Don’t wait to buy property. Buy property and wait…
Buying an investment property has become an extremely popular route for many years now and the current demand for rental properties is higher than ever due to the rise in house prices. If you are in a position to invest in property it can be a very beneficial asset in the long term.
Frequently asked questions.
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Go back 20 years and off plan purchase was almost unheard of in the UK and solely the preserve of purchasers in the Far East, and a few property speculators in London. Now it is a firmly established mode of purchase and UK buyers are now recognising the investment opportunities it may present.
Purchasing a property before it’s completed can seem daunting, however, the right property can increase significantly in value after it’s built, making purchasing property off-plan a financially sound decision.
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Buying off-plan property means purchasing property – typically an apartment – in advance of its completion.
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Buying off plan lets you purchase property at a price that could be below its current or future market value and the principle has become a commonplace method of sale in the across the country.
Buying off-plan is ideal if you want to resell the property once it’s finished or realise equity within a property over a short investment period.
In order to purchase off plan property, you usually need to provide a deposit of just 10% of the property’s value, making securing the property simple and affordable.
Whether you plan to resell or live in the apartment, one of the biggest advantages of buying off plan is selection. Unlike in completed buildings, you can usually select the ideal unit to suit your needs, tastes and budget when buying off plan property.
To ensure optimum ROI, it’s best to look for off plan properties that have been built by reputable developers, within areas with growing levels of investor demand.
Buying Off-Plan.
Buying off plan used to be thought of as risky, particularly during periods of poor or unstable economic performance. However, deposit guarantees and the steady increased performance of the property market, have made buying off plan property popular throughout the last 20 years to the extent where it has become commonplace in the UK property market.
Buying Advice.
The earlier you get access to the property for sale, the greater the chance of securing one of the better units and of getting a discount on the price.
Do Your Research!
As with any property purchase, particularly if you're looking to let the property afterwards, it's important that you do your homework thoroughly. If you fail to research the development, surrounding area and the potential demand for rental property before you buy, you could leave yourself in a vulnerable financial position.
Steps to Buying Off-Plan.
The following points illustrate the steps you are likely to need to follow when buying a property off-plan:
● Find the right development in the right location.
● Arrange the appropriate finance for the purchase well in advance.
● Reserve your chosen property and pay the reservation fees (usually 5%).
● Arrange a surveyor's valuation of the property, which your mortgage lender will require after an offer has been made.
● Make sure all the mortgage paperwork is complete and ready to go.
● Exchange legal contracts and pay the deposit (usually 10%).
● Conduct a snagging survey about two weeks before final completion and check the property for any defects.
● Be ready for completion (there are usually two dates, a 'short stop' and a 'long stop') the former is the date by which the developers expect to have finished the building works, the latter is the date by which they must have done so).
● Attract tenants.
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Location.
It's a cliché, but it's all about 'location, location, location'. It's a critical factor in understanding the potential of the property. Is the wider area being regenerated? Is the necessary infrastructure in place already? How close are the appropriate transport links, shops, restaurants, parks and schools?
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Know Your Market.
If you plan to let or sell the property on completion, you should establish the target market for the type of property you're planning to buy. Discuss this with local estate agents to understand where the demand is likely to be coming from.
You should also try and see what similar properties in the area are being sold or let for. This will give you an indication of the possible return you could expect to see when you come to sell or let the property.
Is there a large supply of local newly-built properties in existence (or coming to market soon)? If so, there is a danger that the market could become saturated if lots of developments reach completion around the same time.
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The Property.
Look at the details, dimensions and specifications of the property. If you're looking to sell or let upon completion, make sure the property is suitable for the market you are hoping to attract, whether buyers or tenants. Also, find out if there are likely to be any additional charges associated with the development, such as service charges.
The aspect and views from the property are obviously more difficult to assess on a property that has yet to be built. Try and visit the actual development plot and work out where your property will be and what the views are likely to be like from the finished product. Try to find a property with a unique selling point, such as a nice view, parking, or access to outside space.
Pros & Cons of Buying an Investment Property.
Over the years, it’s been obvious why investing in property has been popular with so many people with rising house prices boosting their capital investment and the rent from a buy to let property delivering a steadily increasing income.
Along with strong demand for rental home a buy-to-let investment offers an investor something that’s not just familiar but is also easy to understand since they will have seen the value of their own property increase over the years.
Also, pension freedoms have enabled retirees and potential retirees the option of using their pension pot to invest in a buy to let property.
However, there are pros and cons to take into account before investing in a buy to let property and this will highlight whether it’s the most profitable way of using your cash.
Pros for a Buy to Let Investment.
The pros for a buy to let investment include the long-term growth of house prices, though they do fluctuate and have slowed in recent years. Property is still, for many people, a relatively safe long term investment.
• Your rental property will generate an income to
help meet mortgage payments.
• Buy to let mortgage rates are very low to enter
the market.
• Landlord costs can be offset against tax. Although the rental income is subject to income tax.
To help, you can claim the fees that are paid to a letting agent, along with interest on the mortgage and any costs incurred while advertising your property and also paying for any repairs.
Landlords can still get tax relief to cover the renovation of carpets, furnishings and sofas and also for maintenance and repairs. You cannot claim for improvements such as adding an extension.
Cons of investing in a Buy to Let Property.
The cons of investing in a buy to let property will need serious consideration since these may undermine any profitability that will make a buy-to-let investment a realistic proposition.
• Your property will be empty at some point and
earning no rent
• When it’s empty you will have to pay the
mortgage from your own pocket
• When buying you have to pay an additional 3% in stamp
duty (if you own a property already)
• You will need to maintain the property
• You will need to find tenants.
• Purchase costs and selling fees.
Taxes/Fees.
There are certain fees that apply when investing in a property. One of the main ones being that you will have to pay a higher stamp duty for a property that is not your main home.
As a basic taxpayer, the Capital Gains Tax (CGT) on buy to let, second properties is charged at 18%, if you’re an additional rate taxpayer then it’s charged at 28%. With other assets, the basic rate of CGT is 10% and the higher rate is 20%. When you sell the buy to let property, then you usually pay CGT if your gain is over £12,000. However, couples who jointly own assets can combine this allowance, giving them the potential to earn £24,000 before tax.
Any gains that are made must be declared on your self-assessment tax return and will be included when working out your status for the year, which may push you into a higher tax bracket. The income that you receive as rent will also be liable for income tax and should also be declared on your self-assessment tax return for the year that it was earned in. The percentage that you will be taxed depends on your income tax band.
