How Investment in Off-Plan New Build Property Can Seriously Improve Your Wealth !

Off plan investing is defined as buying property from developers before the building is completed, sometimes well before the foundations are laid.

This method of buying has been utilised by a large percentage of property investors over recent years to seriously increase their net worth through property investment - so what are the benefits and what are the risks in doing so.

Benefits of Off-Plan Investing :

• Developers will often offer Assetz for Investors a genuine discount in return for bulk purchase of units in a development, particularly if it is early on. They do this as development finance is easier to obtain and cheaper if the development is partially or completely presold.
  
• These discounts provide you, the investor, with a cushion of profit in case of any problems. This additional profit can be substantial - for example if you have put down a 10% deposit and the discount was a true 15% off, then the property is worth 17.6% more than the price you paid - that means you have already shown a paper profit of 176% of your deposit. For example :
  
  Take a discounted £85,000 selling price of a £100,000 property. Your deposit 10% of £85,000 = £8,500, the equity in the property = £100,000-£85,000+£8,500=23,500 - a 176% return on your £8,500 !
  
  When completion comes and you put down a further deposit to bring your total deposit to 15%, even if prices have not risen any further you still have equity of £12,750+£15,000= £27,750, a 117.6% return on your deposit ! If prices increase even just a little then your profit will be substantially greater due to your geared investment.
  
• No interest to pay whilst the building takes place, yet if prices are rising you receive this capital gain.
  
• With deposits often under 15% at exchange on off-plan developments you have less cash tied up than if you had put down 15% deposit on a completed development.
  
• No need to find tenants, pay for furniture or pay interest in any void periods.
  
• If prices fall you have a safety net represented by the amount of the property discount - people buying on the open market would have NO SAFETY NET ! A 10% discount would effectively provide you with a 10% market-price-fall insurance policy !
  
• You can sell on to a buy-to-live owner later on before or just after completion to take out your capital and profit.

Risks of Off-Plan Investing :

• If you receive a 10% discount on a property and you have put in 10% of the property price on exchange and prices fall say 15% then you will have lost some of your deposit - in addition you will still need to provide a full 15% deposit of the new market value to the bank upon completion. To protect yourself from this situation ensure you buy in strong price-gain areas (as selected by Assetz for Investors and its' network of specialists) with genuine discounts (as negotiated by Assetz for Investors) and where there is strong rental demand (as verified by Assetz for Investors and its' network of local letting specialists).
  
• If you buy in a large development and a lot of it is bought by investors then there is the possibility of a period of over-supply of properties when completion takes place. Keep some money aside for this possible void period and ensure you work on finding some tenants as well as using localk letting agents for this more difficult period.
  
• If you buy direct from a developer and receive no discount by paying full price then you are fully exposed to any price reductions - don't do it - use our negotiating skills instead and if you think the development is worth investing in let us know and we will try to negotiate a discount for the members.

The benefits of off-plan investing, taking a long term view, far outweigh the risks - however if you are taking a short term view and intend to buy and sell very quickly then be careful and keep a close watch on the local prices in the area to minimise your risk.

The critical success factors in succeeding in off-plan investing are :

• Obtain genuine discounts or buy in property hot-spots.
• Buy in a rising market ideally to further extend your equity and hence safety margin.
• Buy in good rental locations to ensure your mortgages are covered to at least 130% at the new valuations or you cannot re-mortgage.
• Buy in good rental locations to ensure rent shortfalls will not eat into your equity and reduce your portfolio growth ability.

Find out how we can help build your balanced portfolio for you with clever use of funding and discounts at our Members’ day or contact one of our team today!

See all of our other property investment articles here.