Buying Off Plan
Discussion
Some advice needed if anyone can help......
I'm looking into buying a flat for investment purposes. Whats the best way to go about it?
Shall I buy off plan and try and take advantage of the discount or buy somewhere local and start renting?
I think off plan would be best but if anyone can offer any tips, I'd be grateful!!
Many Thanks
Sam
I'm looking into buying a flat for investment purposes. Whats the best way to go about it?
Shall I buy off plan and try and take advantage of the discount or buy somewhere local and start renting?
I think off plan would be best but if anyone can offer any tips, I'd be grateful!!
Many Thanks
Sam
Doesn't look like a smooth ride to me (look at this graph)
www.housepricecrash.co.uk
Debt is real, house prices are a matter of opinion.
Stock market has gone up over 45% in the last couple of years.
>> Edited by aceparts_com on Monday 13th February 12:04
www.housepricecrash.co.uk
Debt is real, house prices are a matter of opinion.
Stock market has gone up over 45% in the last couple of years.
>> Edited by aceparts_com on Monday 13th February 12:04
I could probably write a book on the subject (and maybe I should) but nobody really knows what is going to happen to capital values or rental levels.
I have a buy to let which was my main residence before I let it. I have taken the long term view that with rates as low as they (remortgaging at the moment 85% ltv fixed at 4.99% for three years) I can turn about £150 a month letting it myself and that is a good enough return for now (equity of £33,750, return of £1800 pa, yield just over 5%, slightly higher than the rate at which I borrow on either the btl or my residential mortgage)
I would like to buy more but it would have to be on the same basis. Essentially I am ignoring capital value and making sure that I can get it to wash its face for the time being. When values start going up, as they inevitably will at some point, I will be able to expand the portfolio. If they go down for the next couple of years I just hold on to it and keep taking the 5%
What scares everyone if the possibility of a crash. Despite the doom merchants I think a major crash is unlikely. There were so many factors which applied in the late 80's which don't apply now; double MIRAS, high inflation eating away at debt, panic buying, insanely high interest rates, first time buyers paying 60% of their net income on their mortgage; the peak coincided with the Lawson boom and then we had a major recession - conditions that do not apply now. Cambridge Econometrics have been predicting a 20% slump for three years now - hasn't happened. There was a comment on the BBC web pages recently from a similar organisation saying (1) we are in for a slump because prices are 20% above trend and (2) prices might never return to trend because the low interest rates we have now make higher prices more affordable. Make of that what you will - to me it just says "who knows"
There are a number of factors that would push your decision in one direction or another. Are you looking for a quick in and out? In that case buy off plan, negotiate hard and try to make sure you get one of the better properties in the development. Even if you have to let it for a year to avoid selling at the same time as other investors trying to buy and dump you should show a profit.
If you are in it for the long term then either off plan or ready built would be possible. There are some pretty attractive incentives on offer at the moment but most of them have snags such as poor build quality (pointing no fingers I have seen some enticing deals ruined because the developers are ones I would not touch with asbestos gloves and a cattle prod) or designated letting agents.
I've been studying this seriously for a few years and there is a lot more that goes into the thinking so if you want some more info just shout and I will get something off line to avoid drowning the thread
I have a buy to let which was my main residence before I let it. I have taken the long term view that with rates as low as they (remortgaging at the moment 85% ltv fixed at 4.99% for three years) I can turn about £150 a month letting it myself and that is a good enough return for now (equity of £33,750, return of £1800 pa, yield just over 5%, slightly higher than the rate at which I borrow on either the btl or my residential mortgage)
I would like to buy more but it would have to be on the same basis. Essentially I am ignoring capital value and making sure that I can get it to wash its face for the time being. When values start going up, as they inevitably will at some point, I will be able to expand the portfolio. If they go down for the next couple of years I just hold on to it and keep taking the 5%
What scares everyone if the possibility of a crash. Despite the doom merchants I think a major crash is unlikely. There were so many factors which applied in the late 80's which don't apply now; double MIRAS, high inflation eating away at debt, panic buying, insanely high interest rates, first time buyers paying 60% of their net income on their mortgage; the peak coincided with the Lawson boom and then we had a major recession - conditions that do not apply now. Cambridge Econometrics have been predicting a 20% slump for three years now - hasn't happened. There was a comment on the BBC web pages recently from a similar organisation saying (1) we are in for a slump because prices are 20% above trend and (2) prices might never return to trend because the low interest rates we have now make higher prices more affordable. Make of that what you will - to me it just says "who knows"
There are a number of factors that would push your decision in one direction or another. Are you looking for a quick in and out? In that case buy off plan, negotiate hard and try to make sure you get one of the better properties in the development. Even if you have to let it for a year to avoid selling at the same time as other investors trying to buy and dump you should show a profit.
