The benefits of off-plan property for income and growth investors
Investing in off-plan property is a strategy that could help you achieve all your lifestyle goals, whatever they may be. Whether you want to create income to last your entire retirement, build a valuable estate for your loved ones, or create a passive income stream so you can take it a little easier, off-plan property investment has the attributes to do it all and more.
In this article, you’ll learn why off-plan property is the investment for all seasons and all reasons.
Off-plan property – the perfect investment today for your future retirement
As a retirement vehicle, property investment has always promised some fantastic advantages over traditional pension plans and annuities.
For a start, when you invest in off-plan property, you will usually get a discount on current market value. It gives you a cushion against short-term market falls, and a higher profit margin when you complete if property prices have moved higher.
You also get to benefit from leveraging in property investment, making money on other people’s money.
Over the longer term, capital gains from investment property have beaten the stock market, and so has rental income (beaten stock dividends)
If you buy an annuity, your money is gone. You’ll get an income (often not protected against inflation), and that’s it. Property is a tangible asset that you can pass on to your children or grandchildren.
Finally, ask yourself when you want to retire. If you’re like most people, the real answer is, “as soon as possible”. Most traditional pension arrangements won’t pay out until you’re at least 60 years old. Investing in off-plan property allows you to retire earlier if you want to, and if your investment strategy has built up the wealth to do so – without the ridiculous ‘lifetime limit’ of a traditional pension fund.
Off-plan property – the perfect investment to create a pot of wealth
If capital gain is your goal, then investing in off-plan property is a great vehicle for you.
When you buy off-plan property, you are investing at today’s market value, without having to pay the full price until a completion date in the future. You get the benefit of time to source your financing, during which the property price may have risen, giving you an instant profit.
The discount I mentioned above gives some protection against a temporary fall in property values. Most importantly, it increases your profit potential:
- Let’s say you agree to buy an off-plan property at £300,000, including a discount from the market price of £315,000.
- In two years when you complete, the property’s value has increased to £362,000 (an increase of 15%).
- Your capital gain is £62,000. If you’d have invested in an existing property at £300,000, and its value had increased by 15% over the same period, your profit would have been £45,000. You just made an extra £17,000, because you got a discount of £15,000!
When you combine this performance enhancer with a mortgage, the results are even more astounding.
The wealth creation benefit of off-plan property
Let’s say you have £60,000 to invest today. Invest in an off-plan property, and you will usually pay a 10% deposit. In the case of our £300,000 off-plan example, you would put down £30,000. You can keep the remaining £30,000 in the bank until you need to make a next stage payment. Before completion, you will arrange a mortgage to pay the balance of £240,000. But your capital investment has been £60,000.
Now let’s look at the return on your investment if the market price of the property had increased by just 15% over the two years before completion. We’ve worked the numbers above – your gross capital gain is £62,000. Or, to put it another way, 103% return on your investment if you sold the property. On a 15% increase in value over two years. It is the power of leveraging in property investment, something you cannot do when investing in other assets, such as shares.
Off-plan property – life-changing income from buy-to-let
As a longer-term investment, an off-plan property could produce amazing life-changing income. In fact, you only need three properties, plus your own, to retire!
The 3+1 Plan is simple to understand and simple to put into action. If you look at your budget, it won’t be much different from other people’s: we pay approximately one-third of our gross earnings on tax; one-third on our rent or mortgage; and one-third on living.
The tenants in the three buy-to-let properties you own will each pay around one-third of their earnings on rent. It replaces your gross earnings: one-third of which you pay on mortgages; one-third on tax; and one-third on living your life.
Off-plan property – the perfect legacy investment
Considering all the above benefits, you can see why so many successful property investors only invest in off-plan property. But there’s another reason to invest in property. When you invest in property, you are creating a real legacy for your loved ones. It’s better than leaving shares, or jewellery, or gold.
Your property portfolio, built up by investing in off-plan property, could provide the lifestyle dreams of your children. Imagine leaving them an estate on which the mortgages and inheritance tax have been paid by life assurance (the premiums having been paid by part of the rental income). It could be worth millions.
More importantly, though, you have left your loved ones an estate that will pay them an income every month. As they grow older, this income will increase as they increase rents. Your property portfolio could provide inflation-proofed income throughout your retirement, and then enable your children and even grandchildren to retire early, too.
Maximising flexibility, and maximising profit potential
When you invest in property, you are investing in an asset that provides you with an enormous flexibility of options to create investment returns. You could:
- Rent to tenants for passive income
- Remortgage to free up capital for reinvestment
- Sell for capital gains
- Flip the property for rapid capital gain
Whatever your lifestyle and financial goals, contact one of the team today on +44 207 923 6100. We’ll help you design the perfect investment strategy to benefit from an off-plan property, and help you find the best places to invest in property UK.
Live with passion,
Brett Alegre-Wood
