Should I be Buying Off-Market Property or Should I be Buying Off-Plan?
As a property investor, should you be buying property off-plan or off-market? Today we look at what these terms mean and ask whether investors should really be focussing on these categories or whether there are more important things to consider in a property deal.
What is an Off-Market Property?
An off-market property is a property that has either sold or is being sold by only one estate agent or the owner directly, without any public advertising. Sometimes, off-market property refers to a property that needs an immediate sale but the main feature of properties that are 'off market' is that you won't find them listed on Rightmove or Zoopla or any of the other main property portals.
So, what does this mean for investors?
For a property investor, the biggest advantage of buying an off-market property is the lack of competition on the deal.
With off-market properties, you should have time to do your due diligence. So, you will normally have a bit more time and space to go through the figures and check everything looks right for you. And what's more, you should be able to buy off-market properties at a good price, as you won't have competition, bidding the price up.
What Is An Off-Plan Property?
Off-plan property is a property being sold on the market before it has been completed. It might be a new build, still a few months off completion. It might be an apartment that has been completed in itself but located in a building that isn't yet ready for tenants to move in.
Off-plan properties are not always sold 'off market' so you find them promoted and sold through the normal channels; that is to say estate agents and websites like Rightmove.
So, what does this mean for investors?
In theory, off-plan properties can be great investments insofar as the price that they are sold at reflects the value of the property on the day it is sold, rather than the value of the property when it is completed. An investor can, therefore, expect a pretty decent level of capital growth from such investments.
But, I would be cautious about making predictions about the future value of any property. Nothing is certain, after all.
Let's say there is an off-plan property that can be valued at £200,000 and you have the opportunity to buy it for £180,000. In the future, possibly when the property development is complete, the property might be worth £230,000, so there's £50,000 capital growth in the deal.
The operative word here is 'might'.
You don't really know what the future worth is here. The more sensible approach is to take today's numbers - the £20,000 discount - and to work out whether the deal is right for you, based on that.
And let's face it, a £20,000 discount is pretty good and is not far from the kind of discount you might expect when you buy a property, off-plan.
Back to Basics
With any property deal, I would advise that you more-or-less ignore where the deal is coming from and concentrate on more fundamental matters, such as how you are going to make that deal work for you.
Is the property a good opportunity? Is the location right? Are the rental returns going to be enough to cover your monthly costs and still turn a profit? Is the tenant profile right for you? In short, is the property going to work for you, over the long-term?
In short, I would try to avoid getting too hung up on whether a property is off-market or off-plan. You want to keep your options open and focus on what matters which is rental yield, location, and tenant profile.
Working With A Property Sourcing Agent
Finding off-market properties can be tricky and the chances are, to do so, you will have to work with a property sourcing agent and they will charge you for their services.
Some investors don't like to pay for property sourcing services. Personally, I wouldn't worry too much about it. If the project or property deal makes sense on all the points we covered above, and the figures still stack up, then paying a fee shouldn't matter a great deal.
For sure, if a property sourcer has sent you a property for your consideration that is more or less identical to other properties on the market then I wouldn't want to be paying the sourcer a £3,000 fee.
But, if you are getting properties passed to you that are off-plan or off-market, at a discount, where all the necessary boxes have been ticked then I wouldn't be wanting to disregard them just because I had to pay the person who found them for me.
Ultimately, working with a property sourcer, property sourcing agent or property investment company will save you a lot of legwork and could put much better deals in front of you than if you spent all that time looking for properties yourself.
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