In life, there are many decisions that one has to take in order to attain a safer future. Buying property that could be your possible future home or a means of passive income, is one of them. However, you have to take a variety of things into consideration in making such imperative judgements. For people who want to invest in property, one of the major factors to consider is whether they should buy an old house or go for new homes. While it is true that this decision is largely based on what you prefer as an individual, there are a few facts that can help you decide which option can be the best one for you.
Many people feel instantly drawn to the vintage look and charm of older homes while some get attracted to the idea of a blank canvas, which they can turn into a modern home. Then comes a shockingly huge population of investors who have no idea what to look for and where to start due to the limitless options available in the market.
Before you learn about various facts about where to invest your money in terms of property, let’s understand what passive income means and how it is related to buying assets like homes in the contemporary estate market.
What is Passive Income?
Passive income refers to a way of regular earning from a source that does not include an employer or contractor. Some of the easy-to-understand examples of passive income are, by renting out a property or by owning a business that does not require them to actively participate, such as stock dividends and paid book royalties.
There are many who think passive income means getting paid for nothing, but that is not true. While it might have that ‘get-rich-quick’ appeal, it does not mean that it demands no effort and work. People who opt for a passive income might give all or some of the work upfront, but there is often some labour involved as well. Your products will always need to be kept updated, and in the case of rental property, they need to be well-maintained to maintain the flow of passive pounds flowing.
Passive income will never work if you lack factors, such as commitment and persistence. If you can master both of these elements, robust financial security can be enjoyed.
Passive income comes with numerous perks. If you are looking for a smart way to increase your monthly cash flow, passive income can help you achieve that. Just recently, COVID-19 caused economic upheaval all around the world. The financial strain, as a consequence of the pandemic and global shutdown of businesses, showed how important it is to have at least two sources of income. As the saying goes, one should not put all the eggs in one basket. In the same way, relying on a single source of income can end up causing a huge fallout for your financial needs.
The unemployment wave that has crashed the global corporate sector has put the job situation of many individuals in disarray. However, if people have a way of earning passive income, they can bridge the gap easily, even if they become suddenly unemployed or take some time off work voluntarily.
There are a number of benefits of passive income. Many people stick to a job (which they do not even like) just for the sake of monetary needs. Similarly, there are also people who are going through burnout and want to kick back a little to relax, but they cannot as that can disturb their financial standing. Considering this, passive income can help you greatly, as you can think out of the box when you do not have to worry about losing out on income even if you leave your job or take a break from work.
Other than that, if you have plans to save, so you can have a stress-free retirement, passive income can make it easy to build substantial wealth.
How Property Investment Can Increase Your Passive Income?
The real estate market in the UK is getting richer and better by the minute. You can easily say that the housing market crash that was seen earlier has become a distant memory now. In fact, prices for homes are looking healthy and profitable once again. The new-age real estate is booming with, bringing out fresh and bigger investors who are ready to enrich their investment portfolio.
It is true that selecting a smart investment property is a challenging job. However, once it is achieved, you can take advantage of your new asset in a myriad of ways. Property can be the best source of passive income for you. All you have to be is a little creative and come up with astute ways to make money out of your property.
One of the smartest and effective ways to set up a source of passive income is investing in rental properties. However, it is more demanding than people think. Initially, it takes a lot of efforts, thoughts, and energy, but with time, property investment can get you a massive ROI. If you make smart decisions, you can enjoy a comfortable retirement with no financial worries at all.
The following are the three things you should consider when you are planning to earn a passive income from the rental property:
- The amount of return you are expecting on the investment
- The entire cost and expense of the property
- Other factors, such as financial risks of buying and owning the property
With the abovementioned crucial information at hand, you can determine factors, such as how much you need to charge on a monthly basis as rent to achieve the yearly passive income you have initially planned out. For that, you have to keep in mind the amount that will go into tax and other such expenses.
To mitigate any sort of financial risk, you have to ask yourself the following three questions before you invest in the property.
- What is the market value of the property?
- What is the likelihood of tenants paying late, defaulting on rent and damaging on your property?
- Is your property rentable?
