Finding Value: Investing in properties of non standard construction
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Finding Value: Investing in properties of non standard construction

Background

When investing in property it is always important to try and seek out value wherever possible, ie. to invest in a property that will produce a higher than usual rental yield or prospects for capital appreciation. One way is which some investors find value is to invest in properties of non standard construction. In this report I will look at investing in properties of non standard construction:

Firstly, what is a property of non standard construction?

In the UK it could essentially be any property which is not built of traditional stone or brick and mortar. Pre cast concrete panel or ‘system built’ properties from the post war years are the most common types. However the term can include properties constructed of timber, some timber frame, weatherboarding concrete, cob (mud and straw), asbestos and corrugated iron as well as thatched properties and tower blocks.

Even if a property is built of brick or stone it might be categorised as of non standard construction if the roof or floor are non standard, eg. red ash floors.

So what are the pros and cons of investing in property of non standard construction?

Cons

* Difficult to raise a mortgage on, and where available will usually be more expensive. May even be unmortgageable.

* May be difficult to insure.

* Future maintenance issues and costs uncertain.

* Future capital values uncertain. Will most certainly not appreciate in value to the same degree as standard properties.

* Hard to resell, for the reasons above.

Pros

* Cheap to buy (for the reasons above) – can be very cheap.

* Very high yields for rental. Rental values are often exactly the same as similar properties of standard construction.

* Often let readily. Usually in areas of good demand for rental property. Tenants are attracted by good value and not usually deterred by non standard construction.

* Land value alone may exceed purchase price – potentially a ‘free house’ or a site with development potential.

Steps to take if considering investing in property of non standard construction:

* Look in right place to buy. Property of non standard construction is most usually found at auction sales.

* Decide how your investment will be financed. These properties are most suitable for cash buyers, and those who can secure finance on another property.

* Seek professional advice. Surveyors local to the area where the property is located will usually be aware of the particular non standard method used, any specific issues it involves, and methods of rectification where appropriate.

* Check local letting potential, if intending to let, as with any buy to let purchase.

* Consider whether you will/can leave the property ‘as is’ or seek to repair it.

* In some cases properties of non standard construction can be rectified using techniques such as ‘bricking over’. In some cases, the resultant value of the property may exceed the cost of the work, permitting some capital gain. However, it is essential to take professional advice on suitable methods and likely costs before embarking on such a project.

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