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A summary of the benefits and pitfalls of investing off-plan

Off-plan investing refers to the process of purchasing a property from a developer before it is built, or during the build process. Hence, the term ‘off-plan’ refers to the decision being made solely by looking at the plans.

Off-plan investing can be a very lucrative way of investing, certainly in times of strong property market price growth.

At Best of Buy to Let we assist many investors with off-plan investing, and it is an area that we can add a lot of value providing the research and due diligence on the area, developer and development.

Summary of Benefits

Lower Purchase Price – Often developers will price the off-plan investments very competitively because they want the development to hit the market well and sell quickly. It is also sometimes feasible to negotiate further discounts, especially if you are purchasing more than one unit. This also provides you with a safety net, in that if the property price falls you are still in a reasonable position because of the discounted price.

Less competition – you are mainly competing with investors, as owner occupiers often prefer to see a property before they buy.

Property selection – With Off-plan investing we have the ability to select the best units within a development. This insures that we are investing in the most desirable properties, and also the properties that make most sense from an investment perspective.

Lower amount of funds tied up – As you only put down a deposit (ranging from around 15% – 30%) less of your funds are tied up in the investment compared to a completed property. This allows you to use the left over funds to make further investments, or possible go away on a holiday!

No Interest – You do not need to take a mortgage until completion. Therefore you are in the market for capital gain (on the purchase price!) with only a deposit down, and without having to pay any interest.

Options upon completion – Upon completion off-plan investors have various options available to them. You have the option to sell to another investor or an owner-occupier just after completion to release your capital and profit. Alternative you can take a mortgage (or not if you want to use cash) and rent the property out.

Incentives – Developers often offer various incentives to ‘sweeten the deal’. Best of Buy to Let will always look to negotiate the best deal for our investors.

Warranties on completion – Once the development is complete, if you decide to keep the it you have a brand new property and therefore you would expect maintenance to be very low. You are also usually covered by various warranties such as; 10 year structural warrantee, builders defect warrantee, manufacturers warranties on white goods etc. This ensures that we can have a lot more confidence in the outcomes of an investment.

Pitfalls

The majority of the potential pitfalls with investing off-plan are related to the developer. Doing due diligence on developer is the best way to mitigate the risks and this is an area we spend significant time on at Best of Buy to Let. The sorts of things we look at include:

Financial strength of the developer – Making sure the developer is in a sound financial position is obviously very important and is a great place to start.

Developers track record – We like to see a strong track record from developers of delivering quality properties and also delivering them on time. This gives us much more confidence that they will deliver quality units and also deliver them on time.

Structure of the development – We make sure that the development is structure as it should be. Often if a developer has a corporate master to answer to they will often have sales targets to hit. If the sales targets are not met then funds for the development can sometimes be held back, leading to a delay in development. This is an example of the sort of things we look into to ensure we can have as much confidence in the outcomes of a development

Delay in cash flow – During the build period there is no cash flow from the property as it is not complete. Therefore if you are looking for cash flow in the very short-term off-plan may not make sense for your situation. However if you are looking at the investment longer term then the short term lack of cash flow if far outweighed by the benefits.

We would certainly recommend that if you are considering investing off-plan you get in touch with Best of Buy to Let as well have help many people invest off-plan and the service we provide will give you much more confidence in the investment you make.