buying off plan property

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Why should you consider buying an off plan property

There are many reasons why off plan investment is a very popular option for buyers of properties around the world. We have all heard and read about the easy payment schedules ( up to 30% deposit and nothing to pay until completion or comfortable stage payments) and the equity gains that have been achieved during the construction process. But people buy off plan for more than these two reasons even though they may be integral to the decision making at the end of the day.

There are a growing number, and we are talking tens of thousands, of buyers that are buying a property for the future. Maybe it is as a future retirement residence, perhaps for a shorter term relocation move. It could simply be a method of getting onto the property ladder or an investment decision to enter the buy to let market.

Each year there are more millionaires that achieve financial security generated through real estate than through any other form of investment. There are no great secrets to property investment success, just an ability to buy a property in the right location, at the right price with the lowest amount of financial exposure at any given time AND to have a feasible exit strategy that will allow you to take your profits within a predetermined window of time.

Of course you can go to seminars and pay to listen to self proclaimed experts with 'insider information about the next big thing', but common sense is one of the most important factors, regardless of the country or region in which you are intending to invest.

You need to look out for most, if not all, of the following depending on the type of off plan investment property that you are planning to buy:

• Local and international investment
• Infrastructure improvements
• Regular flights to a well located airport if buying abroad
• Good access to main road networks
• Modern Telecommunications
• Local amenities
• Hospitals and healthcare
• Schools and Universities
• Local and National Economy and GDP
• The cost of living
• Maintenance Costs
• Realistic rental revenue estimates
• Are there new commercial projects in the area that will generate local employment and or service facilities
• Experienced developers with a reputation for high build quality, delivering on time and correcting any faults AFTER completion
• Developments with guarantees in place
• Developments where all paperwork and licenses is current and legal
• Developments that offer a rental guarantee program or are able to recommend professional rental and management companies that know the local market place
• How much are the purchase costs
• How much will you pay to sell your property in the future
• How much will it costs to retain a management company
• What percentage of rental revenues will you pay to the rental company? Between 8% and 50%.
• How much are monthly maintenance costs
• A lawyer that speaks your language fluently and the local language.
• Promotion of the area by local and government authorities
• International hotel groups building in the near vicinity
• Bank Guarantees are legally required by developers in many countries around the world but some emerging markets such as Turkey do not have them.

Look at the local population to find out if they will be potential future buyers or renters of your property!

• Where are the principle areas of employment?
• Is the area popular with families, couples, retirees or singles. All have bearing on the future value of your property. If the area is mostly families, chances are they will not want to buy or live in an apartment with no outside space. This would effectively remove the local market from your audience when it comes to sell your property which could mean not achieving your target price or that the property will be on the market for longer than expected.
• Is unemployment increasing or decreasing?
• What is the average household income in the area?
• What are the benefits of investing in Off Plan Developments?

Creating a WOW Factor

Buying an off plan property gives you a blank canvas on which to create a stunning interior design right from the beginning. Nowadays many developers and agents will recommend local companies that will furnish your new property down to the last tea spoon. This concept was initially used to furnish corporate apartments in the cities, when a predetermined level of quality was absolutely essential as tenants were typically managers and directors who demanded only the best.

If you are buying a property for rental purposes we would advise you to find professional companies to do this for you. These services are available in most regions, even in some emerging markets that will take care of the furnishing process for you. As a first time investor you may think that you can save some money by doing it yourself, but you will quickly realize that it is difficult to keep your own emotions locked away and you end up with a property that will NOT meet the criteria of many rental and management companies. Local companies know the local market far better than you do. It is well worth paying a professional company to organize everything on your behalf. Depending on the location of your new property and the local climate you may find that it takes up to a couple of years for a building to settle and dry out. The climate may also have a detrimental effect on furniture especially in hot and humid countries. Before even considering the furnishings, talk to a number of rental and management companies to get a feel for what they recommend, as it is in their interest to have a property that they can easily rent out.

Modern Technology

The majority of off plan developments utilize the latest building techniques with modern materials and energy efficient products. Some developers only use eco-friendly engineering and will recycle rain water, use solar and wind technologies and high quality insulation methods. Natural light is no longer a trend, but a must have for many property owners who appreciate the advantages as well as the lower utility bills.

