Is it safe to buy off plan property?
The answer it’s not a straightforward yes or no, let me explain. If we were to assess crossing the road as a pedestrian it can be safe, it should be safe but only if you follow some simple rules, the green cross code. It is the same for investing in off plan property it can be safe it should be safe if you follow some basic guidelines. Just like crossing the road if you fail to stick to these rules the consequences could be disastrous.
Why buying off plan can be a brilliant investment.
Off plan property can give you the chance to use a huge amount of leverage and if you leverage in a rising property market you can create large sums of wealth. By using a low deposit you can enjoy the capital growth of a rising market.
Lets look at an example of how buying off plan can help you leverage your money:
Property Price £200,000 – Deposit required 10% – Build time two years
If you reserved this property and property prices rise by 10% over the two years you effectively have seen 100% return on your investment!
In a rising property market the longer the off plan period the better as this gives you a chance to enhance your returns.
Long term off plan example
Property Price £200,000 – Deposit required 10% – Build time four years
If you reserve this property and prices rise 22% over the four years your return on investment would be 220%.
So in the right market we can see off plan property returns can be phenomenal, lets now look at the potential risks
The potential pitfalls of buying off plan property.
Investing in off plan property investment can create huge amounts of wealth on the flipside it can financially ruin you.
There are two main risks with investing in off plan property, property prices fall and the developer going bust. If the property prices fall not only have you lost money on paper you may have to put more money into the deal to complete. The developer going bust is even worse as the site may not get complete at all meaning you may lose the deposit you invested.
As you will read below there are ways to reduce and even remove risk from off plan property investment but If you are completely new to property investment I would advise against off plan and get yourself educated by investing in a completed property first. Once you have done this emotionally you will be more comfortable and you will also be better placed to assess the opportunities off plan can produce.
In our next article we will look at how you can reduce and even remove your risk when investing in off plan property.