Tips for investing in off-plan property

Investing in property has always been a secure way of investing your money in the UK, and there are many options that you can look at; whether you want to look into investing in Houses of Multiple Occupation (HMOs), new build prospects, refurbishment projects, or off-plan opportunities. While off-plan property investment has become more popular in the last decade, it's still something that many amateur investors believe is best left to more experienced investors. However, with the right frame of mind, a solid investment plan, and careful consideration of the options, off-plan property has a number of benefits for investors looking for high yields, good capital gains or bulk-buy discounts.

"Off-plan property is property typically purchased during the construction part of the building process. It's usually purchased at a discount price to the actual value of the completed state making it attractive to property investors. Generally, the investors will need to pay a reservation fee and a deposit."

By buying property before the build has completed - or sometimes before construction has started - can offer investors the opportunity to purchase units at below market value rates. With the property market booming, and demand for high quality accommodation higher than ever in cities such as Manchester, Birmingham and Liverpool, investors looking to purchase off-plan property can reap even higher yields for savvy investors.

Another advantage of buying off-plan property is being given more scope to be selective about the house or apartment you purchase, and sometimes the specifications of the unit including flooring, sideboards and furniture. With this advantage of being able to select the unit you want to purchase, it's also easier to make bulk purchases, for example buying a whole floor or corner of a development for a discounted price off an already good value investment.

Off-plan investments are also a highly regarded option amongst landlords and buy-to-let investors who wish to focus on young professionals as their target tenant audience; this high-specification accommodation now more than ever - something which off-plan properties can allow. Built with the latest technologies, environmental considerations and design trends in mind, they are able to offer the latest features that are attractive to today's 'generation rent'.

Interested in investing in off-plan property? Here are 10 useful tips to help you make sure you're choosing the right investment option for you, and to help you know how these types of investments differ from regular home-buying.

1. Seek advice from a financial advisor before reserving any units

Off-plan property is mainly available to cash buyers only, however a number of developers will accept mortgages dependent on their financial plan and the square-footage of their apartments - many studio apartments in city centres are unavailable to buy with a mortgage due to their small total square-footage. If you're wanting to purchase an off-plan property with a mortgage, speak to a financial advisor about how much you could borrow before you start looking for opportunities.

There are also a number of specialist buy-to-let mortgage advisors who will be able to advise you on the best options for this type of investment, if you're planning on renting out the unit(s) after completion. A financial advisor can also tell you when you should begin the formal application process.

2. Put a plan in place for what you want to achieve from your investment

You need to make sure that you have a solid plan in place for what you want to achieve from your property - do you want to live in it as an owner-occupier, or rent it out? How will this impact the mortgage you may need to apply for? Are you wanting to hold the property short-term for good rental yields, or are you wanting to hold on to it longer for a greater capital appreciation?

3. Research locations, what they can offer, and choose the right developer and development

One of the most important things to consider when buying investment property - apart from whether it and its potential profits fit into your portfolio - is its location. While buying in up-and-coming areas can give you high capital gains in the long term, these areas may not necessarily be the best option if you're looking for a short-term opportunity or instant rental returns. Some cities in the UK are currently seeing large amounts of government and regeneration funding; such as the HS2 scheme, Northern Powerhouse scheme and Midland Metro. These types of schemes can all bring higher rents and more renters to the area.

It's also important to look into what the developer and development can offer you. This includes looking into past developments by the developer and what rents, yields and assurances they have achieved, and what they are offering based on comparables in the area. How can they guarantee these yields, what are other developments in the area asking for price wise, and how long are they guaranteeing yields for?

4. Decide on a development, complete your reservation form and pay your deposit

Once you have found an appropriate location and development, it's time to choose your unit(s). You can either select your units with the developer direct, or if they have appointed an agent to sell on their behalf you can complete this form with them. They will then let you know what reservation fee or deposit you will have to pay. If you're buying with a mortgage, you financial advisor will let you know what fees you will have to pay them and you will have to pay your mortgage deposit.

A lot of developers have their own solicitor they work with, and can recommend solicitors that you can use for yourself. Many developers recommend solicitors will be able to offer competitive rates on their services, and will often be able to complete the process quicker as they will be familiar with both the developer and the project.

5. Let the solicitor to their job

It can be difficult once you have paid your reservation fees and deposit to take a hands-off approach while the solicitors complete the paperwork - and while your mortgage advisor completes your mortgage application - however this process can take up to four weeks on average.

6. Complete your exchange

Exchange will usually happen within 28 days of you paying your reservation fee or deposit. Developers for off-plan property will usually require a percentage of the final cost to be paid at this point - usually between 10% and 15% for those developments that are not yet under construction, and more further down the build timeline the development is. Depending on the development, and how long the construction timeline is, you may be required to pay a number of small instalments between exchange and completion, or you may be required just to pay the full outstanding amount on completion.

If you're purchasing your unit(s) with a mortgage, the process will be slightly different, however your mortgage or financial advisor will be able to advise you on this.

7. Watch and wait

Once you have exchanged contracts, paid all your fees, and signed your necessary documents, it's time to sit back and watch as the development progresses. The developer will often send or publish updates on the build monthly or quarterly dependent on how long the build will take.

8. Sort out your mortgage or final payment

If you're paying for your unit(s) with a mortgage, you will need to check with your financial advisor once you have exchanged and they will be able to advise you on when you should start your formal mortgage application - which is usually valid for 6 months.

9. Prepare for post-completion of the development

Many developers now offer furniture packs - either included or a selection as standard for one flat fee - along with their units. While it's not essential to take these furniture packs, this can make the process of completing your house easier as you don't have to source your own furniture. It also means that the amount you can charge for rent will be higher.

If you're thinking of letting your property rather than living in it, there are a number of things to consider. If the developer doesn't have a preferred letting agent, or provides one at all, you will need to find a good letting agent to manage your tenants and property. You will also need to check with the management company how you will be receiving your guaranteed rental returns for the specified time.

10. Completing on your purchase

When your unit(s) are fully completed, you will receive a completing notice letting you know how long you have to complete on your purchase - this may be in the form of paying the final sum for the property, proving you have your mortgage in place, or simply making sure all your paperwork is in check if you have already paid in full. If you're purchasing your unit(s) through a mortgage, your mortgage advisor will need to be notified and your solicitor will take care of the rest. The developer or sales agent will then let you know when you are able to collect the keys.

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