Put simply, an off-plan property investment is when the building doesn’t yet exist and you can only look at it “off-plan.”
It may already have been started, but it won’t be near completion. Instead it will just be in the first throes of construction.
And it’s at this point that investors make their money. That’s because they will get a reduction in the cost of the property (ie compared to what it will sell for).
The reason for this is because they are ‘taking a gamble’ in a way the apartment or house hasn’t been built, so they can only see what it looks like via CAD, CGIs and a floor plan. The buyer can’t move in, sell or rent out the property straight away either, so the below market value price is compensation for this too.
Benefits to Buying Off-Plan
But there are many advantages to buying off-plan for the buyer. For, as well as getting the building at a reduced cost, they’ll also profit from property inflation, so that by the time the property is complete it will have risen in value anyhow.
Other benefits is that they can get first choice of the best property ie usually the corner apartments, first floor flats, or properties with the best views etc.
Most off-plan properties tend to be new builds (or renovations), so they are going to be equipped with all mod cons in terms of energy-efficient appliances, heating, good insulation and solar panels. This means lower energy bills and a more attractive property if it’s being rented out.
To get all these benefits of investing in off-plan property, all the buyer has to do is pay the reservation fee for the property and put down a deposit (usually around 20 to 30% of the purchase price). The final payment is due on completion (by which time you can flip the property and walk off with a neat profit).
Benefits to Selling Off-Plan
By selling some of the apartments or houses during construction it means the developer has the funds to complete the entire building ie it gives him or her cash flow.
Another benefit is that it can spur others onto buying the remaining properties. In this respect, off-plan selling works as a marketing tool.
By being able to sell some of the apartments before construction has even begun, will keep their lenders off their back too.
Finding Finance for an Off-Plan Development
Most property investors use a bridging loan to fund their off-plan property. That’s because it can be difficult to get a mortgage, simply because of the time between putting down a deposit on a property and it’s finally being completed.
The acceptance for most mortgages for new build’s only last a year – after that the mortgage would have to be re-applied for. And, since completion dates tend to be elastic in many cases, there’s no guarantee it will be within the 12-month timescale.
Using a bridging loan (which tends to be a high rate of interest) can be used for the first year until a lower-interest buy to let mortgage can be secured.
What to Look out for
When buying off-plan make sure the developer is experienced (so they know what they are doing).
Be aware too that the project can – and probably will be – delayed. You won’t have any rental income until the building is habitable, for instance.
Make sure the developer has insurance against non-completion through becoming insolvent. That way you should be able to get your deposit back, at least.
Get in Touch
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