Benefits of Purchasing a Property Off-Plan

Purchasing off-plan property is becoming increasingly popular amongst investors – and individuals, for that matter (such is the lack of housing stock here in the UK).

This means increased competition for many developments that come to market. The advantage property investors have though is their access to quick cash and the ability to buy more than one property. Both of which also means securing a good discount.

For investors buying off-plan property can lead to high returns and capital growth. In fact, there are many good reasons for investors to buy off-plan. First, though, what does it mean to buy off-plan. Are there risks? And if so, how can you mitigate for them?

What is buying off-plan?

In a nutshell buying off-plan is purchasing a property before construction is complete, and often while it’s still at the planning stage. You’ll see CAD images of what the development looks like, including scaled drawings.

How do you buy off-plan?

Once you’ve spotted a plot you like in the development you have to pay a reservation fee to secure it (usually around £2000). This will often be deducted from your deposit.

Once your solicitor has looked over the contracts and you’re happy that you’ve done your due diligence, contracts can be exchanged and your deposit handed over.

It makes sense to monitor the build as it progresses to ensure all is as it should be. Once the development is finished you’ll be served a ‘notice to complete.’ You’ll then have a little time to pay the remainder of the balance.

Why it makes sense to buy off-plan

There are far more reasons to buy off-plan than not. A lot, in fact – and here’s some of the best ones right here:

It will cost less to purchase the property

Often when a developer puts his or her apartments on the market it is important for them to sell several right away. This is to whip up interest and encourage others to buy. To achieve this the first units will often be sold at a reduced cost compared to the rest of the development. This is especially true if the development is still under construction but near to completion.

Then again, some developers will also sell at the very start of a development as they need the money to finance the next stage of the build. You’ll get a discount because (a) you’re taking a risk in the sense it hasn’t been completed yet and (b) you’re buying but currently unable to rent it out.

You get to secure the best property

Corner apartments and top floor units will always be the homes people want to move into in an apartment block. Likewise, corner houses often mean larger gardens in a housing estate.  When you buy off-plan you can choose the homes most people will want to live in. This means, of course, they should be the homes that are rented out quicker because they’re in demand. You will also be able to charge a premium for these ‘sought after’ properties.

You’ll gain from capital growth

In many cases the value of the property you purchased off-plan will have grown by the time the development is complete. This can be quite a substantial amount, especially if you bought at the start of the development and it isn’t complete for a number of years. In Manchester, for instance, house price growth is currently 6% per annum. This means that an apartment purchased today at £250,000 ‘off-plan’ could be worth almost £300,000 in three years’ time.

Can flip your property on completion

A quick way to make money is to sell the property once it’s ready to move in to. That way you can pocket the difference between what you paid for it and what it will sell for at today’s market value. That can be a lot of money for very little effort. Yes, you will have researched the development in the first place, and put up the cash but that’s about all the work you will have had to do for your profit.

Can benefit from developer payment plans

There are times when developers are happy to offer property investors a payment plan. This means ‘paying up’ your apartment/s over a period of time ie three lump sums during the course of the build. It means there’s no big deposit to save up for and makes the cost of your investment easier to fund as it’ll help with your own cash flow.

It’s possible to choose the fixtures and fittings

This isn’t quite as important for a property investor who is going to rent out the property anyway. But, for someone who intends to live it – or who is interested in interior design – then it’s definitely a bonus to be able to choose your own tiles, kitchen units, carpet colour etc.

You’ll be able to rent out your property fast

New Builds are in big demand with tenants. Most people love the idea of being the first ones to live in their home. Everything is brand new and untarnished. You shouldn’t have a lot of difficulty renting out your property – and you will probably be able to do it straight away, since because it’s a new development there will already have been a lot of marketing for it.

Added security for construction

Most New Build’s come with a 10-year warranty from the National House Building Council (NHBC). Not only does this provide peace of mind should anything go wrong with the structure of the building, but you’ll also have financial recourse.

Potential risks of buying off-plan

There aren’t many financial decisions that don’t come with risk. Buying off-plan has its potential downside too. The good news is that it’s possible to control those risks in many scenarios, such as:

Developer running out of cash

If the developer can’t finance the project further then it will be stalled and there’s the danger of losing your deposit unless your deposit is protected by the developer holding it in escrow or insuring it. In both cases you’ll get your money back.

Development is delayed

It’s not uncommon for construction to take longer than planned. This means, of course, that you’re not getting rental income from your tenanted flat. If the delay is extremely long though and you’re not getting much feedback from the developer about the reason for the delay then it may be best to cut your losses and ask for your deposit back – especially if they can’t commit to specific date for completion. As such, we can always negotiate excellent discounts for investors.

If you’re interested in learning more about buy-to-let investments or if you need assistance in making the right investment decision, contact us today: