The property market has seen a significant rise in the popularity of "build to rent" developments, especially in urban areas. These properties, designed exclusively for rental purposes and managed by corporate landlords, offer certain conveniences but are not without their drawbacks. This article delves into why build to rent might not be the ideal choice for every investor, particularly those looking to invest in one or two buy to let properties.
Lack of Flexibility
One major drawback for investors considering build to rent properties is the lack of flexibility. Typically, these properties come with strict lease agreements and predefined management structures, limiting an investor's ability to make decisions regarding their units. This can be particularly frustrating for those who want to have a more hands-on approach to managing their investments.
Difficulties in Financing
Investing in build to rent properties can be challenging from a financing perspective. Lenders are often hesitant to provide financing for properties that are not yet built, as this increases the risk. Even once the property is completed, the lack of control over the unit can deter lenders. Banks prefer investments where the borrower has a significant degree of control, reducing the perceived risk of the investment.
Competition from Established Developers
The build to rent market is dominated by established developers and institutional investors, who often prefer to retain ownership of entire developments. While these corporations may sell individual units to investors, the overall competition and the presence of rival developments owned entirely by these corporations can impact the potential returns on your investment. These entities have better access to resources, industry relationships, and capital, which can drive up costs and make it harder for individual investors to achieve high returns.
High Management and Maintenance Costs
Build to rent properties often come with higher ongoing management and maintenance costs compared to traditional rental properties. The inclusion of amenities such as gyms, concierge services, and communal spaces can increase operating expenses. Additionally, maintaining the high standards expected in build to rent developments can lead to higher costs over time, impacting overall profitability.
Limited Control and Transparency
Investors in build to rent developments may have limited control over the management of their properties. Large corporate landlords typically handle the day-to-day operations, leaving individual investors with little say in how the property is managed. This lack of control and transparency can be frustrating for investors who prefer a more hands-on approach. Decisions about maintenance, communal spaces, and even rent increases are made by the corporate landlord with minimal input from individual investors.
Complex Tax Implications
While new build properties are generally exempt from VAT, investing in build to rent properties still involves navigating various complex tax implications. Issues such as stamp duty surcharges and potential capital gains taxes require careful planning and professional advice to manage effectively, adding another layer of cost and complexity for investors.
Alternative: Residential Investment Consultancy
For investors interested in residential property but wary of the pitfalls of build to rent, working with a residential investment consultancy can be a more suitable option. Firms like Clarice Carr & Co offer expert advice and management services, allowing investors to enjoy the benefits of property ownership without the day-to-day stresses. This approach provides a balanced level of control and professional management, particularly advantageous in markets like Newcastle and the North East, which offer unique investment opportunities.
Key Pitfalls of Build to Rent for Investors
To summarise, here are some of the key pitfalls of build to rent developments for investors:
Lack of Flexibility: Strict lease agreements and management structures.
Difficulties in Financing: Hesitance from lenders due to construction risks and lack of control.
Competition from Established Developers: Challenges posed by corporations that may prefer to retain entire developments.
High Management and Maintenance Costs: Increased operating expenses.
Limited Control and Transparency: Reduced say in property management.
Complex Tax Implications: Navigating various tax issues.
In conclusion, while build to rent developments have their advantages, they are not suitable for every investor. The lack of flexibility, difficulties in financing, and complex tax implications can be significant disadvantages. For those looking for a more tailored and controlled investment experience, residential investment consultancies like Clarice Carr & Co offer a viable alternative, providing professional management and strategic advice to help navigate the property market effectively.
By understanding these pitfalls, investors can make more informed decisions about their property investments and choose the approach that best suits their needs and circumstances.
Want to know more about how Clarice Carr & Co can help you? Check out our website or get in touch.
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