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Many landlord investors opt for new property, often buying before a development has even been completed (a.k.a. buying off plan). If a new complex, block or estate proves popular, this can lead to impressive capital gains being generated even as early as the project completion date - well before a tenant has been found. Buying a new home certainly has its benefits. However, it also has certain downsides in relation to buying to let:
Something that most people don't realise is that many new homes
are beset with minor problems in the first period of their life.
Minor defects such as cracked plaster can be caused by the building
settling, but it is also a time when more serious structural problems
can set in. You should make sure that the development is covered
by a 10 year Buildmark guarantee from the National House Building
Council. This means that builders are responsible for remedying
any defects the building may have for the first two years after
completion.
However, it's all very well having cover if something goes wrong, but it's altogether better if nothing goes wrong in the first place. To help ensure that this is the case, make sure that you get a surveyor to inspect the property before you buy. If you are buying off plan, he should make two inspections - one before you agree the sale, and a subsequent one after the development is completed.
Then you should make a list of any defects that you can find with the property and supply a copy of the list to the developer and one to your solicitor. Within reason, the developer is then obliged to go through the list and remedy any outstanding defects.
Your surveyor should inspect the property again on the date that the property is due to change hands, in order to inspect any remedial work that has been carried out. After this point, it will be more difficult to get the developers to continue working on the property, so you need to be sure that everything necessary has been completed. Anything outstanding should be noted down by your surveyor on the handover papers.
Always get an independent assessment from a letting agent unconnected
with the vendors with regard to the potential rental value of
the property. This holds true for all investment properties, not
just new ones. It is not uncommon for sales staff in new developments
to encourage the purchase by over inflating the figure they quote
you as the potential rental value. There's no comeback once the
sale has gone through and you find that you can only achieve 70
percent of what they told you.
Sometimes you can be putting yourself at an immediate disadvantage
by buying a new home. Quite often you will be inadvertently be
paying a developer's premium, which could add five, ten or even
fifteen percent to the price of an equivalent older property.
This is less common when you are buying off-plan, as developers
sell at a slight discount to their normal prices in an attempt
to pre-sell the properties. If you bought well before the development
was finished, you can often sell immediately for a healthy profit,
especially in times of rising prices. But if you buy once the
development is complete and then the market goes flat, you could
be in for a tough time of it.
It can be the case that a big new development can saturate the
local rental market for a while. If a new development is completed
with dozens of flats in it, a large portion will often be sold
to investors. All these landlords will then be seeking tenants
at the same time. For more information on buying new homes and
buying off plan, please visit the section in HowTo:
Buy.