I went to buy some milk and came back with a flat
I went out for a pint of milk and came back with a brand new flat!
How to avoid the pitfalls of buying off-plan
You know how it is, you go out to do some shopping, and that new building development has opened its marketing suite. You pop in to take a look and before you know where you are you’ve bought a buy to let investment.
There is nothing wrong with buying off-plan, but like all buy to let investments you need to research and prepare. In our time we have seen many people buy property in haste and have to repent at leisure. Here are our top ten tips for buying a brand new property and avoiding the pitfalls.
1. Buy Early
Developers want to get momentum with a new development, and there are usually incentives for those that are the first to buy. You will also get the best choice of units
2. Buy Late
Once the developers have achieved the break-even point all sales of future units are pure profit, they also want to close the sales office and move the sales team to the next development. Incentives are usually available for people buying the last units
3. Ignore the show flat
It’s called a show flat for a reason. It is there to show the new build development to its best advantage. There are specialist interior designers who only do show flats, and they have plenty of tricks up their sleeve to make you part with your cash. For example: Putting a three quarter sized bed in the second bedroom. This is a bed that is bigger than a single but not quite a double, however in a small second bedroom it makes the room seem more spacious.
4. What are the management charges?
Management charges eat into your profit, so before you sign on the dotted, find out what the charges are likely to be, and what you are paying for which brings me to…….
5. Beware of all things shiny
Your development has a concierge, a gym, or a rooftop running track (Yes really). Fantastic! But ask yourself the following questions.
a) Who will benefit from this?
b) Who is paying for it?
The answers are: a) Your tenant and b) You the landlord. Your honour I rest my case.
Lifts also cost a lot to maintain. Check out the maintenance contract and whether this is included in your management charges
6. Invest in Parking
Often there will not be enough parking for all the apartments, and the parking will be sold separately. If you get the chance and can afford it; buy a parking space. It makes your rental property more attractive to prospective tenants adding anything up to £100 a month to your rental income, and makes the property worth more and easier to sell when the time comes.
7. Get a second opinion on rental income
The developer will almost certainly have asked a letting agent to prepare a rental pack, this will set out what the agent thinks the potential rental income will be. As someone who does these, I am fully aware of the pressure that agents are put under by developers to be as bullish as possible about the potential rental income. It is not in agent’s interests to over-inflate a rental property’s income, but it would do no harm to get a second opinion.
8. Find out how many other properties have been sold for buy to let
If a lot of similar properties come on the market at the same time, the law of supply and demand state that if supply exceeds demand then prices will fall. Also, as a rule, the more tenants in a development the less well looked after it will be. As a rough guide, if more than 50% of the properties have been sold for buy to let, then think carefully about investing
9. Buy the best you can afford
If you are looking at properties by the water, it is better to have a smaller flat overlooking the water than a bigger flat that doesn’t. However if the development does not have views buy as big as you can, and remember don’t buy a two bed unless it is genuinely two doubles.
10. Don’t buy a rental property on a whim
The sales team are there to sell, that is their job and they will try all the tricks known to man to get you to sign there and then. Don’t rush in, get a second opinion on the rent, look at some pre-owned properties so you can make a comparison, investigate to locality, if it is phase one of a multi-phase development, when will all the phases be complete and what will the development look like then.
Buying off plan is not for the faint hearted, but if you follow the above tips and remember the four golden rules of buy to let investment which are
1. How much rent will I get?
2. Will I get capital growth?
3. What occupancy rate can I expect?
4. Will it sell quickly if needed?
Then buying off plan can be a very profitable buy to let investment.
Avoid the downside and the hidden pitfalls when buying a new build property with a view to renting it out – call me on 0117 973 9394 for help or more information.