Why Buy Off Plan? Are there any benefits?
21st February 2018
Why buy off plan? Are there any benefits? YES! Absolutely, and here are 5 things to consider as to why I think buying off-plan makes it a worth while investment.
1 – Location – Firstly, let’s take a look at Manchester. Manchester is now widely recognised as the ‘second city’ with a seemingly mass exodus heading it’s way from London, making this city one of the most exciting places to live and work today. Many young professionals are being attracted by amazing employment prospects and with the city experiencing the fastest economic growth outside of London, Manchester is set for a very promising future. I’ve lived in Manchester all my life and you can really feel the exciting in and around the city which doesn’t surprise me that with increasing house prices and high rental demand help see Manchester as one of the UKs top rental hotspots.
2 – Equity Growth – The biggest benefit in my opinion of buying off plan property is the amount of equity growth compared with your traditional 2 up 2 down terraced property. Typically, in many areas of Manchester for example, terraced properties may increase by somewhere around 5% annually if you’re lucky. With buying off-plan apartments, the equity growth from the day you reserve (which I believe should always be phase 1) to the day of completion which is usually 2 years later can be somewhere in the region of 20-30% which is a huge difference in comparison. You then also have the option to sell your property before completion (usually to an owner occupier at this point) which means reaping the rewards of capital growth during the build process instead of the stress of tenants.
3 – Diverse Portfolio – I am a firm believer the you shouldn’t don’t all your eggs in one basket and this is so important when it comes to the UK property market. By diversifying your portfolio, it protects you against drops in certain areas of the market in the way a one-asset investment strategy simply wouldn’t, as well as making sure you can benefit from the positives of a range of different assets all at once. An example of this is that your usual BTL investment strategy could be investing in 2 up 2 down style terraced house. However, by doing this, you could miss out on a BOOM for instance, buying in off-plan properties while the demand is HUGE in Manchester as discussed in my first point.
By having your finger in a number of property asset pies, you ensure that you don’t miss out on any sudden positives that arise in the market.
4 – Staged Payments – When buying off-plan property, you will negotiate the price upfront, pay a small reservation fee which is typically £1000-2000. Then, as we at Property circles have found with the carefully picked developers we work with, will allow you to make payments throughout the build period until completion. These staged payments enable you to budget your property investment better, and your money is in your bank for as long as possible giving your piece of mind and security.
5 – The possible Loop Hole (but don’t make it a plan!) – As an investor, I’m sure I don’t have to tell you what Stamp duty is… BUT for those who don’t know, stamp duty is a tax you are due to pay when you buy a residential property, or a piece of land, that costs more than £125,000 (or more than £40,000 for second homes). This tax applies to both freehold and leasehold properties – whether you’re buying outright or with a mortgage and is charged on a property when it completes. HOWEVER, If you sell before completion, you don’t pay the stamp duty, the owner at completion does. So… let’s say you purchase an off-plan property priced at £250,000. You pay a 20% deposit. In two years, just before completion, you have the property valued and find it is now worth £290,000. Instead of completing and paying your £10,000 stamp duty (remember, it’s payable of the purchase price), you decide to sell the contract to another buyer. You pocket the profit of £40,000, and your buyer (who then must complete when the property is finished) must pay the stamp duty.
Please note that as good as this sounds, I highly recommend you do not make this part of your business plan because if you’re unable to find a buyer, you’re liable for the stamp duty.
These are obviously just a few of the benefits of investing in off-plan property but If you have any questions and want to discuss buying off plan properties, give our experienced team a call on 0161 250 7666.