What is an off-plan property?

Off-plan investment is the act of buying a buy-to-let apartment at the planning or construction stage of development. Although it might seem to be a riskier strategy than buying a completed property, many investors favour this approach because off-plan properties are generally priced significantly below market value.

This is very attractive to investors because, as well as securing a great deal, there is potential for significant capital appreciation as soon as the property has completed.

What are the advantages of buying off-plan property?

1. Typically, properties bought off-plan are significantly discounted.

2. There is potential for significant capital appreciation as soon as the property has completed.

3. If you’re purchasing the property as an investment, the returns are generally higher on an off-plan property as the initial investment is much lower.

4. An off-plan property is brand new which means that maintenance costs in the first few years are unlikely.

5. Many off-plan properties are within large developments which often come with a host of facilities such as gyms, cinema rooms and underground parking.

6. When an off-plan property is launched the developer will typically release many units, which means you get the first choice of the available units.

7. Normally you can reserve an off-plan property with a small deposit, and the payments scheduled to be taken during the build.

8. The final payment in the process (which is normally the largest) can be mortgaged*.

Disclaimer: Knight Knox cannot guarantee you will be able to get a mortgage. All clients must be able to complete with cash.

Off-plan is considered risky if the property is being sold without planning permission as the plans can be denied at any point, and even when planning permission has been granted, this does not represent an iron-clad promise that the property will get built.

The simple way to mitigate this risk is to invest with a developer which specifies in buy-to-let property and has a proven track record of delivering developments as promised - Do they have a strong portfolio of sold out, in construction, and tenanted developments? Do they deliver developments on time? What is their reputation among other investors?

Some investors like off-plan buy-to-let property because it generally offers the best returns on investment, not just from the lower-than-average entry prices but also because of the ever-growing rental returns and the substantial capital appreciation investors stand to gain by investing off-plan.

Checklist for off-plan investors

  • Conduct due diligence on the company you're looking to invest with
    Ensure they are reputable, and have a successful track record.
  • Do research into the area you're looking to invest
    What are the house prices like at the moment? Is there any investment in infrastructure that’s likely to enhance prices in the future? Off-plan properties are a forward-planning investment, so be sure you are looking at both present and future opportunities for growth.
  • Be financially ready
    Off-plan property generally requires a staggered payment structure (generally a deposit to reserve, a portion of the purchase price payable on exchange of contracts, potentially another payment at a pre-agreed time during the construction period, and the balance on completion), so be sure you are familiar with the payment structure in advance and you have the money ready to meet those payment points.
  • Anticipate ancillary costs
    Investing in property requires paying unavoidable costs, like stamp duty, solicitors fees, ground rent, and maintenance fees; be sure you factor these costs into your budget before investing.
  • Think about the day-to-day running of your property
    Some landlords prefer to manage their buy-to-let portfolio themselves, but a large proportion pay to use the services of a specialist lettings and management service to run the property on their behalf. Consider who will run your property—if you hire a company to do so on your behalf, you should factor in their fees in your budget (generally between 5-10% of the property’s rental income.)