Reducing the risks of off-plan investments
Buying off-plan property investments is an investment strategy that many investors use to maximise their profits. Buying off-plan, you’ll usually get to lock in a decent discount from today’s value. That should give you a safety net against a fall in market prices, and in a stable or good market you’ll have built-in capital growth. However, just like all property investments, buying off-plan doesn’t come without risk.
In this post, I’ll look at the risks of buying off-plan and provide you with the strategies to minimise those risks.
The risks of buying off-plan and the strategies to mitigate them
There are a number of risks when you buy off-plan properties. As an investor, by being aware of these, you’ll be able to take the actions needed to reduce their potential to cost you money. Here are the main risks:
1. The market takes a nosedive and values fall off a cliff
Whatever property investments you make, this is always a possibility. Of course, as you’ve invested in off-plan, you don’t have a finished product to sell. You might be locked into a property that is falling in value.
Property is a long-term investment, and so short-term price fluctuations shouldn’t worry you too much. But if property prices are falling in the area in which you’ve purchased rather than more widespread, then you haven’t done your research properly. This is the key to making a profitable investment when buying off-plan.
Always invest with good property fundamentals: in areas that are benefitting from infrastructure build and regeneration, and where employment prospects are strong. Do this, and your property investments will be among the first to bounce from short-term market falls.
2. The property completion is delayed or completed illegally
Another issue that investors have faced is the developer taking longer than expected to complete the building of new properties. This is particularly true in markets that have been overdeveloped before a market fall. Other buyers have reported buying property that was completed illegally. Spain has a particularly bad reputation for developer shenanigans.
If you only buy properties from developers with good track records of completing on time, you’ll cut this risk. Get an off-plan property solicitor on board early – they’ll be able to check all the contract details and ensure on penalties if there are unwarranted delays.
3. The developer goes bankrupt, and you lose your deposit
This is always a risk with any new build.
Again, make sure that you only buy off-plan from trusted developers with a good track record. This is part of the due diligence work you should do every time you invest. Many new build developers are secretive about their finances, but if you do a little digging, it’s surprising what you can find out.
4. Your mortgage lender doesn’t come through with the funds
In exceptional circumstances, previously promised mortgages have been withdrawn by the lender. This might be because of changed market conditions, updated regulations, or a change in your personal circumstances (for example, you’ve lost your job).
It’s now that the benefits of using a buy-to-let mortgage broker really stand out. They’ll have the connections and know-how to get you the best deal, and if anything goes wrong with the financing, they’ll work hard to get things back on track.
5. Defects with the build can be disappointing
All new build properties have defects. You’d expect everything to be perfect, but it never is.
If you use a methodical strategy to snagging an off-plan property the easy way, you’ll find the developer will work with you to put things right. After all, they want the money from the completion funds!
The best advice I can give
Buying off-plan can produce startling profits from property investments. But, like any investment, you need to do your research and trust the professionals to do the job you pay them to do.
Always make sure you are investing in line with your investment objectives, and with a developer that has a long track record. Use solicitors and mortgage brokers with experience in the off-plan and buy-to-let market.
If you do all this, then you’ll take any short-term market shocks in your stride.
You might also be interested to read how a sales progression team de-stresses off-plan property investment.