We’re often asked about off plan investment, the merits of buying property at this early stage, what it means for the overall strategy and the types of returns investors can expect.
We’ve recently released a few developments across various cities in the North of England which are off plan properties so it seems a good time to focus on this type of property investment.
What is off plan property?
Off plan property is a property that is not yet built.
Buying off plan means you as the buyer are committing to purchase the property before it’s finished being built, when the development is under construction and in many cases you’ll have agreed the transaction before building work has even started on-site.
Pros and cons of buying off plan
Properties come in all shapes and sizes in the UK having been built over the years when certain styles or layouts were popular, the vast majority of property in the UK is many years old. The benefit of buying an older property is often seen in the fact that the property already exists and will sometimes come with an investment track record if it’s previously been let.
Properties that are under a year old will usually be called new builds and the remaining type of properties available to purchase are off plan.
There’s pros and cons of every single type of property, but within off-plan specifically, it’s really about balancing the fact that, of course, you won’t be able to get any rental yield immediately during the construction period.
The advantage to purchasing off plan is that the price you secure a property for is often low and investors are able to amass considerable capital growth on their investment during the construction period, when it’s likely they’ll have only parted with a small percentage of the full purchase price, though the capital appreciation will be reflective of the agreed price payable upon completion.
How much money can you make?
There’s no one rule to capital growth as it is affected by many different factors and where and what you buy will have an impact on the level of returns.
As an example of what can be achieved when you buy an investment at the best time in the right location, we can take a closer look at the numbers achieved by investors who secured off plan units within One Regent in Manchester.
One Regent is located about 200 meters down the road from a development we’re currently working with – Regent Plaza.
Taking a look at the sales history online and the numbers that have been achieved on properties in One Regent, investors will have secured the properties off plan in August 2017.
For example, a two bedroom property originally sold for £189,000 in August 2017, three months after the build was completed the original investor sold the property for £245,650 – a 30% increase on their original investment.
The reason why they were able to achieve such strong growth is because they bought off plan at a really good price and experienced extra growth throughout the construction period. So within those 2 years of construction, they made £28,000 per annum.
Comparably, a property that is already built rarely has the opportunity to a lot of people will be debating whether to buy a property that’s already built, so they get rental yield straightaway or to get off-plan and experience growth during the construction period, et cetera.
On a property valued at £189,000, let’s say we were achieving a 5% net yield creating £9,480 per annum. And over a two year period, the property would have earned just shy of £19,000. In comparison, the off plan investment earned £28,000 per annum and £56,000 in total over the two year period.
The same property was sold again three years later for £296,000, again making a great return on their investment at around 7% a year or so, but you can really see where the major growth was achieved during construction and then from completion to when they sold the property.
Is it a good idea to invest off plan?
Obviously buying off plan, as you can’t see the property in person there are different factors that need to be carefully considered such as taking a look at the developer’s track record, ensuring the development is fully funded and making sure you have insurance in place on your deposit monies.
Buying just any off plan property investment in the UK isn’t the best idea, you also need to ensure it’s in a good location and that the property itself is one of the best units in the development. You have to have done your due diligence prior to investing.
Hopefully, this has explained why we’re launching these new off plan developments, such as the recently launched one in Manchester and another in Sheffield because we want our clients to be given every opportunity to make the greatest return on their investment.
If you’d like to discuss off plan investment in greater detail please do get in touch.