ASK539: Are period properties better than new build? PLUS: Is a 10% return too good to be true?

0:01Rob B:Hi, I'm Rob.

0:03Rob D:And I'm Rob. And this is Ask Rob and Rob.

0:06Rob B:Hey everyone, it's Ask Rob and Rob, the show where you get your questions in predominantly property related. Sometimes you go a little off piece, but we don't mind that. And we do our very, very best to give you a good answer in return. We've done this over 500 times now, so we're well versed. But luckily, you always have a lot of questions. And we'll guide you now to the place you can go to ask some more.

0:29Rob D:Yep, it's just one destination, propertyhub.net slash ask. If you go there, you can leave us a question in written form for our Sunday Times column, or you can get yourself on the show and be the envy of all your friends by leaving us a voice note. Okay, let's hear our first question. Hi, Rob and Rob. My name's Gina. I live in London. I'm just starting to look into investing in property. So I'm hugely grateful for all of the information and tools and general wisdom you're providing, including this podcast. My question is, do you have any data or even personal perspectives in terms of the types of property to invest in as buy-to-lets?

1:08Rob D:So period property versus new builds, flats versus houses. I've realised that so much depends on the specific circumstances, but I would really love to know if there are even any general rules of thumb that I should be taken into consideration as I build out my own strategy. I notice a lot of investments in new builds, which sometimes makes me a little bit nervous because where I live, I see them popping up and they look lovely when they're first done. And then a few years down the line, not so much. And then something else, shinier and newer has popped up in the meantime. And I wonder what the impact is in terms of capital growth.

1:46Rob D:My husband is an estate agent and he certainly has more trouble selling new-ish houses there or flats than he does period properties to the extent where they don't really take them on anymore. I understand that could very well be just a thing that's very specific to this area, but I would absolutely love any thoughts or information you have that you think it might be useful to know in terms of all of this. Thanks again. Gina, thank you for your question. It's a really good question and it's hard to give a concise general answer to because you're right, it is very area-specific, context-specific.

2:27Rob D:So maybe we'll do a full episode about this at some point. But for now, I can give you some general rules of thumb, thoughts on the matter that might be useful. So let's start at the basic flats versus houses. So people historically have had the view that houses have done better than flats in terms of capital growth. Actually, historically, that hasn't been true. If you go back and look at the land registry, you can compare them, but you can see a graph and they basically do exactly the same thing up until about 2021, at which point houses actually have done better than flats. That's for various reasons, including all the cladding stuff and everything that happened around COVID.

3:02Rob D:So houses have done better than flats over recent years. I don't think that means that they're going to continue to do so. If anything, I think there'll be reversion to the mean and flats will come back again but regardless that's the flats versus houses situation then if you take period versus new build this is very area specific you do get areas where period property does a lot better where it's really in demand so you'd expect that growth to be stronger because there is just structurally more demand for it and there are areas where that's not the case so much where it just doesn't matter even where period property is very much in demand that's great keep that in mind but also keep in mind the maintenance that's not a reason not to invest in older properties but it is something to think about because the amount of maintenance you need on a not necessarily a new build but just a newer property versus something that's 100 years old is of course going to be wildly different and you do need to factor that in and then on new builds in general you said you see things popping up and they start looking a little bit tired after a while and i think that is a very valid point something that we do when we're looking at new builds is we go for the best if you'd buy something that looks average at the point at which it's being completed then it is probably going to start looking poorer by comparison after a while especially if it's from a developer who's unproven who's cut corners and just hasn't really invested what they should in it but if you get something from a developer who's got a track record for quality and you get something that's got some kind of enduring advantage then it's far more likely to hold up so the classic example of this is deansgate square in manchester we helped our clients invest there around about 2020 and it was so much better than everything else in town that still nothing has caught up and it won't do for a long time because it was just unique and not everything's going to be a deansgate square but maybe it's got some other kind of enduring advantage such as location that nothing else is going to have the point is that not all new builds are equal.

4:59Rob D:And so what you've identified is a really valid concern in a lot of areas. But there are things that you can do to get around that concern and remove that as a factor. So Gina, like I say, not a complete answer. There's so much more that you could say on this topic. But hopefully that's been helpful. And thank you for the great question.

5:16Rob B:All right, let's listen to our next question that comes in from Nora Smith.

5:21Rob D:Hi, I was wondering if you could shed some light on student accommodations and assisted living accommodations. There seem to be quite a few deals out in the market. I know these are mostly bought on cash, but they promise guaranteed returns for up to three years with yields up to 10%. What is your view on that? Is it good for just kind of passive income and not idly for capital growth in the future? Are they harder to sell? Be great to hear your views. Thank you.

5:51Rob B:Thanks, Dora. So let's try and answer this. I think it's an easy one. I would avoid it. and I'll give you a few reasons why and they are very good reasons. One, they're guaranteed returns for the first few years and I've seen different lengths of time being offered with these types of investments. What you need to assess is what would the returns be when you're outside of that window because often what happens here is that those returns are priced in. You are paying for them yourselves because the developer, the seller, has worked out what they need to give you during that time and they've baked that into the price.

6:29Rob B:The other thing around these investments is the resale market. There really isn't one. It's incredibly hard, incredibly hard to sell on these types of property because there just isn't a market for it. The market is based on the return. So you may be able to sell it on the return in the future, but that's a very niche buyer, something that an estate agent wouldn't be able to handle, for example. So your resale is going to be really difficult. You shouldn't really view this as a property investment. You should view this as something that will give you a return. And if this return will last for many, many years, and it may be tempting if you are comfortable with the resale may be difficult, but you can probably guess that this isn't the type of investment that I've ever gone near or would recommend to others.

7:11Rob B:Now, what's really interesting is we could have sold this type of investments through Property of Invest because the commissions paid on these types of investment are incredible far higher than any other normal property deal so if i was incentivized to make the most money possible then yeah i'd do these deals but i've been around like rob for a long time and our reputations are important we like to sleep at night i can't promote a project like this but others do because i'll be generous they don't understand it or less generous they're motivated by a very lumpy commission so be careful nora and be careful anyone else listening when you see these types of investment, stay away.

7:52Rob B:If you want something completely passive, stay away from property. Go passive outside of property if you want something 100 % passive. You can invest in normal property and be relatively hands-off, but it requires some work. If you're prepared to do that and put systems in place, then property may be for you. But if you want something that is 100 % hands off that you never have to do anything with it stay away from property even if the headlines look good and the person selling you it sounds smooth do not venture down this path this is a strong recommend to go against this type of investment i wish you luck with whatever you do

8:32Rob D:from this point on so there you go two more questions answered and like we said at the beginning we'd love to have yours too so do get over to propertyhub.net ask if you've got a question to send our way but that's it for today we will see you back here on thursday for the property podcast until then have a great week bye bye bye