There are plenty of reasons to put down a deposit on an investment property before it’s even been built. When buying off-plan you might get to strike a good deal, secure the best plot or even choose the fixtures and fittings.
The trend for buying off-plan properties has been rising, so if you’re looking at a desirable new build development in a prime location, you might need to act fast to have a chance of clinching your perfect investment.
There are issues to look out for when buying off-plan too. To help you choose the right investment, we have 7 tips to bear in mind in your negotiations.
What is buying off-plan?
Buying property off-plan is buying a place that has not yet been built. The only things you will have to go on are the developer’s plan. Although this way of buying an investment property might appear risky, it does have advantages.
In the early stage of a project, developers are keen to sell as many properties as they can and may give off-plan buyers attractive discounts on the purchase price. The cost of the properties usually rises once construction begins.
However, like any investment, buying off-plan property needs to be approached carefully to avoid any pitfalls. These can range from a long wait before the property is complete to issues obtaining a mortgage.
You will also need to pay a deposit to reserve the property, which you are likely to lose should you pull out of the sale before the completion date.
How to buy off-plan
1. Pay your reservation deposit. This will take the property off the market and is normally deducted from the deposit you have to pay later.
2. Let your solicitor do their work. Your solicitor will go through the same legal process as when you’re buying any property, including local searches and looking at the contract. This process normally takes around 3-4 weeks.
3. Exchange contracts and pay the deposit. You will usually be required to put down 10 percent of the purchase price (minus your deposit already paid). At this point, you’re legally committed to buying the property: if you don’t, you’ll lose your deposit.
4. Monitor progress and arrange your mortgage. Now you can sit back and watch the new building going up. The developer should send updates during this period to let you know how construction is progressing. Make sure you arrange your mortgage as construction is coming towards the end so it’s ready in time for completion.
5. Completion. When the new build is complete, you will be sent a completion notice telling you how long you have to complete on your purchase – usually about two weeks. You just need to let your mortgage company know and your solicitor will do the rest. You will be able to collect the keys on the day of completion.
The benefits of buying off-plan
Developers usually offer a discount to make up for the risk of buying something that hasn’t been built yet, and the inconvenience of not being able to move in right away.
There are two ways for you to profit from your discount:
‘Flipping’ is the name given to the practice of buying off-plan property then attempting to sell at a profit when the development is complete. Investors planning to flip need to select their target developments carefully and buy as soon as they are released for sale. Flipping can be lucrative but be aware that it is risky too, should property prices fall.
Holding the property and locking in your price
Your discount gives you a buffer against falling prices. Say you get a 10% off-plan discount if prices fall by 5%, you’re still ahead of where you would have been by waiting until construction was complete.
If prices rise you benefit from the capital gains and the effective size of your discount goes up too.
Buying off-plan is best done when the property market is rising gradually giving you the best chance of capturing growth without the risk of a downturn. During a property boom there is a risk of a crash causing the property’s value to fall rapidly and by a larger percentage than your discount.
7 tips for buying a off-plan property
Get advice from your mortgage broker
If you need a loan for your buy-to-let investment, be aware that mortgage offers generally expire after six months. If yours is a lengthy construction project, you could find yourself without finance before you’re in a position to buy the property, meaning you could lose your deposit. Look for a mortgage lender with offers lasting at least 12 or consult a mortgage broker, experienced in off-plan property investments.
Research the developer
Developers can get into financial trouble end up going bust before the development you’ve bought on is finished. To avoid this, research the developer building the property thoroughly. If possible, avoid using a developer who is just starting out and has no history to check. To protect your deposit, make sure the developer is protected by an insurance policy that will pay you back if the developer fails to complete the property.
Research the local area
As with any other property purchase, research the local area carefully too and any significant projects in the pipeline. Consider transport links, shops, amenities, leisure facilities, schools, or any other details to ensure the investment provides an excellent future return.
Keep an eye on the progress of the development
There are so many variables in construction that it is likely that the development will complete at least a little bit later than planned. Keep an eye on the progress of the development. This means making regular visits to the development site to see how things are going and maintaining open communication with the developer.
Commission a snagging survey
In the final weeks before completion to make sure there are no defects or annoying issues that may cause problems in the future.
Check on the finishing date
If your property is among the first to be finished, you need to make sure there will be proper access and minimal disruption caused by work to the rest of the site
Use a specialist solicitors
Make sure you use specialist solicitors, experienced in the legalities and processes of buying off-plan property.
If you’re thinking about selling your home in Wimbledon, Coombe, Roehampton or Kingston, contact us today – we’d be delighted to give you a property valuation and advise you on how to market it effectively in the current climate.