Weighing up the pros and cons of off-plan investment
Off-plan property investment in London has a lot of advantages, and many investors have become wealthy by investing in London off-plan properties. They’ve benefited from the advantages of off-plan investment and done so by understanding the risks involved. The potential profits are mind-blowing, especially if you invest in London property hotspots. How to find those hotspots is a topic for another article.
In this article, we discuss the rewards and risks of investing in off-plan property in London.
The rewards of off-plan investment
There are several advantages when you invest in off-plan property. There’s a greater potential for profit, and your finances are staged. You can plan for milestone payments, and don’t have mortgage repayments to make from the off. It’s a great way to get into property at today’s value – especially, for example, if you have another investment maturing before the completion date. Here are five of the rewards of investing in off-plan property:
1. You lock in a discounted price
When you buy off-plan property, you pay the price based upon today’s market value. It may be several months (or years) before you complete the purchase. If property markets are rising, by the time you complete you could be sitting on a very nice capital gain.
But it gets better because when you buy off-plan, you will probably buy at a discount to current market value. Your potential profit is increased by the amount of the discount, which also acts as a buffer in markets where prices are falling.
2. You get the best choice of property
The early bird gets the worm, as my mum always told me. I now know exactly what she meant. The earlier you invest in off-plan property, the more choice of units you get. You can choose the best plot, and that’s a big advantage when it comes to either selling on or letting to tenants. The best property in the best location will be in most demand – and in property investment, demand translates directly to greater profit for the investor, whether that profit is made by a better selling price or higher monthly rental income.
3. You get the benefit of time
The time between buying and completion helps you to develop your investment strategy. You may have an investment maturing, inheritance, or a bonus payment from work on its way in the next few months. Why wait until when prices may have risen to make a property investment? The off-plan investment allows you to take advantage of market conditions now, and pay later. Plus, you receive the discount on today’s value.
If market values increase between now and the time you complete, you also get an instant ‘profit’. If you decide to sell, that profit will be realised. If you decide to hold and lease out your property, you may be able to release some of the equity to make another investment in property.
4. You get the finish you want
When you pay your deposit, you can choose the finishes you want. The fixtures, fittings and colour scheme can be selected to create maximum appeal when it comes to selling or finding tenants.
5. There is more demand for new build property
People love new things. They like driving new cars. They like new furniture. A new fishing rod becomes the favourite rod of a keen angler. You get the picture. It’s no different with homes. People like a property that has never been lived in. New property is in demand and commands a premium price because of its newness. It means you are likely to receive higher offers from buyers and renters.
The risks of off-plan investment
Where there’s a silver lining, there’s always a cloud. Another of my mum’s sayings.
When it comes to off-plan property investment, the silver lining is big. But the cloud is still there. Here are the three main risks of off-plan investment:
1. Developer risk
A developer may take longer to complete a development than expected. They may change specifications of the development before completion, and your property might not be so desirable. They could run into financial problems, or even go bust. Your investment capital could be at risk.
2. Market risk
No one has a crystal ball. We simply do not know what the economy will do in the next two or three years, or what will happen to property prices. We can make an educated guess, but there is always the potential for things to work out differently to how we expect. Instead of rising, property values might fall. Thank goodness you have the buffer of an off-plan sales discount.
3. Financing risk
Most mortgage lenders only keep a mortgage offer open for six months. If your lender has changed its rules before you complete, or interest rates have increased, you may not get the mortgage you were expecting. If you can’t get a mortgage to complete, you could lose your deposit.
Weighing up risk and reward
The potential rewards of an investment in off-plan property in London are immense. However, the risks are very real, too.
Only by understanding the risks of any investment can you hope to make the maximum profit. When you understand what the risks are, you can develop your strategy to minimise those risks. At Gladfish, we believe that every investor should enter every investment opportunity with their eyes open.
We’re happy to discuss the risks as well as the rewards of all property investment strategies, and help you to build a wealth creation strategy that reduces risk while maximising profit potential. You wouldn’t drive without a seatbelt. Why invest without a similar safety?
To discuss your financial objectives and receive a personal evaluation of the benefits of off-plan property investment, contact one of our team today on +44 (0)207 923 6100. We’re here to help you make a profitable and hassle-free property investment that allows you to sit back, relax, and enjoy the rewards of your investment.
Live with passion
Brett Alegre-Wood