Any of the aforementioned factors can easily put a dent in the flow of your passive income. Other than that, situations like pandemic also pose a number of new challenges for investors who own rental properties. Due to the financial setback, your tenants might not be able to afford to pay their rent. That can be a problem for investors because they will have a mortgage of their own to pay. Moreover, there are also chances that you might not be able to rent your property for as much as you would like to, as a result of the economic downturn. Considering these points, you should always have a contingency plan, so you can financially protect yourself.
As the estate market in the UK is getting bigger, many people are taking the property investment route as a source of their passive income. However, beginners in this field get confused about whether they should invest in an old or new property. Old houses for sale in the UK might be cheaper but there are some other perks of buying a brand-new home. So, what should an investor go for? Here is a complete guide that will cover the advantages and disadvantages of both options.
Advantages of Investing in an Old Property
The thing with older homes is that they offer an ideal mix of weathered and mature charm. They seem much stronger and reliable in the eyes of the investors. When you are surveying different properties, you will notice that the older ones seem to showcase qualities that have been long lost in modern designs. As a result, when you compare property that is much older to the newly built homes available in the market, the former feels more appealing in terms of investment.
Furthermore, older houses provide much more space than the newer ones. Generally, the rooms are much more generous with space. Other than that, the garden space of period homes is also significant, which makes them attractive to families. As a matter of fact, Georgian properties are often big in size and can easily accommodate huge families easily.
If you want a clearer insight into the pros of buying an old property, here you go with some solid facts:
In the olden times, homes were massive and a lot roomier as compared to the new houses available in the market. People who have big families would always prefer a property where they can easily accommodate everyone. Other than that, tenants would also pay more for bigger homes. Therefore, for your passive income flow, renting an older home seems like a much better and smarter idea.
2) Thick Walls
When investing in an already-built property, it is imperative to place your money in a home with strong and updated construction. Essentially, older homes were built with much thicker and robust walls because they were made of brick and stone. Whereas, modern homes have an infrastructure consisting of lighter and thinner walls, which are built with materials like plasterboard. For larger families, homes with thicker walls are ideal, as they increase the privacy of all members of the house. As a result, larger families tend to look for an older home when investing in a property.
Vintage properties have ample parking and longer driveways. However, it is very hard to find this feature in newly-built homes, as a majority of these homes have single car-parking space. However, this feature varies from home to home. Moreover, it is pretty inconvenient to park cars on-street, or away from home, only because the house does not have enough space to accommodate the vehicle. As new-age homeowners want bigger parking areas to avoid similar problems, it is best to invest in old homes.
4) Spacious Rooms and Bigger Gardens
If there is anything that tenants and property investors love, it is spacious rooms and bigger gardens. Especially in the UK, you will find the majority of the homeowners looking for homes that have larger rooms and bigger gardens. Therefore, you can easily charge substantial rent as well, because the bigger the property, the greater the cost.
Disadvantages of Investing in an Old Property
While there are many advantages to investing in an old property, there are a few disadvantages as well. Those include:
1) Outdated Heating Systems
With time, heating systems can stop working efficiently because of leaking heat and other such problems. Older homes are coupled with such systems, so it might be a problem for homeowners to get comfortable, as it takes longer to warm up the spacious rooms with faulty appliances. Additionally, if you decide to upgrade the heating system, the process can be costly.
2) Wear and Tear
Another prevalent downside of an old property is wear and tear. Since they are on the ground for a significant amount of time, it is natural to find issues like leaks, dampness, and worn-out furniture. However, one can always renew such problems, however, this would mean paying an additional amount for an expensive renovation.
Most of the time, moving into an older home means a lot of renovation and remodelling. Rooms and other parts of the house might need refurbishing. Other than that, the old-fashioned decor of the house may also require a few updates. Doing all of this requires money in the bank, so if you have that budget, choosing an older property is an option for you. Otherwise, it might be an expensive investment.
4) Costly Maintenance
Homes with older builds might have a number of issues like improper leakage, wiring discrepancies, and irregular temperature control systems. To fix them, you need to invest a lot of money in maintenance. Other than that, as the systems are old, there can be some items that you might not find in the modern markets.
