Are Non-Standard Construction Properties Good Value Investments?
THE QUESTION
What are the pros and cons of investing in non- standard construction (NSC) houses which are bit dated and needs TLC – apart from getting a lender. Are they difficult to sell and don’t appreciate as normal brick and mortar houses?
THE ANSWER
If you consider what is called as standard construction, every other building material is, by definition, non-standard. Standard is a) brick or b) a combination of brick and breezeblock.
Everything else is non-standard. Unsurprisingly there are a myriad of other build materials used to construct houses over the last century and they have varying degrees of mortgageability, predominately linked to the life expectancy of the building material used.
One of the worst are pre-fab bungalows knocked up in the late 1940s to house homecoming servicemen from WW2. These are already decades beyond their life expectancy.
Post-war council estates tend to be mostly NSC, with concrete being the most common build material, steel being a less used alternative. These were constructed to a budget i.e. as cheaply as possible and corners were cut on quality to keep the construction price low.
Given that the concept of such properties being privately owned at the time of construction was never considered possible (that only began in the 80s), the low build quality is not as shocking as it might seem. Pragmatism ruled the day back then.
It is also relevant that such buildings were commonly replacing 19th century slums, so budget built as they were; they were still a significant improvement on their forerunners it terms of living standards.
With so many different build materials and qualities thereof, mortgage lenders have built an extensive database of the quality of each type, so they have full knowledge of the extent of the problem with each and use such knowledge to reach their to decision to lend or not.
In terms of value, NSC properties are typically 30-50% cheaper than their brick counterparts in any given area, partly in recognition of their limited mortgageability.
Tenants, being much less discerning than mortgage lenders, will broadly be prepared to pay a similar rent to live in an NSC property as a brick one. Hence their enduring popularity with landlords as the yields with NSC can be significantly greater.
In terms of capital appreciation, that will be location driven rather than construction driven. NSC properties do increase in value as market values in their area rise but only to the point where the 30-50% reduction in value to brick built properties is maintained. That acts as a ceiling to their capital growth.
Here is a video on my YouTube Channel discussing this topic.
Are Non-Construction Properties a Good Investment?
You can learn more here:
- Contact Kevin Wright over on his Facebook page.
- Browse the Recycle Your Cash online training library by clicking here.
- Attend a 2023 Buy-Refurb-Refinance Summit event - BRR Summit
