Reducing property investment risk to increase your profits
Off-plan property developers take risks when selling their as-yet-to-be-built property to you. They put their faith in you, believing that when the time comes to complete, you’ll be able to raise the finance to do so. They reduce their risk by taking a deposit of between 10% and 30%.
However, you also put your faith in them. You reduce the risk that development will be delayed by knowing how to get the biggest discount on the best off-plan property. But is this the only developer risk you face? And how do you make sure that your developer risks are as low as possible?
In this article, we discuss specific developer risks when you invest in off-plan property. You’ll also learn how to reduce these risks to a minimum.
What is developer risk in off-plan property investment?
It doesn’t happen very often, but developers can deliver property late. They may not build exactly what you expect. In the worst-case scenario, a developer could go bust, leaving you high and dry and out of pocket. To reduce the possibility of any of these issues damaging your investment, there are some basic due diligence steps you should take.
How to research the developer
When we are offered off-plan property investment opportunities, of course, we refer to our area research to discover if the investment is being made in the best places to invest in property UK. We’ll run the numbers to make sure that the investment is financially viable. We also spend a good deal of effort in ‘developer discovery’. What we mean by this is that we want a high degree of confidence that the developer will deliver on its promise.
Background checks on developers
We start our developer due diligence by visiting its website. Here we want to see evidence of projects that have been completed previously, and other projects that it currently has in progress. We want to find other information which includes:
- Head office address and contact details
- Names of directors
- Basic financial information
We’ll also conduct a search at Companies House. Once we know who the directors are, we’ll do some basic background research on them, too. We want to know if they have been involved in any development companies that have run into financial problems, received high numbers of complaints from property investors, or gone bust personally or professionally. Any of these would act as red flags.
We’ll do some more online research, surfing forums to find positive and negative feedback on the developer, its people, and its previous developments.
Other checks to make
Once we’re satisfied with the basic background checks, we’ll dig a little deeper to discover their performance record. We’ll want to see evidence that their developments have been completed on time and to the promised specifications. We’ll look at previous plans and the finished products. Specifically, we look for:
- Delays, or mothballed or cancelled development projects
- Any court actions or disciplinary notices
- Any insurance claims made against the developer
- A high percentage of developments delivered on time and with satisfied buyers/investors
Something you should consider doing, about the development you are considering buying into, is a site visit. Of course, for overseas investors or those that live hundreds of miles away, this may not be possible. We always visit a site that we are considering for potential property investment by our property investor clients. We get to see the stage of the build, meet the key people on site, and speak with sub-contractors. It gives us a great feeling of place and people.
Keep in touch with the developer
An off-plan property investment is a large commitment. You should want to keep in touch with the developer on a weekly basis, ensuring that everything is progressing as planned and that there are no unforeseen hitches that could delay completion.
Our sales progress team keeps in constant touch with the developer. They also make periodic site visits, as part of our commitment to providing a Set and Forget investment. We know the questions to ask, and the signs to watch out for. If unexpected circumstances arise, we make sure they are communicated to investors. We then monitor how the developer is rectifying and bringing the development back on track.
Use a solicitor
While off-plan property investment is a simple process to understand, it’s important to hire the services of a good solicitor. Your progression team at Gladfish will monitor the buying process, liaise with all parties and professionals working for you, and remind you of the things you need to do.
Your solicitor will make sure that the contract between you and the developer is fair. They will ensure that there are no clauses that penalise you in favour of the developer, and that should things go wrong, you are afforded the best protection in law. Our recommended solicitors are experienced in off-plan property contracts, and may already be working with clients investing in the same development: that’s a big advantage in knowledge and time, which benefits our clients directly.
If you’re happy with the developer, what next?
Once you’ve run all the checks and balances on the developer, you can be confident that developer risk is has been minimised. You can look forward to your off-plan investment being delivered on time and to the specifications promised. You can now go ahead, hire an experienced solicitor, pay the deposit, and look forward to what should be a very profitable investment.
To find out where the best places to invest in property UK are or discuss in depth how we vet developers, contact one of our team on +44 (0)207 923 6100. Put developer risk behind you, and look forward to the rewards of investing in off-plan property.
Live with passion
Brett Alegre-Wood
