Choosing New Build Or Resale Investment Property?

Investors have a bewildering array of options when it comes to investment property. In this article we discuss the pro's and con's of new build versus resale property.

You may decide to focus on one or the other, or invest in both. What you decide is not important provided that you understand the benefits of each approach, then choose based on your personal views and investment strategy.

Why Buy New Build Property?

Here are ten good reasons to invest in new build property:

1. New build can be sourced in 'blocks' of units. That gives Axis negotiating power with the vendor and you benefit from significant discounts from market value. In fact the discounts on new build property are consistently higher than resale property.

2. Renters like new properties. They generally command a premium rental price and they are the first choice of renters against an older property.

3. Maintenance on new build properties is usually minimal, if anything at all for the first few years. In the UK all properties come with NHBC or similar guarantee, and abroad new properties are increasingly built to international standards which are far better than in the past.

4. It is often easier to get genuine comparables for actual market value and even rentals. This is because other units in the development may have been sold to owner occupiers at list prices, or there can be other similar developments for comparison.

5. Developers rarely invest tens of millions of pounds without doing their own due diligence about local demand, so to a degree we have more confidence about locations.

6. If you should choose to sell, then new build property is usually more desirable to buyers, with the benefit that it may sell more quickly and at a higher price than older property.

7. You get an immediate discount and instant equity without doing any work. This is unlike buying and renovating an old property which could take six months or more, and with little more profit in it than the discount you received on your new build property without the effort!

8. Historically the capital growth on new build property has been higher than on resale property, which is important if your long term aim is to sell for a profit.

9. For a busy investor, buying a new build, often sight unseen, is much easier than a resale property - there are usually floor plans, inside and outside photos and far more legal documentation available.

10. Finally, if you buy off-plan some 6 to 24 months before completion, you benefit from fixing the price when you purchase and then having an extended period for further price rises before you complete. Combined with the initial discount this can be a winning combination.

This is a powerful combination of reasons that with the possible exception of No 10, is still relevant in today's market. You might be thinking that it's a 'slam dunk' win to the New Build option.

But not necessarily so... read on to find out the benefits of resale investment property.

---

Understanding The Benefits of Resale Investment Property

1. Location. Often the locations of new build property are in places many miles from you. If you want to manage the property yourself you may have more success in locating an individual resale property near you.

2. Since most resale properties are 'one-offs', you are unlikely to have the local market flooded with rental property at one time, which can happen when a large new build development comes to market all at once. Therefore you may have more consistency of renting with fewer voids.

3. There is more variety in the resale market. If you have chosen a specific type of property that is not the standard new build, then you may find it more easily in the resale market.

4. Resale properties are often cheaper to buy. And as a result may have a rental yield that, on average, is higher than new build property. This could be 1% to 3% extra annual income.

5. Through the rising market for property, many surveyors overvalued new property, which led to mortgage companies offering a level of finance that was dangerous when prices fell back. As a result there is now more restriction on lending for new build properties which means that resale properties are easier to finance. They also command higher loan to value percentages than new build. Typically you can borrow 5% to 10% more.

6. A number of resale properties come with existing tenants. That's great for BTL landlords since it ensures there is no void at the time of purchase, and confirms the realistic current rental.

7. You may have the option of buying resale property that requires refurbishment and can therefore force an appreciation in value which will provide instant equity and an excellent rental yield when the work is completed. This is a specific strategy of Axis with its buy-refurbish-rent portfolio.

8. For investors searching for high income, then resale property, both in the UK and USA, offers the highest rental yields and exceptional income levels.

We hope that this analysis of the new build and resale property markets has been helpful. There is no clear winner - each sector has it's own benefits. At Axis we offer the best of both new build and resale property because we have many investors with differing attitudes to investment and different short, medium and long term strategies.

Where next?