Off-Plan Investing

Off-plan investing is defined as buying property from developers before the building is completed, sometimes well before the foundations are laid. This method of buying has been utilised by a large percentage of property investors over recent years to seriously increase their net worth through property investment - so what are the benefits and what are the risks in doing so?

Benefits of Off-Plan Investing:

• Developers will often offer a genuine discount in return for bulk purchase of units in a development, particularly if it is early on. They do this as development finance is easier to obtain and cheaper if the development is partially or completely pre-sold.
• These discounts provide you, the investor, with a cushion of profit in case of any problems. This additional profit can be substantial - for example if you have put down a 25% deposit and the discount was a true 15% off, then the property is worth 17.6% more than the price you paid - that means you have already shown a paper profit of 60% of your deposit. For example:
• No interest to pay whilst the building takes place, yet if prices are rising you receive this capital gain.
• With deposits of 25% at purchase on off-plan developments you have less cash tied up than if you had bought a completed development.
• If prices fall you have a safety net represented by the amount of the property discount - people buying on the open market would have NO SAFETY NET! A 10% discount would effectively provide you with a 10% market-price-fall insurance policy!
• You can sell on to a new owner before or just after completion to take out your capital and profit.

The benefits of off-plan investing, taking a long term view, far outweigh the risks; however if you are taking a short term view and intend to buy and sell very quickly then be careful and keep a close watch on the local prices in the area to minimise your risk.

The critical success factors in succeeding in off-plan investing are:

• Obtain genuine discounts, or buy in property hot spots.
• Buy in a rising market, ideally to further extend your equity and hence safety margin.
• Buy in good rental locations to ensure any mortgage interest can be covered by rental income.
• Buy in to properly marketed developments to ensure high occupancy rates and thus high investment yields.