No Chains and minimum logistics

When buying an off plan property you will discover how stress free it can be when compared to buying a resale property. There are no chains on the vendors side, there is no-one to move out from the property at completion. Between your lawyer and the developer the utilities will be connected for you and apart from furnishing the property and getting it rented, you have very little else to consider. Your bank will have performed there due diligence on the property and have probably already arranged your insurance. Some developers even sell properties fully furnished and ready to use.

Shared Costs

When buying an off plan development it is likely that it will be within a community of some description. You will be sharing the costs of onsite utilities, gardening, pool cleaners, maintenance costs, golf courses and other facilities including security. Being part of a community you will benefit from all of the above, plus in many locations an easy integration with the other owners who are mostly in the same situation.

You need to be aware that new laws have been passed in a number of countries that allow for your property to be sold without your consent under certain circumstances IF you have not paid your community fees for a specified amount of months. This sounds very harsh but over the years there have many owners that refused to pay their communal fees, which in turn started to put the community into debt, properties became neglected and the value of the entire community decreased. It is every owners benefit that legislation such as this has been passed. We are sure that you agree!

Safe and Secure.

Today's off plan properties tend to be far more secure than older properties. Modern technologies are integrated into the electrical and gas fittings, smoke alarms are mounted in key areas of the property as well as the actual building corridors. Fire alarms and well designed fire escapes with strategically placed fire exits - in many cases also catering for handicapped owners and visitors. Many offer plumbing fitments complete with water filters and leak alarms which let the owner know if there is a water leak in the property. There will be no hazardous materials used in the construction. E.g. asbestos or lead based paints.

Mortgages and Insurance

As the majority of developers require a large deposit prior to completion, banks are normally quite receptive to lending against a finished property as the security of the loan is already off set to one degree a or another. Resale buyers often require a higher LTV - loan to value - which puts the bank in a position of excessive risk. Terms of mortgages for off plan and new properties are often far better than those applied to older properties.

Insurance companies will take into consideration the fact that the property is brand new and under warranty from the builder, which again cuts down on their risk. This in turn can keep your insurance premiums at a sensible level.

Stage Payments

In some parts of the world you may be asked to make stage payments at certain periods during the construction time. These stage payments can be advantageous to investors that have a regular amount of liquidity over a period of time. Most stage payments controlled by the developer are for the period of the build time which could be between 1 to 3 years.

You should ensure that these payments are stipulated in your sales contract and be aware of any penalties should you miss them. Legal advice is recommended to ensure you understand 100% of the consequences.

Delivery Dates

Every new off plan development will be given a delivery date which will have been based on certain criteria. Unfortunately extreme weather conditions cannot be factored into this date and year after year developments will run a little behind schedule. The majority of stipulated delivery dates have allowed for 'unexpected delays' so when a development is overdue by a long way then there should be some good excuses and reasons behind it. Most developers raise funds to construct from banks and are themselves under huge financial pressure to complete on time and in fairness most of them do deliver within an accepted time frame. To be cautious however it is always worthwhile to ask your lawyer to have penalty clauses added to sales contracts in YOUR favour as the developer will not doubt have plenty already written down in his favour. One of the most regular problems caused by late delivery is that of owners booking flights for the signings and even for a family holiday before the property is to be rented out. However arranging furniture delivery is a big headache at the best of times unless you are using a professional outfitter and even then a late delivery can often mean that the suppliers cannot fit you into their schedule for several weeks.

But the biggest NO - NO we have saved to last, is the fact that new owners are keen to rent out their new property in order to cover monthly outgoings from day one. Imagine having to contact a tenant who has booked and paid for their annual holiday and you all of a sudden are having to explain that they cannot use the property as it not finished.

Renting your property.

As mentioned previously, it is advisable to retain / employ a professional rental and or management company to take care of your property especially if you are a 'remote' owner. Just as importantly you must realize that a property completed in Phase I of a larger resort is NOT going to generate anywhere close to the true rental value until the development has been completed and it is no longer a building site. It is not realistic to assume that paying clients will pay full price to be covered in dust everyday or be concerned that the kids will be run over by a runaway dumper truck.

Once the development is complete you can finally charge a higher rental price and achieve a better occupancy.

One final note from us here at 8gent. If you cannot comfortably pay for the property, do not under any circumstances buy it in the first place!

We hope that you enjoy the experience of buying your off plan development and get a great deal of satisfaction from it at the same time as becoming a little wealthier in the process.

We have supplied brief buyer's guides and investor guides for all of the countries on this website. Although they should contain plenty of relevant information about the buying process, we highly recommend that you seek legal council before buying and investing in any property