Off Plan Properties – Are They Worth the Money?

Over the years, buying off plan properties has become increasingly more popular. This is perhaps partly due to the fact that they are seen as being less hassle because they are new build. Therefore, property investors think that repairs and maintenance issues will be minimal.

As well as this you have the fact that in years gone by investors have made millions from buying off plan properties. They have done this by benefiting from the rise in capital appreciation in the build phase as well as being able to buy the properties at a discount in the first place. This has meant that many UK property investors still see off plan properies as a potentially very lucrative part of the property market.

However before diving in you should consider a few of the following points.

What Exactly is Off Plan Property?

Buying property off plan is simply when you buy a property before completion. In essence you buy it from looking at the drawings and the plan of the proposed property development – hence the term "off plan property."

What are the Advantages and Disadvantages of Buying Property this Way.

ADVANTAGES

1. Securing a Property For Very Little Outlay
   
   You can secure a property worth hundreds of thousands of pounds, with very little outlay, sometimes as little as a few hundred pounds. This is a fantastic use of gearing investment property (leverage) to maximise the use of every pound you have to secure the biggest asset you can.


2. Captial Growth potential
   
   In theory, buying off plan allows you to secure the purchase of a property for sometime in the future, at todays property prices. We say in theory because this isn’t always the case, and you need to be careful of things like forward pricing.


3. Sell For a Profit Before Completion
   
   
4. You can sell your off plan property before it even comes to completion. So in essence, before you actually get your final mortgage on it at completion you can have sold it off at a profit, potentially making you thousands of pounds.


5. Make Changes That Meet Your Own Specifications
   
   With off plan properties, you can normally have some sort of say on how they are built and what goes in them. For example: you might be able to choose what style of kitchen units you want or you might even be able to specify where internal walls etc will go, hence making your property different from others in the same development.
   
   The amount and type of changes you will be allowed to make will be largely dependent on the type of development you are buying and on the developer themselves.

DISADVANTAGES

1. Property Prices Can Go Down
   
   It isn’t unheard of for investors to be in a situation where they have paid say £150,000 for a flat and when it comes to completion, because of property prices going down, the flat is actually worth £140,000.


2. Buying Over Priced Properties
   
   A major difficulty with new builds is that there is often very few real comparisons. What we mean by that is that there is likely to be very few other new builds of virtually the same type that have sold recently in that area. This coupled with the fact that developers have been known (whether it be intentionally or unintentionally) to over price developments, means that when it comes time to do a survey to complete on the mortgage many people are finding out that the property isn’t worth what they were led to believe it would be.


3. Trusting the Developer
   
   It would be wise to be as sure as possible that the developers you are dealing with are a reputable company and that they are financially sound and aren’t going to go bust halfway through the development, leaving you high and dry.


4. Over Saturation of Investors
   
   One of the biggest reasons investors have lost money on off plan properties recently, is because of an over saturation of other investors buying into the same development. You need to make sure that there will be plenty of owner occupiers that have also bought into the development.
   
   If you don’t, then you could be caught in the same situation as many other investors. What happens is that all the investors either want to sell or rent out their properties at exactly the same time i.e. at completion. Then one of the only ways to distinguish yourself from the crowd is to lower your asking price or rental price, not a situation you want to be in.

The bottom line with off plan properties is that – yes, there still is money to be made. However these days there is probably far more money to be lost also and the ones that make the money are the ones that are astute enough to understand that buying investment property off plan needs as much research and due diligence as buying a second hand property.

Click on the following link to to read an article about the truth behind buying off plan investment property successfully".

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