The Pros and Cons Of Off Plan Property Investment

Investment in off plan property comes with risks, but it can also be hugely beneficial in delivering profits.

Buying property off plan is one of the most popular ways for experienced investors to get themselves something at below market value with a real chance of a strong return down the line. 

For developers, selling off plan also has the advantage of helping to raise funding, if needed, for the project before it has even begun. 

Here, London-based property agent Experience Invest takes a look at a few of the pros and cons of buying off plan investments and looks at the sort of deals buyers can get when they adopt this popular strategy. 

Pro: Lower Price Point

The main reason that most people will buy off plan is the simple fact that it can be far cheaper to do so than to buy in the open market. Units in off-plan developments can often be purchased for far lower than elsewhere, with buyers able to get their hands on stock for upwards of 20 per cent below market value in some cases. 

Many off plan developments cannot be purchased with a mortgage, therefore investors will need to pay upfront or in stage payments. The benefit of buying a property with cash is that the buyer will not need to pay back interested on funds borrowed from a bank. Stage payments can ease the upfront cost of the purchase however, buyers should appoint a knowledgeable solicitor to ensure that their funds are protected throughout the build-phase.

Con: Can’t Predict the Future

The downside to paying for property up front, of course, is that no one can predict the future, and even though something might be below market value now, will it be so when the property is actually built? It’s unlikely in the current UK market that property prices will drop any time soon, so this is fairly low risk, but it’s important for buyers to be aware of the potential problems that can exist.

To counterbalance market fluctuations, investors should consider how their investment portfolio will react to any changes in the market. If the property is generating a good rental return, investors may prefer to reap the rewards of a regular rental income and then sell once the market has picked up again.

Pro: Capital Growth from the Off

Another positive to be had from buying off plan property at below the market value is that you are essentially making capital gains from the very beginning. You are buying a home that is costing less than it will be worth when the construction is finished, which means that your investment is automatically up as soon as the final brick is laid. With prices likely to continue to grow, these returns can be even better than expected, even in the short term. 

Investors should check the local property market to compare the price of similar properties. This will help ensure the investment truly represents a below market value opportunity which will provide scope for capital appreciation in the mid-to long-term.

Con: It hasn’t been Built yet!

It’s important to remember that the reason you are able to buy so low is because you’re effectively buying nothing straight away as the project hasn’t been built. Check that planning permission has been approved before investing and ensure that you purchase through a reputable agent or developer, who will be able to provide you with the dates in which the build will commence.

The buyer should also make sure there is a long-stop date for the build within the contract and all funds should be protected throughout the build-phase. Buyers should appoint a knowledgeable solicitor who will ensure that their money is protected and released at certified stages throughout the build phase.

Pro: Locked in Returns

One of the biggest pluses is that some companies offer those who enter off-plan property investments the chance to get locked in assured returns for a set period of time, which minimises some of the risk that can come with investment in off-plan properties, and gives buyers the chance to receive regular levels of income for a set number of years. 

An example of this in action can be seen with Experience Invest’s One Wolstenholme Square development in Liverpool, where buyers are able to secure themselves an eight per cent NET return per annum for the first three years of investment, as well as being able to get their hands on units for prices 20 per cent below market value. 

The fully-managed development in a popular and in demand area in the centre of the city allows buyers to invest now and simply relax and wait for their returns to come good. The passive strategy means you leave everything the appointed management company and enjoy regular returns with the potential for real long-term growth. 

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