If you are in it for the long term then either off plan or ready built would be possible. There are some pretty attractive incentives on offer at the moment but most of them have snags such as poor build quality (pointing no fingers I have seen some enticing deals ruined because the developers are ones I would not touch with asbestos gloves and a cattle prod) or designated letting agents.
I've been studying this seriously for a few years and there is a lot more that goes into the thinking so if you want some more info just shout and I will get something off line to avoid drowning the thread
With any of these types of properties, it is worth asking yourself "could I live there?", i.e is it a nice property, is there a nice view, is it quiet, is it easy to park nearby, is it near shops, restaurants, schools etc etc. If it ticks all the boxes, it is likely to be a good investment. Don't buy into any of the new developments just to get on the bandwagon!
V helpful post Bill!
IMO thats not really the case. Its business whether you are fond of the property isnt an issue. Is is good enough to let for the amount you want??
I f I could earn money on a btl property I would go ahead, even if i didn't like it.
Thanks for the other comments guys. I think I would look into buying off plan. I have quite a large deposit to put down so I should be able to earn from the rent as soon as its built.
Sam
mutt k said:
With any of these types of properties, it is worth asking yourself "could I live there?", i.e is it a nice property, is there a nice view, is it quiet, is it easy to park nearby, is it near shops, restaurants, schools etc etc. If it ticks all the boxes, it is likely to be a good investment. Don't buy into any of the new developments just to get on the bandwagon!
IMO thats not really the case. Its business whether you are fond of the property isnt an issue. Is is good enough to let for the amount you want??
I f I could earn money on a btl property I would go ahead, even if i didn't like it.
Thanks for the other comments guys. I think I would look into buying off plan. I have quite a large deposit to put down so I should be able to earn from the rent as soon as its built.
Sam
SAM_R said:
V helpful post Bill!
mutt k said:
With any of these types of properties, it is worth asking yourself "could I live there?", i.e is it a nice property, is there a nice view, is it quiet, is it easy to park nearby, is it near shops, restaurants, schools etc etc. If it ticks all the boxes, it is likely to be a good investment. Don't buy into any of the new developments just to get on the bandwagon!
IMO thats not really the case. Its business whether you are fond of the property isnt an issue. Is is good enough to let for the amount you want??
I f I could earn money on a btl property I would go ahead, even if i didn't like it.
Thanks for the other comments guys. I think I would look into buying off plan. I have quite a large deposit to put down so I should be able to earn from the rent as soon as its built.
Sam
I rather think YOU are missing the point! Due to the bandwagon effect there is a lot of BTL property about, so potential tenants have lots to choose from and rents face downwards pressure due to supply and demand. Given a choice between a property that ticks the boxes for a potential tenant that I have suggested and one that doesn't, which one is going to let first?
DONT BUY OFF PLAN!!! unless you are getting a massive discount. Make sure to compare the prevailing prices in the area. For example I was about to buy off plan for £325k. I then went to a couple of local agents in the same area and bought a larger flat (albeit 5 years old but in reasonably good condtion) for £266k! No amount of convenience of a new build is worth that premium and the places (in my experience) have so many snagging issues that you dont get happy tenants. Finally, the tenants usually have so much choice in a new block as so many of the flats are bought by out of town BTL investors. Usually means that you have to drop your pants on the rent...
