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Off plan property: Why you should invest
Off plan property is new build property sold from plans. Real estate developer’s start selling before ground has been broken as many large developments have a long build cycle of typically one to three years.
Real estate investors buy off plan to make money from capital growth while the property is being built. Also – property developers offer substantial incentives to early purchasers to get the sales ball rolling. Once you have gained a reputation as a reliable property investor – you will be offered the opportunity to become an early investor, which is as good as a license to print money.
Anybody can buy property off plan, although it has a greater appeal to real estate investors because they see the capital growth opportunity, and don’t mind waiting. On the other hand, homeowners usually won’t wait and will want to look around the property before they buy.
How do you buy off plan property?
Buying off plan property is similar to buying regular real estate although the purchase is delayed until build completion. The typical buying process is:
- Identify the plot that you would like to buy.
- Negotiate the price you will pay with the developer – always negotiate – checkout our guide to property investment.
- Pay the reservation fee. Most developers take a reservation fee which is payable immediately. This is a non-refundable deposit that holds the property while your solicitor prepares papers for the purchase. The deposit will be deducted from the sale price.
- Exchange of contracts. Most developers like you to be legally bound to a purchase within 28 days. On exchange of contracts you will have to pay a deposit and may have to make further stepped payments throughout the build process. This varies from developer to developer.
- Get a mortgage – speak to a good broker and ask about investment mortgages. Investment mortgages differ from home mortgages in that the amount the lender will lend depends on rental income and not your salary.
- Complete – The developer will notify your solicitor when build completion is due, giving your solicitor time to conclude the sale.
Why do developers sell off plan property?
Most property developers require finance from their bank to pay for the cost of construction, labor and materials. They will receive better terms if they can demonstrate that a large number of units have already been sold before construction has started.
Can I re-sell my off plan property?
One of the best tools in the property investor’s tool box is the ability to re-sell before build completion, and walk away with a profit. This is known as ‘flipping’. Flipping is very lucrative and some property investors live from this alone. These are the steps:
- You locate, reserve and exchange contracts on an off plan property.
- Once you have exchanged contracts – you have legal ownership – so you put it up for sale – for more that you paid, naturally.
- You find a buyer who pays you a reservation fee - you learnt this from the developer.
- You exchange contracts with your buyer, who pays back your exchange money and more if you are clever. You now have none of your own money in this deal.
- On the day of completion – your buyer completes the purchase with the developer, and you receive your profit.
This is perfect when it works. If your buyer fails to complete – the developer will expect you to – so make sure you can. Extra tips:
- Learn to read plans and visualize the development by looking carefully at CGI images and models. Check where your unit is located, relative to other buildings etc.
- Parking spaces – buy as many as you can if you are offered the chance. They can be like gold dust.
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