In the last few years we have heard a lot about off plan property investment, arguably more than any other investment vehicle, some good, some bad and some indifferent. In honesty buying off plan property is a perfectly sound strategy for investing in property, hopefully by laying it out bare in a full explanation we can show you why.
What is Off Plan Property Investment?
Off plan property investment is buying property off the plans; property that is bought from developers before construction is complete.
Isn't That Very Risky?
Because you are buying something that doesn't yet exist off the strength of developer's plans, computer generated images and a lot of faith, off plan investment is seen as a high risk property investment strategy.
But done properly, the additional risk makes for additional profits
Yes, buying off the plan is risky, but the developers aren't oblivious to this fact no more than we are. Off plan prices are heavily discounted, and as many a property investment guide will tell you, this means instant equity (read instant gains) when construction is complete.
Where this fails is that if construction is never completed then all the money is lost, and there is no instant equity, only a huge loss. However, you should never pay all the money up front for an off plan property, it should always be bought with staged payments. During the boom off plan property would be bought with a 25% reservation fee, and the remaining 75% on signing of the contracts. But because of the number of people that lost out and made the headlines, buyers now have the power and staged payments are the order of the day.
This is an excellent way to minimise risk, because you should always be looking to tie instalments into construction milestones. A developer will be looking at staged payments in time periods, but if you can make it a 10% reservation fee, another 10% when the foundations are completed, another 25% when walls and isolation are complete, another 30% when the floor is complete and the final 25% on completion then you are laughing.
But even if you can't negotiate stages tied into construction, even using time periods you can reduce your risk, by getting the developer to lay down a construction timeline. Even though this won't stop you being asked to make a payment when things fall behind, it will make you aware if things are going really badly and you should ask for your money back.
But What if it never gets built at all?
None of the above helps if you lose the 10% or 25% deposit if something prevents the development from ever being completed, nor will it help if this happens and you can't get your money back.
You can reduce risk in these areas by doing comprehensive research into the developer and the development.
Check the Developer:
Is it their first development? If not do they have a chain of successes or failures under their belt? Talk to the developer, talk to owners on their previous developments? Check their financial history.
Check the Development:
Check the title of the land with a fine tooth comb. Check for planning permission, and then ensure if the plans change that they don't invalidate the planning permission or break building regulations in the area.
Try to Future Proof your Investment
Other things that can muck up a property investment are other buildings that go up in the area and block views, not to mention increasing competition in the rental market. Try to find out about planning permission on any adjacent plots, and what percentage of this and any other developments are being sold to investors. If you do all the research you can then you can really minimise risk.
The checks above are just guidelines from a general investment property strategy; if you are making your first foray you should always seek property investment advice before taking the plunge.
*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.