How to reduce risks as you build an investment property portfolio
As the population increases and builders struggle to keep up with demand for new housing, property investors have found that buying off-plan property can make big profits. However, as with any property investment, new build doesn’t come without risk. One of the perceived risks is the price.
In this post, you’ll learn seven questions to ask which will reduce your risk when buying off-plan property and help you to see maximum benefit from the new build premium.
What is the new build premium?
New build property commands a premium price to existing homes. As I explored in my last article off-plan property premiums. The benefits include:
- Lower repair and maintenance costs
- The ability to rent immediately upon completion
- Builder warranty
These are the underlying reasons for the new build premium. Buying off-plan enables you to get a discount to market value. Effectively, buy-to-let investors can invest in new builds at a more advantageous price – this is a big advantage when you use off-plan opportunities to build a property portfolio.
Off-plan property – key questions to ask
We’ve analysed hundreds of off-plan property deals and come up with a list of the most important questions that first-time investors neglect to ask.
Here are the seven key questions that you should ask when buying a property off-plan, and throughout the process of building your property portfolio.
1. How much are the reservation fee and deposit?
The reservation fee is the amount you pay to reserve your new build. This is between £500 and £2,000. The next payment you’ll make is the deposit: usually around 10% of the final price.
2. How secure is my deposit?
Your deposit will be paid to the developer's solicitor, but they should hold it in a separate client account. Depending on the contract for sales and purchase the deposit may be releasable or be held with the solicitor. Generally, only the first 10% of the deposit is protected by schemes such as NHBC, LABC etc. It helps to protect you should anything go wrong. Your solicitor should check that this is the case, too.
If your deposit is going to be more than 10% then your solicitor should check that there is additional coverage of the deposit or that you are aware of the risks.
3. Will the layout be identical to the ‘showcase’ property?
Most developers will have a model property to illustrate the build, as well as provide brochures and plans to describe the off-plan property you’re buying. Ask how your property differs to the model, and if the finishes (fixtures, fittings, and décor, for example) are identical. One of the advantages of buying property off-plan is that you’ll have some leeway to negotiate and personalise the finished product.
4. When will the property be completed?
Of course, you’ll want to know when the property will be completed and ready to let. However, you should also ask if there are any clauses that penalise the developer for late completion. There should be a clause that gives you the option to walk away (and have your deposit returned) should the developer not complete when it says it will.
5. What happens if the property market falters and house prices fall?
This is something that is out of the hands of the developer. Once you’ve paid your deposit and the ball is rolling, you’re obligated to complete (providing the developer sticks to its side of the bargain).
Interest rate rises and property price falls are part of the cycle of property prices. You should take advantage of the benefits of using a buy-to-let mortgage broker broker, who will be able to get you the best deal for your individual circumstances and investment objectives.
6. What is included in the price?
Always make sure you know what is included in the price. The fixtures, fittings, furnishings, and white goods are shown in the developer’s glossy sales brochure often include upgraded items. Make sure that a parking space is included if advertised. Ask about rental guarantees, too.
7. How can I make certain I get great tenants?
In truth, you can never be sure that your buy-to-let investment will attract the best tenants. However, if you’ve done your research and due diligence you’ll have made your investment in an area that benefits from the strongest property fundamentals.
(Watch to see how our investment guide – DD Invest magazine for each development, ensures our clients only invest in the best off-plan property opportunities.)
Consider professionally managing your investment property via a professional property management company to take the stress out of finding the best tenants and make the day-to-day side of property management as effortless as possible.
Only buy off-plan property with developers who have a good track record of completing on time. Remember you’re looking to build a property portfolio for the long term. You should look to work with companies with extensive experience and where you can easily check records through client testimonials and recommendations.
Call me or one of the team here at Gladfish on +44 (0)207 923 6100 to ask about our current off-plan opportunities, the research that we provide to clients, and how our sales progression process eases you through the off-plan buying cycle.