The needs of tenants are changing and the property market is having to adapt. But is this a good thing when it comes to investing in a buy to let property?
One of our expert letting agents gives the inside track from their own experience.
Listen to the full episode here or read the full transcript below.
Why do you think investing in a new home is perfect for a landlord?
Owen: I think the principal reason is the low maintenance argument, if I'm honest, the buying really should mean very little in the way of ‘out of cycle’ maintenance, I describe it. So if you think that when a landlord is looking to go into investment, the thing that they really dread is the period between tenants when they have to go in and do lots of work and so on.
In a new build, really, all it should be is just a bit of a spruce up nothing more, and there should never be any serious maintenance. So typically, as well, there would be a good pool of applicants from which to find the tenants and new build homes tend to be in places where amenities are well located - access to roads is good, to railways is good. And of course, they often involve new schools being provided in the immediate area, that sort of thing.
So all of that will mean tenants are likely to be drawn to the location, whilst also the tenants are going to be keen on this low maintenance issue. Especially now if you think about the publicity that's around about landlords poorly maintaining rental homes, in the private sector, and so on, actually, going into a new build should be quite an attractive thing from a tenant's point of view as well. So all in all, I think that's a great opportunity for a landlord to get into this sector.
So, what is different about letting a new home over a second-hand property would you say?
Owen: I think from a landlord's perspective, that argument of low maintenance is really important, as I've just mentioned, but I think there's also a really great win in buying the home in the first place often means what we would describe as a turnkey solution. So for example, white goods, you know, your appliances and so on are often available if not integrated into the first instance. Secondly, flooring, so carpets or whatever the floor coverings might be, and garden landscaping, those kinds of things, they can all be available, which literally means there's absolutely no wasted time, between the landlord acquiring the property and moving the first tenants in.
If there's a gap between exchanging contracts and physical and legal completion, that time can actually be used really usefully from the landlord's point of view, to advertise and to find the tenant who is then able to move straight in post legal completion of the purchase.
Probably also worth mentioning that from the landlord's perspective, there's also peace of mind through the provision of the builder's warranty, so things like NHBC, and architects' certificates and so on. So, if heaven forbid anything goes wrong, the remedial work can be carried out quickly and effectively, but importantly, at no cost to the owner of the property.
So if they can let out the property before it completes, that means they get the monthly return sooner?
Owen: Yeah, absolutely right. It's the dream scenario, isn't it from a landlord, especially when it comes to handovers or turnovers when one tenant is moving out, and they don't want a void period. But that is important right at the beginning. So if you buy a second-hand property, often you've got to go in, you've got to go and do a bunch of work and get things organized and ready before you can start advertising. And then you have to find the time to do all the checks and everything else. But obviously, a new build, if you've got that period of a month or two between your exchange of contracts when you know that you've got a fixed completion date of whenever it might be, you have that time to go out, find the tenant, do the background work, get the checks done, get the tenancy all in place, so that literally on the day of completion, or as soon after as you want to as the landlord, you can bring your tenant straight into the home and not have any of that void period that we were talking about.
So what type of property or location should a landlord be looking at for a successful investment?
Owen: I'm going to stop short actually recommending specific towns and locations around the country because I'm not sure that's for me to comment on but what I would say is talk about the principles of where you should look so in terms of investment, the best location for me is one that without doubt, offers all of the things that I mentioned earlier. So proximity to amenities, good road access, train stations, etc. So, when you're looking to buy a home for your own occupation, you tend to think about things like big rooms, large gardens, and all those kinds of things that become really important. But in a simple investment purchase, which is typically what a landlord is going to go for, the biggest mistake that we see landlords make is that they look at the purchase through their own eyes as a homeowner. So what we would always encourage is to look at that as a simple business transaction. So a small three-bedroom home - so why spend the extra money.
Small family homes, and those that are likely to be occupied by perhaps people starting out in life away from the parental home, and so on, they're the ones that are most likely to be offering the greatest returns on the capital investment. And they'll also be the ones that are the most readily let so my own advice would be to keep it simple - buy from a reputable builder in a location that offers great surrounding amenities, and a size that is most likely to attract the kind of tenant that is most active in that private rental sector.
On that side of things, I've heard about a leaseback on a show home. So can you just explain what this is? And why is this a good option for a landlord to look out for?
Owen: That's a really good question, actually. So leaseback is a really interesting option that I should first off say isn't always available to an investor. But when it is, it makes brilliant business sense. So just to explain, when a developer is marketing from an on-site development, they will typically have a show home or show homes that they will use to showcase the kind of properties that they're building in later phases, and across the lifetime of the development. So what we can talk to them about certainly is whether or not they'd be willing to sell the show home on a leaseback arrangement to an investor landlord.
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