The benefits and risks of off-plan investment
Off-plan property investment is a daunting prospect for some property investors, especially first-time investors. After all, you’re investing in a property that hasn’t been built yet. Apart from the plans, artist’s impressions, and assurances of the developer and agent, you have little to go on and help you make an informed investment decision.
So, why do so many successful property investors concentrate the bulk of their property portfolio in off-plan and new build property? And what is it that they know before they invest?
In this article, you’ll learn about the benefits and risks of investing in off-plan property – this is the starting point of all profitable off-plan investment.
The benefits of investing in off-plan property
There are plenty of advantages when you invest in off-plan. These include:
· Best choice of plots
The earlier you buy, the wider your choice of plot. The best plots on a development are likely to produce the best capital growth. They’re more likely to attract higher levels of rental demand, and rental income potential will benefit from this.
· You lock in a price
When you invest in off-plan property, you lock in at a price agreed when you buy. If the property market is rising, by the time you complete you could have quite a substantial capital gain. This gain can be released by remortgaging to add another property to your portfolio. Remortgaging is a strategy that property investors use to build investment wealth rapidly.
· Time to plan your finances
Though you commit to investing today, you don’t pay the full purchase price until completion. That could be two years away. After paying the deposit (typically 10%), you’ll have staged payments to make depending on the progress of the development. It gives you greater flexibility to plan your finances.
· You get to choose fixtures and fittings
With many off-plan properties, you’ll get the choice of fixtures, fittings, and finish. It means you can tailor the property to your target market. High-end appliances, for example, are more attractive to potential tenants.
· New build is in demand
New build properties are more likely to rent at higher values. People like new homes which have never before been tenanted.
· Lower maintenance charges
When you invest in off-plan property, the product you receive is a new build home to let. It will benefit from builder guarantees, such as the NHBC 10-year guarantee.
New build costs more to buy but saves an incredible amount of money when compared to existing property. This new build premium is repaid by lower repair and maintenance costs. Upgrading an existing property could cost as much as £35,000 – and every pound is a reason to laugh at the new build premium.
The risks of investing in off-plan property
While investing in off-plan property offers tremendous benefits, it doesn’t come without risks. Here are the ones to watch for:
· Market uncertainty
While a rising market produces great profits for the off-plan investor, a falling market could lock you into a property which is worth less than what you pay for it.
· Delays in completion
When you buy an existing property, it’s already completed. It’s ready to renovate and let.
Several things can happen to delay the completion of the off-plan property. Issues with financing, bad weather, or problems with suppliers and sub-contractors are examples. While a delay isn’t the end of the world, it is an inconvenience.
· The developer goes bust
If you’ve paid your deposit and the developer goes bust, you could lose your deposit. The risk of this is greatest in foreign markets and when property prices are falling.
· Your lender pulls financing
When you buy an off-plan property with a mortgage, you run the risk that the lender will pull its mortgage offer. It might happen because of new market regulations, internal rule changes, or development delays.
How to slash the risks and retain the benefits of off-plan investment
Successful property investors understand the relationship between risk and reward. They also know how to reduce the risks while keeping all the benefits.
For example, by negotiating a higher discount from market price when you agree on the purchase, you’ll add a cushion against an unexpected fall in property prices. And in a rising market, the discount translates directly to bottom line profits.
Successful investors build a network of trusted partners. Our investor clients benefit directly from the market-leading discounts we negotiate with developers. They also benefit from access to some of the best professionals in the world of property investment:
- We only deal with reputable developers who have a strong track record of completions.
- We connect investors with solicitors who have specific buy-to-let experience.
- We seek deposit protection from developers.
- We connect investors to experienced buy-to-let mortgage brokers who are completely tuned into the investment property financing market.
In addition to all of this, we make our property and area research freely available, as we do our comprehensive investment education (which includes blogs, articles, videos, books, webinars, etc.)
Do you want to know more about off-plan property investment?
Contact one of our team today on +44 (0)207 923 6100, and we’ll be pleased discuss your aims and how off-plan property investment could help you achieve your financial goals.
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