DO NOT BUY OFF PLAN
I bought a flat from Berkerley Homes in the Royal Arsenal development as an investment. We went , saw the show flats talked about the spec signed up wrote a big cheque and waited until completion
On completion the flat wasn't anything like the show apartments (a development of several phases, all converted warehouses with original features). Lacked any original features and general quality is far lower than any of the other buildings
We and 8 other couples are in the process of taking B.Homes to court due to misrepresentation
Guys, I think the generalistic doom-mongering based on your experience of one property purchase should not put other people off. I think off-plan property investment certainly has its merits.
I agree with you that I would not look at 95% of off-plan devlopments in the UK at the moment. Developers are charging large margins as build costs have soared and therefore the cost is transferred to the purchaser, or 'investor' (as they like to call themselves). In the current environment I cannot see how people believe they will make money through buying form large developers. Just think, a lot of people who know more about investment than you have looked at their websites and property lists and turned them down, before you get a chance to see them!!! These companies know they have massive marketing exposure and brand appeal and can rely on those to generate sales in a lot of occasions, rather than having particularly solid (or well-priced) properties. How do you think they can offer incentives like deposit paid, stamp paid, cashback etc, if the values are not inflated?
The crux for off-plan investment is the area in which you are buying, coupled with the quality of the build. I really believe that discounts can be taken with a pinch of salt. In the majority of cases they are based on the developers valuation - they are the people most likely to value them higher than they are actually worth!
I do this for a living and primarily deal with overseas markets at the moment. The mortgage industry in other countries is developing rapidly to accomodate off-plan facilities, and several markets are seeing realistic and sustainable growth. This creates the ideal environment for off-plan. The basis being that you invest a small deposit and ride the market for 18 months or so. A resale will be easy as the bandwagon jumpers will always be around to purchase from you - trust me, I have a lot of experience in this! Other than Spain and Florida, the resale market and property growth is strong across Europe - I will probably get pilloried for not supporting Florida, but IMHO its time has been and gone.
Are you planning to keep this property for the long-term or sell before completion and look to re-invest the profit?
If you are looking at a long-term strategy then have you considered an investment in land? Bugger all return until relesase is achieved, and a riskier prospect (although this can be managed heavily), with a longer realisation period than property, but the returns are currently running at 700-1000%.
I agree with you that I would not look at 95% of off-plan devlopments in the UK at the moment. Developers are charging large margins as build costs have soared and therefore the cost is transferred to the purchaser, or 'investor' (as they like to call themselves). In the current environment I cannot see how people believe they will make money through buying form large developers. Just think, a lot of people who know more about investment than you have looked at their websites and property lists and turned them down, before you get a chance to see them!!! These companies know they have massive marketing exposure and brand appeal and can rely on those to generate sales in a lot of occasions, rather than having particularly solid (or well-priced) properties. How do you think they can offer incentives like deposit paid, stamp paid, cashback etc, if the values are not inflated?
The crux for off-plan investment is the area in which you are buying, coupled with the quality of the build. I really believe that discounts can be taken with a pinch of salt. In the majority of cases they are based on the developers valuation - they are the people most likely to value them higher than they are actually worth!
I do this for a living and primarily deal with overseas markets at the moment. The mortgage industry in other countries is developing rapidly to accomodate off-plan facilities, and several markets are seeing realistic and sustainable growth. This creates the ideal environment for off-plan. The basis being that you invest a small deposit and ride the market for 18 months or so. A resale will be easy as the bandwagon jumpers will always be around to purchase from you - trust me, I have a lot of experience in this! Other than Spain and Florida, the resale market and property growth is strong across Europe - I will probably get pilloried for not supporting Florida, but IMHO its time has been and gone.
Are you planning to keep this property for the long-term or sell before completion and look to re-invest the profit?
If you are looking at a long-term strategy then have you considered an investment in land? Bugger all return until relesase is achieved, and a riskier prospect (although this can be managed heavily), with a longer realisation period than property, but the returns are currently running at 700-1000%.
