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Choosing the property

Buying new homes

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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.

Rental value
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.

Developer's premium
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.

Local saturation
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.

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