Investment Education – What you need to know to profit from off-plan property

It pays to know the pros and cons before you invest

When I started out in property, one of the first things my investment mentor taught me was to always take a balanced view of any opportunity. It means being fully aware of the advantages and disadvantages of any investment opportunity, before investing.

Off-plan property offers a bunch of benefits to investors. But, like any worthwhile investment, it’s not without risks. By understanding the pros and cons of off-plan property, you’ll be better prepared to make an informed property investment decision.

In this article, you’ll learn why off-plan property investment has made so many investors wealthy people. You’ll also learn about the off-plan risks they minimised to become wealthy.

The pros of investing in off-plan property

There are some very real advantages of investing in off-plan property. These advantages offer property investors some key benefits in both the short-term and longer term. These include:

·         Discounted purchase price

It’s possible to negotiate a great discount when buying off-plan property. It suits the developer to sell off-plan. It’s a cheaper form of financing for them and allows them to move forward with the project more quickly. As a rule of thumb, the earlier you buy, the bigger the discount is likely to be.

·         First choice

Off-plan buyers have a greater choice of units. You get to buy the unit that will be most in demand when the development is completed – the apartment overlooking the communal gardens, not the one backing onto the car park. If you wait until the development is complete, all the best units would be sold already.

·         Staged payments ease your financing

When you buy off-plan property, you pay a deposit to secure the unit. It is usually around 10% of the agreed price. Payments are then made at pre-set intervals, usually coinciding with completion milestones. You can budget for these payment milestones. For example, if you’re expecting a payout in the next couple of years – an inheritance, sale of share options, tax-free pension lump sum, etc. – then you can invest today without waiting. And if you’re investing with the benefit of leveraging, you don’t need to pay unnecessary interest while the property is being built.

·         Lock in a price and benefit from value growth

When you invest off-plan, you lock in the price agreed when you purchase. If property values rise in the time before completion, you don’t pay more. Any uptick in property valuation is yours to keep. Many of our clients use this immediate equity in their property to fund their next property investment. Such a strategy could help you grow your property portfolio faster.

·         The advantage of time

The time before completion, which can be two years or sometimes even longer, gives you a great breathing space to consider your ongoing investment strategy. Will you sell and bank the profit, remortgage and buy a second property, or let to a long-term tenant and benefit from passive income?

·         Lower maintenance costs

New build property benefits from NHBC guarantees. The finish is modern, and appliances are brand new. Properties benefit from the highest energy efficiency standards. Maintenance costs are way lower than those for pre-existing homes.

·         Higher demand

New build properties are easier to sell or rent. People love new. It allows them to put their stamp on their new home. And with better energy efficiency, their utility bills are lower. Higher demand translates into better rental values.

The cons of investing in off-plan property

To benefit from all the advantages of investing in off-plan property, you need to minimise the risks. To do this, you need to understand the main disadvantages of off-plan property:

·         Market uncertainty

No one knows what the property market is going to do before you complete your off-plan purchase. If it falls, you could find yourself paying more for your investment property than it is worth. Of course, the bigger the discount you’ve negotiated, the more you’re protected against a market fall.

·         Completion is delayed

If the development falls behind schedule, you could find yourself with several problems. For example, your mortgage provider is more likely to withdraw their mortgage offer. Or, if you have invested to meet certain objectives, these could be delayed. Your next investment might have to be delayed, for example.

·         The developer goes bust

If the developer goes bust, you could lose your deposit. It is why it’s so important to only buy from a developer with a good track record.

·         The mortgage lender pulls out

When lending on an off-plan property, there are several reasons why a mortgage lender might withdraw their offer before completion. For example, they may disagree with the final valuation. It could be that their lending rules change. A delay could take completion past the mortgage agreement expiry date. Use an experienced buy-to-let mortgage broker to reduce these risks: they’ll know the best providers and best products for your investment objectives.

Weigh up the pros and cons before you invest

As you can see, there are some enormous benefits when investing in off-plan property. There are also some risks. When you’re considering investing in off-plan property, you’ll maximise the upside by minimising the risks:

  • Always consider the risks of any investment opportunity before investing
  • Buy in the best places to invest in property UK
  • Build up a network of experienced professionals to help you through all the financial and legal aspects of off-plan property investment

Contact one of our team today on +44 (0)207 923 6100, and discover how we’ve helped hundreds of investors profit from off-plan property.

Live with passion

Brett Alegre-Wood


Brett Alegre-Wood
February 26, 2017

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