Rich25 said:
If you are looking at a long-term strategy then have you considered an investment in land? Bugger all return until relesase is achieved, and a riskier prospect (although this can be managed heavily), with a longer realisation period than property, but the returns are currently running at 700-1000%.
Is this land with or without planning consent?
BTW-Its 7 purchases so far not one....however, I missed the "off-plan bubble" as I was too busy buying my own residence at the time....
>> Edited by paracetamol on Thursday 16th February 10:00
Depends on individuals risk profile really. I specifically deal with land without planning permission, but which has been identified by one of the 9 Regional Development authorities (specified within the Atkins Report 2002 Deposit Draft) as suitable for development. I also look for land which has good 'neighbours', e.g. land without planing which is being bought up by large developers, the council etc. These guys are not in the habit of buying land they will not be able to develop.
Shame about your off-plan deals, was that with one developer? Have you managed to off-load any yet, or are you able to sustain them?
Shame about your off-plan deals, was that with one developer? Have you managed to off-load any yet, or are you able to sustain them?
Rich25 said:
Shame about your off-plan deals, was that with one developer? Have you managed to off-load any yet, or are you able to sustain them?
Hi Rich25
What I said in my earlier posts is that I would not and have never bought off-plan. There was a time and a place about 2-3 years ago when it was good to do so but I was too busy buying my own house and didnt have the resources.
The rest of my BTL portfolio is now made up of older properties. I have also bought and sold a couple of buy to lets when I felt the market was good as it was going to get for them and the returns didnt justify the profit to be made by disposing e.g I had a flat in Manchester that I bought a couple of years after the bombing-it increased by 110% in value in 5 years but the yeild was becoming very low (rent/value), escpecially with all the new flats in Manchester coming on line and competition for tenants meant void periods and investment in refurbishing the flat. I sold the place and looked for another area that was being developed and would improve and moved the money there.
My point is that when looking at new build always check the prevaling prices in the area and make sure you dont get ripped-off. In my most recent experience I saved 25% by buying a used property in the same area as an off plan place and the place I bought was bigger!
So..
Off plan not really the best option then, I don't know many developments near me there are but as mentioned will always check the nearby prices extra.
Overseas? I'm not too keen as this is my first property and (not too sure why but probably just because I have never done this before)
I nearly bought my first property last year. It was small, 1 bed, old converted work house. It was very cheap and was already being let out.
I made an offer and it was accepted, got up to the point of exchanging contracts but when the searches and servey came back it found that the flat had subsidence and no - one knew the true cost of repair so I pulled out. (it was a neighbouring flat and the cost was being shared, the owner of estate agent didn't tell me for about 6weeks)
With the above flat I worked out that I would be earning each month, taking the mortgage into consideration and also a new bathroom & kitchen would increase the value (going by other flats in the same block). So in a perfect world it would be a long term investment with an extra income possible by the large deposit.
So now xmas is over I want to start buying my first BTL. I have around 50k as a deposit and i'm located in the SE. I haven't got a clue where to start and really appreciate the advice you old experts have lol!
Regards,
Sam.
Off plan not really the best option then, I don't know many developments near me there are but as mentioned will always check the nearby prices extra.
Overseas? I'm not too keen as this is my first property and (not too sure why but probably just because I have never done this before)
I nearly bought my first property last year. It was small, 1 bed, old converted work house. It was very cheap and was already being let out.
I made an offer and it was accepted, got up to the point of exchanging contracts but when the searches and servey came back it found that the flat had subsidence and no - one knew the true cost of repair so I pulled out. (it was a neighbouring flat and the cost was being shared, the owner of estate agent didn't tell me for about 6weeks)
With the above flat I worked out that I would be earning each month, taking the mortgage into consideration and also a new bathroom & kitchen would increase the value (going by other flats in the same block). So in a perfect world it would be a long term investment with an extra income possible by the large deposit.
