Investing in off-plan property is one of the most cost-effective and high-reward routes for purchasing buy-to-lets. It allows you to get early, discounted access to properties that are not yet complete, with the developers seeking to sell during construction in order to raise capital. Because of all these unique perks and particularly in the current market, interest in buying an off-plan property has never been higher.
But while this is an excellent investment strategy for many, there are questions you need to ask both yourself and about the project before you commit to an off-plan property.
We’ve rounded them up below.
10 Questions To Ask Before Buying Off-Plan
1. Are you happy to wait?
Many investors want to start earning money from their investments straight away, and buying an off-plan property is no different. With a buy-to-let, renting out the property to tenants is the only way to start generating a return in the short term.
However, if the construction is not due to complete for several months or even years, you’ll have to wait before letting can begin and you start receiving rental income.
The main benefit of buying off-plan is that you’ll usually buy at a significant discount compared to properties that are ready-to-go. So, are you happy to benefit from the reduced price and wait until construction completes to start earning, or do you want a property that you can let out immediately?
2. How risk-averse are you?
Every construction project carries an element of risk. In property, the risk of a project not completing is very low, but unforeseen events can disrupt or cancel a project altogether.
So, one thing to consider is your tolerance for risk. If you like investments that are 100% safe and secure, off-plan may not be for you. If you’re okay with a little risk, knowing that it could lead to greater rewards, then you’ll be fine.
Regardless, it’s essential to complete proper due diligence and reduce the risk factor as much as possible by selecting good, experienced developers who have protection schemes in place (more on this later).
3. What is the developer’s track record?
Part of your due diligence should be evaluating the developer’s experience and past history. Have they completed similar projects before? Were they finished on time and within budget? How have the projects performed since? Were the properties finished to a high standard?
Generally, projects from experienced property developers are likely to progress smoothly.
4. How much do I need to pay before completion?
It’s important you’re clear on exactly how much money you need to invest before the project is completed.
Usually, you’ll pay a reservation fee to secure your property (you’ll pick out the exact one you want from the designs and blueprints), followed by a cash deposit as part of the exchange of contracts. The deposit is typically 20-30% of the total purchase price.
The remainder will be due on completion. It’s also worth checking whether this final payment can be financed via a mortgage or needs to be paid in cash, as mortgages cannot be used on some developments, e.g. student accommodation.
5. What happens to my deposit and how is my money protected?
Often, deposits will earn interest over the course of the construction period, which is then deducted from the final payment due on completion. This can be an excellent way to reduce the final cost, especially if the interest rate is better than what you would achieve from having the deposit sat in your bank account.
But more importantly, it’s vital that your deposit is adequately protected, in case the project fails or the developer goes bust. So, you need to find out what protections are in place.
For example, if the developer is NHBC approved, you can be safe in the knowledge that your deposit, and the entire development, are guaranteed.
6. What’s the timeline?
Regardless of whether you’re buying an off-plan property early or late in the construction, you’ll want to know the timeline for completion. Larger, more ambitious projects usually take longer so, if you’re looking to mitigate against any delays, you may want to choose something with a shorter turnaround time.
Plus, if you’re planning on purchasing with a mortgage, most lenders will only make a mortgage offer six months in advance. If the completion date is longer than six months, you’ll need to 1) be confident you can get an offer at the right time, and 2) plan the dates into your calendar.
7. What’s likely to happen to the local market during construction?
The developers should be able to provide all sorts of information on the local property market for you. This will give you plenty to consider, but one area of particular interest is what’s likely to happen to the market during construction.
Say, for example, you’re purchasing two years out from completion for £200,000, which is a suitable price for the size, quality and location of the property, relative to the market. During construction, the local market prospers and average values increase by 10% each year.
Your property could now be worth over £240,000, representing a brilliant return on your investment if you were to cash in immediately.
8. What’s the expected return from rental income?
Naturally, if you’re buying a property for rental income, you’ll want to know what rental prices you can expect to achieve.
The developer should have an information pack with information about the forecasted rental performance. You can also check similar, already-complete projects in the local area to get an idea. Then, with an estimate of rental income, you can calculate the potential rental yield.
Alternatively, the developer may offer a guaranteed yield for the first few years.
9. What’s the forecast for the local property market over the next 5-10 years?
Whilst passive rental income is a great reason to invest in buy-to-let, generally, the best returns are achieved through long-term capital appreciation, i.e. the growth in the property’s value (as alluded to in question #7).
What you want to know is, if you invest in this property now, what is it likely to be worth in 5-10 years’ time?
If a property’s value is likely to grow significantly over the long term, it could fund early retirement or enable you to add more properties to your portfolio.
10. What are the incentives for buying early?
Given a developer is asking you to hand over your money for something that isn’t yet built, they typically provide several great incentives for doing so.
From discounting the purchase price or paying your stamp duty, to covering legal costs and providing free furniture packs, there are usually plenty of incentives on offer that you should take full advantage of.
A property investment advisor may be able to help you negotiate and unlock exclusive benefits not available to the general public.
As long as you ask the questions above when you’re researching and considering investing in off-plan property, you’ll have an excellent process for seeking out genuinely great opportunities from poor ones.
Moreover, you’ll start to understand more about your level of risk and what type of property you’re after.
If you are interested in buying an off-plan property and need help finding one to suit your requirements, please get in touch with our team. We’re property investment advisors based in London, but operating across the whole of the UK and Dubai. We have several projects listed on the site currently, and many more exclusive projects that cannot be shared publicly.