New property as an investment – When the figures are misleading and the return is hidden between the lines

One of the most common questions we are asked about investment properties is: are new developments profitable as investment properties? One major attraction is the financing options available for current new developments, which make it possible to purchase a studio apartment for a few tens of thousands of euros – sometimes even less.

But how does the math work in these situations? When purchasing at the sale price, the financing costs for new properties must still be paid, and the monthly financing costs for a studio apartment purchased at 30% of the sale price can be quite high. And if that sale price is still covered by a loan, it must also be paid back with interest. Add maintenance fees to this equation, and you will soon realize that the rent for a studio apartment simply does not cover all the costs, no matter how you crunch the numbers.

At this point, many people decide to just let things be – to stay in their parents' debt-free suburban homes worth less than a hundred thousand euros and secure their cash flow.

So it may come as a surprise when I tell you that the two fastest-selling properties on Sijoitusasuntovartio – sold in less than a day – were new builds. Here are the figures for both apartments:

Note: Both apartments are located in the same housing company. Interest rates on financing charges and rents may have changed since the time of sale. The figures in the table represent the situation at the time of sale.

Looking at the figures, one might quickly conclude that there is no rhyme or reason to them. But as the old saying goes, truth is often stranger than fiction.

I set out to investigate the matter with Aarne Urvas, sales manager and mascot of Sijoitusasuntovartio. So, Aarne, why are new developments selling like hotcakes, and what advice would you give to an investor considering such a purchase?

New developments can be excellent investments right now, and the reasons for this are related to the market situation and the special characteristics of the properties. Firstly, falling interest rates and rising rents are rapidly changing the equation to make it more favorable for investors. Many recently completed properties have large corporate loans, but as interest rates fall, financing costs decrease and cash flow approaches neutral. If the selling price is set at a moderate level, these properties can serve as excellent value preservers in a portfolio.

Secondly, the advantage of new developments is that they are renovation-free – both in terms of the apartment and the housing company. This means fewer surprises and less risk of cost increases, which brings stability for the investor.

Easy rentability is the third important advantage. New developments are often modernly equipped and in good locations, which makes them attractive to tenants. When combined with good rental income and high occupancy rates, the risk of empty months is reduced.

In addition, new properties offer tax efficiency: if the portfolio includes properties with positive cash flow, the small negative cash flow of the new property can reduce the overall tax burden – while at the same time reducing the loan and increasing net assets.

It is also important to consider the macro level: construction volumes remain at record lows and the cost of building new homes has risen. This means that existing new-build properties can often be purchased at below market price.

The asset moves quickly when it is priced correctly – i.e., at a low selling price or at a moderate price in relation to the total debt-free price. In this case, the buyer gains control of the asset with minimal capital.

What should you keep in mind when investing in a new development?

1. Land ownership – Is it your own land or leased land? This will affect future costs.
2. Company loan interest rate – Is the interest rate fixed or variable? When is the next review? This may have a positive impact on cash flow.
3. Possibility of rent increases – Check whether the rent can be reviewed regularly. This can significantly increase your return.

New developments are not suitable for everyone – but with the right criteria and careful selection, they can be effective cornerstones of your portfolio for years to come.

If you want to add new properties to your investment portfolio, now is the time to listen up!
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