So now xmas is over I want to start buying my first BTL. I have around 50k as a deposit and i'm located in the SE. I haven't got a clue where to start and really appreciate the advice you old experts have lol!
Regards,
Sam.
Everyone's probably right about BTL too many people in teh market and market forces at work etc etc
Have you thought about abroad? If you're in it for Capital gain thaere are a few hot spots around just now, and whilst places like Estonia, the former Yugoslavia and Turkey are potentially risky, EEC countries are OK - In Spain there is a huge development boom in Murcia just now - and with mortgage rates in the 3-4% area, plus lower running and fitting out costs - it all looks quite attractive. Downside is you won't have tenants all year, upside is that you can charge a premium price for holiday lets and have a holiday home of your own in the winter and no problem tenants ( well not for long anyway)!
Have you thought about abroad? If you're in it for Capital gain thaere are a few hot spots around just now, and whilst places like Estonia, the former Yugoslavia and Turkey are potentially risky, EEC countries are OK - In Spain there is a huge development boom in Murcia just now - and with mortgage rates in the 3-4% area, plus lower running and fitting out costs - it all looks quite attractive. Downside is you won't have tenants all year, upside is that you can charge a premium price for holiday lets and have a holiday home of your own in the winter and no problem tenants ( well not for long anyway)!
Sam
I'm struggling to work out from your posts WHY you want a BTL? Are you looking for a safe home for your £50k, a capital investment for 2/5/10 years down the road or monthly income?
You mention that you haven't checked out other developments/local market - frankly that scares me - if you're considering buying (especially BTL) you need to know exactly what properties are worth. Personally I wouldn't be happy buying until I'd been watching the local market for at least three months (and probably not these last three months as they have the Christmas distortion in them).
New build prices are traditionally higher than those for the area but you need an understanding of this. Plus (believe me I used to do legals for a housebuilder
)as said above you will have problems with snagging and your tenant will not want to hang around waiting for the builder to show up to fix something.
Most of the apartment developments I saw (up to 18 months ago) had a heavy proportion of BTL over owner occupied properties and as also said above this may have a negative effect on your potential rent.
Have you worked out the return on your investment after tax and compared that to other investments at the moment?
Pricewise - I haven't looked but the reports indicate that the prices of two bed flats should be falling or starting to fall. The mortgage lenders are getting twitchy about overvaluing of the flats to facilitate BTL's and the Governments u-turn on properties into pensions has I belive reduced demand for these types of properties. This may mean that there are some bargains to be had but to know this you need to have thoroughly researched your market.
Commercial property is flagged as being a good investment for the future. You'd need to find the right type of property - I'd imagine retail isn't great for the moment.
Happy hunting - do your research first though!
I'm struggling to work out from your posts WHY you want a BTL? Are you looking for a safe home for your £50k, a capital investment for 2/5/10 years down the road or monthly income?
You mention that you haven't checked out other developments/local market - frankly that scares me - if you're considering buying (especially BTL) you need to know exactly what properties are worth. Personally I wouldn't be happy buying until I'd been watching the local market for at least three months (and probably not these last three months as they have the Christmas distortion in them).
New build prices are traditionally higher than those for the area but you need an understanding of this. Plus (believe me I used to do legals for a housebuilder
)as said above you will have problems with snagging and your tenant will not want to hang around waiting for the builder to show up to fix something. Most of the apartment developments I saw (up to 18 months ago) had a heavy proportion of BTL over owner occupied properties and as also said above this may have a negative effect on your potential rent.
Have you worked out the return on your investment after tax and compared that to other investments at the moment?
Pricewise - I haven't looked but the reports indicate that the prices of two bed flats should be falling or starting to fall. The mortgage lenders are getting twitchy about overvaluing of the flats to facilitate BTL's and the Governments u-turn on properties into pensions has I belive reduced demand for these types of properties. This may mean that there are some bargains to be had but to know this you need to have thoroughly researched your market.
Commercial property is flagged as being a good investment for the future. You'd need to find the right type of property - I'd imagine retail isn't great for the moment.
Happy hunting - do your research first though!
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