Tenanted vs Off-Plan Property: Which should you invest in?

They say that the safest way to protect your money is in bricks and mortar, and so investing in property can be a great way to make the most of your money. However, deciding what type of property you should be investing in is a much bigger question with so many options available.

To understand further, Mark Burns, Director of Pure Investor looks at the difference between tenanted properties and off-plan homes to help you decide what type of investment will work for you.

Tenanted property

Buying a tenanted property simply means buying a property that is already rented out to tenants. The existing tenants and their contract will come with the property, and they will continue to live there, transferring their payments to the new property owner.

You should ensure that you take a good look at the contract before you sign on the dotted line to make sure there are no tricky loopholes that could cause you a problem, and that the rental price is at the level that you need it to be in order to meet your mortgage payments and leave you with some profit.

When you invest in buy-to-let property, you do so because you want to make money from the monthly income. As the property already has tenants in place, you can start making that money from the minute that you take ownership. In addition to the rental income, you also will not need to spend any money on advertising the property and trying to fill it.

You will also receive plenty of background information on the tenants that are in situ. That means you can see their payment records as well as any issues of behaviour, which can be a deciding factor in whether to take the property on in the first place. This offers buyers a degree of security that you do not have when looking for new tenants.

If you buy a tenanted property through an investment company, you may be able to benefit from a period of free property management that limits the contact you need to have with the tenants. The management will deal with the day-to-day aspects of property rental and will save you time, money and stress.

If you are buying a rental property, it is advised to look at what is known as the absorption rate. This shows you what the rental demand in the area is. However, if the property already has tenants in place, this is less of an issue until your tenants decide to move on.

The world of property rental is full of rules and regulations that you must comply with in order to protect yourself and your tenants and give them somewhere safe and habitable to live in. This covers everything from gas certificates to smoke alarms, but all these should already be in place when you purchase the property. That means that there is far less red tape to work your way through when you buy the house or flat, and you can enjoy renting it from the very beginning.

Another worry that property investors have is making sure that the house is ready to live in. Whether it needs decorating, extending or full refurbishing has to be a big cost consideration, but if tenants are already renting it, then it is likely that most of this has been done and will not need to be addressed again until a later date.

Off-plan properties

Buying off-plan means buying a property that has not even been built yet. You agree the sale based on the plans that the developer has supplied, and because nothing is in place yet, the price is often heavily discounted to offset the risk that you are taking in buying something that you cannot yet see. You will usually be required to provide a deposit of anything between 10% and 30% as well as reservation fee to make sure no-one else gets their hands on the property that you want.

By purchasing the property before it is completed, you can often get more for your money, which can lead to greater rental yields. These brand-new properties usually come with lots of facilities and are in perfect condition, which makes them a popular choice with renters. They are often seen as luxury properties which have been built with location in mind, meaning that whilst they do not have tenants in place from the start, it usually doesn’t take long to fill them. You can even begin advertising for tenants before the property is complete, moving them in as soon as it is ready.

New developments often pop up in high growth areas, meaning there is likely to be a healthy demand, and your developer might be able to provide projected yields for you. A property that is purchased off-plan usually grows in value during the build period, meaning an investor can be in profit before the first tenant even walks through the door, and some even decide to cash in by selling straight away.

As the property has never been lived in, there will be no additional costs when it comes to getting up to scratch. You will not be required to do any refurbishments, and any teething problems that might occur can be left to the developer to fix. Using an investment company can provide you with some free property management which can help you to iron out any other issues and minimise the contact you need to have with the tenants.

New-build properties tend to be more energy efficient, which helps landlords when it comes to achieving the minimum EPC rating of E which is required on all rental properties.

Both of these options provide a potential buy-to-let investor with some terrific opportunities, so it is important to choose the right one for you. Take a look at what you would like to achieve with your property, the involvement that you would like to have and the yields that you are hoping to benefit from to pick the direction that suits your plans.