The UK’s Build Market continues to thrive - with the new construction output increasing by 15.8% in 2022. The main contributors to this growth come from the private new housing and public infrastructure sectors.
This indicates that the government is serious about solving the housing issues currently challenging the demand from London residents. It also opens an opportunity for property investors to grow their portfolios and for developers to increase their profits. The Build-to-Sell strategy is a great way to profit from the new stock in the housing market.
But here’s the dilemma. What if mortgage rates are too high that it makes buying properties unaffordable? What will happen to the new housing stock? It will remain vacant.
Fortunately, there’s a strategy that you can use to maximise the earning potential of unsold properties.
It’s called build-to-rent. It’s the idea of renting out a property to keep it from being vacant while it’s waiting for the right buyer.
In this article, you’ll discover ways to expand your portfolio despite the current limitations of the Build-to-Sell industry. You’ll also be introduced to a transformative solution offered by Opago which allows property developers and investors to earn higher rental returns and unlock untapped revenue. You’ll find out why it’s a better alternative to the Build-to-Rent approach.
About the Build-to-Sell Industry
Property builders and developers are hard at work to provide enough output to meet the growing demands for housing in the UK. Investments are in and projects are underway - along with public infrastructures that are all part of a greater initiative to create more smart cities (e.g. London’s Smart City initiative).
Of course, these builders and developers are in this to make a profit - which is through selling the newly developed properties. But this comes with a couple of challenges that are compromising the profit potential of property development projects.
Increase in cost
Inflation, labour shortages, limited materials and resources - all these are driving construction costs higher. Even regulatory requirements have pushed expenses beyond the initial projections.
These can increase the project cost and lead to tighter profit margins for builders and developers. The compromised profit potential will cause financial strain in the building process. It increases the risk of the project as expenses threaten to push selling prices higher.
Inability to sell
Market fluctuations and changes in consumer preferences put properties in danger of prolonged listings and lower buyer interest. From affordability issues to oversupply or economic downturns - all these can leave newly built properties unsold.
This can delay the profit and ROI of property developers and investors. This can also compromise portfolios and future building projects.
Slow approvals
Obtaining approvals for new projects or renovations can also compromise the success of property developers and investors. These could come in the form of delays in securing permits, problems in complying with regulatory requirements and difficulties in addressing community objections.
These can impact the building schedule and compromise the profitability of the construction project. Every delay in the progress results in higher costs for both developers and investors.
The Alternative: Build-to-rent
Due to the challenges in the Build-to-Sell industry, property developers and investors are opening up to the idea of a Build-to-Rent approach. Instead of being left with unsold properties, builders, developers and investors are starting to transform new properties into rental accommodations.
According to reports, the UK Build-to-Rent market enjoys a £4.5b investment in 2023, which is still a good growth following the £4.6b investment in 2022.
As a property developer or investor, is Build-to-Rent the right strategy to grow your business or portfolio? It’s a promising market but there’s a better option that you might want to consider if you want to maximise the profitability of your building investments.
It’s called flexible letting. It comes as a strategic and innovative solution that the Build-to-Sell sector can use to optimise returns and maximise the value of their investments.
3 Ways Flexible Letting Improves BTS Profitability
Flexible letting is a strategy that combines the high-income potential of short-term letting and the stability that comes from mid-term and long-term letting.
How is this different from the build-to-rent approach?
Instead of just focusing on one letting strategy, property developers and investors are given a more flexible approach that’s aligned with the dynamic property market and trends. It gives adaptability so they can position their investments for higher returns regardless of how the market turns.
Opago uses this premise to encourage property investors and developers to consider the Flexible letting strategy as a viable solution to the challenges in the Build-to-Sell industry. There are three ways that this can increase profitability.
Turning vacant properties into temporary rental units
Vacant properties are left empty for many reasons. Sometimes, these are scheduled to be demolished. Others are intended to be refurbished or renovated. But like all construction projects, these require permits and approvals from the local authorities or council. There are times when securing the documents takes longer than expected.
Instead of dealing with vacant units, the flexible letting strategy can turn them into short-term or mid-term rentals. Due to the specific length of stay, there will be no issues when it comes to vacating the premises once the documents for the demolition or renovation are released.
This won’t just provide property investors and developers with an extra stream of income. It can also secure the property since the occupants will keep vandals or illegal settlers away.
Profiting from hard-to-sell units while waiting for buyers
Large developments that are completed just as the market turns or buyer preferences change are left to struggle to dispose of hard-to-sell units. Developers are faced with the difficult choice of either leaving the units empty or lowering the selling price - either of which will compromise profitability.
Instead of dealing with profit loss, developers can opt to use flexible letting to transform hard-to-sell units into temporary rental properties. The rental income can offset the cost of holding unsold properties. Apart from earning from the rental fees, you can also increase the occupancy level of the building which will increase the appeal of the property to attract buyers.
Spreading the risk through new revenue streams
One of the best ways to mitigate risk in any construction project is by spreading it through new revenue streams. Also referred to as Mixed-Use Development, it minimises losses caused by vacant and unsold properties. Before project completion, units are appraised to determine which can be turned into short-term and long-term rentals, sales units or Build-to-Rent properties.
This diversification can be applied in various rental applications like student accommodations, short-term letting, corporate letting, etc. Introducing the flexible letting strategy spreads the risk and guarantees a revenue stream regardless if the new units are sold immediately or not. This can also increase the value of the properties to improve their appeal among buyers.
Increase the ROI of Property Investments
Although the Build-to-Sell industry comes with issues that challenge profitability and investment success, there’s a way to mitigate the risks. Flexible letting offers a revolutionary approach that property developers and investors can use to maximise construction project returns. Embracing flexibility and choosing adaptable rental strategies makes it easier to respond to the dynamic property market and evolving buyer preferences.
Protect the ROI of building projects and optimise revenue streams. Partner with a property management company to help implement flexible letting strategies while units are waiting for the right buyers.
Partnering with Opago gives you access to a risk-free strategy that includes end-to-end property management services that turn vacant or unsold properties into profitable revenue streams. We offer baseline revenue - which lowers your risk of low occupancy. Through Opago’s property management expertise and the state-of-the-art technology used to monitor multiple properties, you can unlock the full potential of mixed-use developments.
Get sustained growth and elevate the ROI of your property investments with the help of Opago. Contact us so we can achieve sustained growth despite the competitive and dynamic nature of the London property market.
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