The Risks of Investing in Off-Plan Property - And How to Avoid Them

One of the most commonly recognised risks of investing in off-plan property lies with the property developers themselves.

Since buying a property off the plan means having to put your money into a plan or concept rather than a finished product, knowing the developer behind the off-plan development in question is key.

Those who purchase off-plan property from inexperienced property developers may encounter issues with their investment.

How to Avoid This Risk

Avoid this off-plan property risk by carrying out in-depth due diligence before making any property purchases.

Research everything you can about the property development company and the project in question.

This includes looking for a track record of completed past projects, reading client reviews, and learning about who’s behind the development company.

Due diligence is an essential stage of every property investment, so make sure you factor this into your off-plan investment strategy.

Another common risk of buying an off-plan property for investment is that property market fluctuations could impact your investment returns.

As with any investment into property, house prices and rental costs can go up as well as down. A lot of the time, this is due to the area a property is based in.

The issue with these market fluctuations is that if the value of a property goes down drastically, property investors can lose out on capital growth income when they sell the property.

Or, if rental costs decrease, rental income will be lower, impacting the overall rental yields of the investment.

How to Avoid This Risk

Again, your research is crucial if you want to avoid the risk of investing in the wrong area and seeing your returns drop.

Different rental returns from advice on property investment can be found throughout various cities and towns across the UK.

If you’re buying a new build, researching its location is essential. This will help you understand which areas present the best investment opportunities, with growing house prices and high rental yields.

Research past housing market statistics for the property’s area and look at future UK property market growth predictions.

When you buy a property in an area that ticks all the boxes as a buy to let hotspot, you lower the likelihood that you’ll experience a drop in property prices or rental returns with your off-plan purchase

One other factor that some people see as a downside to investing in off-plan is that the process of paying for off-plan properties can differ from buying a completed property.

While many investors opt to use a buy-to-let mortgage to pay for their buy-to-let property, it can be challenging to get a mortgage offer on an off-plan purchase.

This is because off-plan homes may not reach their completion date until years after construction begins, which means you will need to reapply for your mortgage every six months.

It’s still possible to pay for an off-plan property with a buy-to-let mortgage, so don’t be discouraged. Many mortgage lenders will be happy to offer you options.

However, if you’d rather avoid any potential hassle, there are other ways you can pay for your investment.

This is something we’ll discuss below.

How to Avoid This Risk

Did you know that it’s usually possible to split your payment into smaller chunks with off-plan property?

This is one of the biggest benefits of buying property off the plan. It rids the need for buy-to-let mortgages and helps investors manage the costs of owning an investment property.

With RWinvest, you can split the cost of our off-plan properties into manageable amounts of the overall purchase price.