Property Investment: Building from Scratch vs. Renovating an Existing Property

by Barclays Real Estate on January 24, 2014

  • Sumo

There are two typical routes for investors to take when setting out on a new property investment venture. Some will invest in a new build while others will buy existing properties to renovate and sell on. There are pros and cons to both approaches, and the best option varies from investor to investor. In the following paragraphs we explore some of the advantages and disadvantages of both approaches.

For many investors, expert advice remains invaluable. Barclays offer property finance services which can be accessed through their real estate pages here. Barclays can fund projects and provide local area knowledge and expertise through their network of Real Estate Managers. With the support of real estate expert, property investors are better able to make the right choice for every new investment opportunity they take on.

Comparing costs and budgeting

It might be surprising to learn that it can actually be cheaper to build a property completely from scratch than to renovate an existing property. There are a number of reasons for this. Firstly, there are rarely any surprises with a new-build; plans are laid out in advance, and the house is constructed using tried and tested methods. This means that the cost of the work, and the time it will take, can be accurately estimated. Renovating an existing property, on the other hand, can be riddled with unexpected complications, forcing the completion date back and incurring additional costs.

Another thing investors must consider is that when renovating an old house, certain specialist materials may be required. These could prove costly, especially when compared to the readily available materials used to build modern properties. Therefore, when the amount of money available for a particular project is limited (or needs to remain strictly within a budget), the new-build option may well be the better choice. This will really depend on just how old a property is that is being considered for renovation.

The work involved

Although the work involved in constructing a new building is not without its potential problems, generally speaking, the issues that come up are easier to predict. The work involved in renovating a property is often hard to pin-point. In many cases, the project starts off with a very clear plan only to be de-railed by hidden problems. It is easier and quicker to build a property from scratch because it is being created from a blank canvas. It can be a lot harder to work within the strict confines of a structure that already exists. On the other hand, the blueprint provided by working on an existing property provides a useful starting point for some investors.

It’s important to note factors such as the fact that the walls of a new build are constructed quite easily, whereas the walls of an old property may need to be knocked down and then re-built. The logistics of working with an existing property can be more difficult to manage than those of a new build. Therefore, if a project has time constraints and must be completed within a certain time-frame, a new build may be the most feasible solution.

Control over proceedings

With an existing property, investors are tied to the original location and to some degree, the design and layout of the building. Although renovations can be made, these changes may be limited and have restrictions applied. For example, it is not permitted to structurally alter some older houses or listed buildings without prior planning permission. New builds offer much more flexibility and choice; the layout, design and location can all be decided by the project team, allowing for a greater amount of control. However, it is important to remember that planning approval is still needed to start building a property from scratch. A guide such as this one can help investors to work out what permissions are needed for any given project.

Appealing to buyers and return on investment

Positive return on investment is essential for investors. Therefore, before determining which path is right, they must consider what type of buyer the property is intended to appeal to and how much profit that buyer group could potentially bring.

It has already been established that constructing a new build is often more straight-forward and in many cases cheaper than renovating an existing property. However, the appeal of new properties can be limited. If investors target the higher end of the market and build a unique, one-off house, they run the risk of being unable to find a buyer that will not only like the property but have the money to pay for it. If the investment is in a more modest property, it may not make a vast return on the initial outlay. Renovated houses are undoubtedly a specialist niche, but a well-renovated home will generally attract a high standard of potential buyer; those that are willing (and able) to pay a higher premium for a specialist property. In general, although the initial outgoings work in favour of the new-build, the overall profit will usually be higher when investing in an older property.

Barclays Real Estate

Barclays Real Estate

Barclays Real Estate

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