In a recent video, I talked about the risks of buying an off-plan apartment. I regularly see a lot of property investors even celebrities, footballers buying into an off-plan scheme. It might be something that's not being built yet or is in its early stages.
I have seen so many people lose money buying off- plan properties. Am I saying that off plan is always bad? No. But can it be devastating? Yes. Can you lose money? Yes,you can. In this article, we will take a look at three reasons that buying off plan can be a little bit risky.
1. You don’t know when it will be completed
When you're buying an off plan apartment, you don't know exactly how long it's going to be before the property is built. You may be given an estimate, but that doesn’t mean it is accurate. You could be waiting years for the project to be finished and your deposit will be locked up in the project for all that time.
You don’t know what the state of the market will be by the time the project is finished. The area may be less popular, the market may have crashed in general or there may be changes in the economy. It is possible you will not be able to get a mortgage on the property by the time it is ready. Beyond that, there is a potential for waiting years for a project to be completed. You may simply not want the property by this time and could have better allocated the capital.
2. Computer generated images
I've seen people buying off plan based on the developer’s CGI (Computer Generated Image) of the completed building. Things can look great when rendered by a computer but it doesn’t mean they will look quite as good in real life. Sometimes early representations look nothing like the end product.
CGIs are created to sell a product and vision. It is important to understand this if you are considering buying an off-plan property. The only way to know exactly what a building is like is to actually see it for real. This isn’t possible with off-plan properties, which means you need to apply additional caution. If you don’t know exactly what you are doing and don’t know exactly what to look out for, I would avoid off-plan developments altogether.
3. Guaranteed rent
Developers will sell you an off- plan apartment in a block, and they'll give you a guaranteed rent for two years or other fixed period. This amount is often above the market rent. For example, they will offer you £1000 a month when the market rent is £700. They hope you will assume that the market rent is £1000 or higher because they are guaranteeing it for two years. In reality, they will subsidise the difference for the two years. This small cost to them is worth it because it gets people to buy the apartments.
This may sound great but, in reality, when the term is up you won’t be able to get the £1000 a month any more. Make sure to calculate your ROI based on the market rent, not the guaranteed rent offered by the developer. Always bear in mind that their figure is likely to be inflated. Be very careful and consider why they are offering a guaranteed rent to you.