Advantages of Investing in a New Property
Brand new homes provide a unique sense of charm. There are many homeowners who choose to invest in freshly built homes, as they are considered more reliable. Considering this, there are a number of benefits of investing in new properties.
With newer properties, there is a guarantee that all the electricals and plumbing is carried out with the new and upgraded standards, thus making the home safe. Other than that, the presence of brand-new doors, striking red bricks, and the seamless process of decorating the house, exactly the way your tenant wants, is a significant advantage. As a result of this, investors also find it easier to sell or rent newer houses, as they can cater to the needs of present-day homeowners.
Here are a few more advantages to buying a new property:
1) Energy Efficient
One of the primary benefits of investing in a newly-built house is that they are mostly well-insulated with double-glazing and cavity wall foam. Consequently, homeowners find it easier and cheaper to run these homes, which is one of the top concerns for people of this age.
2) Simple to update and personalise
Most of the time, home buyers are looking for a place they can easily customise according to their liking. Being able to choose everything from the colour of the walls to the type of furniture and doors, is what makes newer homes much more investment-friendly as compared to older homes. Moreover, giving the liberty to a tenant of decorating the place however they want can increase the rent amount and make your passive income steadier.
3) A 10-Year Warranty
In the UK, new homes usually come with a 10-year warranty. In the unfortunate case that anything gets damaged, the developer of the property is legally obliged to fix it. This fact makes such property more attractive to people who are looking to invest in homes. If you are choosing to rent out the property, choosing this option can be advantageous, as it can save you a large sum of money in repairs.
4) No Onward Chain (or waiting period)
With older homes, buyers always have to wait for the prior homeowners to leave, so they can list the property. However, that is not the case with new build homes. Investing in a new house means no property chain, and once the developer gives you a thumbs up, you can move there, place the home on rent, or put the house on the market and sell it for a profit. This is another common reason why new build home always get tenants who are willing to pay more, so they can move in quickly.
Disadvantages of Investing in a New Property
1) Devoid of character
One of the most unfortunate things about newly-built homes is that they often lack the unique features that older houses used to possess. As a result, new houses have started to look more than similar to each other, where they lack the individuality and character that is used to set older homes apart. In order to adhere to the safety regulations, modern developers may enforce strict covenants in the contract to limit the changes a buyer or tenant can make in the property.
2) Thin Walls
The new-age homes are being constructed with walls that are much thinner or lightweight and finished with material plasterboard. This trend results in the construction of hollow walls, which means you can hear your neighbours, as well as the family members living in other parts of the home. Many homeowners find this as a disadvantage of new homes, which can make it hard for investors to find tenants.
3) Expensive to Own
The new build homes might be more energy-efficient than the older ones, but still cost more in a lot of other ways. Since they are made with the help of modern technology and architectural approach, developers usually demand more for a house that has been freshly constructed. New homes are only affordable to invest in if you are willing to pay a higher premium that costs much more as compared to older houses.
4) Delays in Completion Dates
If you are planning to invest in a property, which has not been built yet, there are high chances of delays in the completion of the construction, which may be due to several reasons. So, you should prepare yourself for any such possible delays when you invest in a new home. However, this problem can be avoided if you invest in the property after it has been constructed.
As a general rule, new build homes are more costly than older properties in the UK. If you compare the expenses of a one-bedroom old home with a newly built one-bedroom property, the latter will cost you almost 75% more. On the other hand, old homes might be cheaper in terms of investment, but buyers end up paying much more for remodelling and renovation purposes. However, with the right contractor, you can still make a profit on the investment after the renovation.
Furthermore, new build homes allow homeowners to save up on energy bills, as they are much more friendly in terms of maintenance. However, older houses usually provide much more authenticity and originality in features and designing, but because of their larger size, it takes much more time to heat them, which can increase your bills.
Just like anything else, there are advantages and disadvantages regardless of the kind of property you are investing in. At the end of the day, you have to narrow down your preferences and go with what suits you better in terms of cost, time, and end-goal. For example, if passive income is the motivation behind getting a rental property, you should consider the factors that are mentioned in the guide.
All in all, by making the right decisions at the right time, you can get your hands on profitable property. Consider the preceding advantages and disadvantages and choose the right option for yourself!