What is the average profit on a new-build house in the UK?
The profit margin on new-build houses in the UK can range significantly, from about 12% up to 30%. In some cases, the profit margin can even reach as high as 194%, especially in areas like London, where the construction cost is significantly lower than the selling price of a new-build home. However, these profit margins can be influenced by a variety of factors, such as market conditions, location, construction costs, and the type of property.
So, are new builds worth it? Absolutely!
New builds offer solid investment potential if chosen wisely. Investors should focus their search on up-and-coming cities with strong population and job growth, i.e., areas poised to become the next property hotspots. Locations like Birmingham, Liverpool, and Nottingham currently offer new-build investment opportunities that balance risks and rewards. With some patience and the right property, new builds will always prove their worth.
Investors should contact their wealth manager now to help them get started.
Disclaimer: Any information API Global provides does not constitute financial advice and is for educational purposes only.