Buying property off the plan is an arrangement where a property buyer buys a property that is yet to be constructed. Off-plan purchasing is a trend that has seen many aspiring property owners acquire their dream properties by putting their money on nothing more than an architectural plan. It can be something daunting especially if you have never done it before. It is a route to homeownership that some consider risky, but one which has proved very rewarding for others, especially if the project is located in a high growth area. It is one of the easiest ways of getting onto the property ladder because you only need to deposit a small percentage of the purchase price then pay the balance later. Before committing yourself to buying a property off plan, here are the pros and cons you need to know;
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Benefits of Buying an Off Plan Property
You Get the First Pick
Buying off the plan gives you the chance to pick your apartment first. You also get to choose what you want changed or improved as long as it is within the set price. Since most people wait for fully constructed houses to buy, buying yours off the plan allows you to choose the best location and the one you believe is ideal for you.
Since the settlement can be as far as three years away, it is good for you since should the market value grow, you will make a good equity growth.
You Lock in a Price
Buying off the plan allows you to lock in the price and saves you from any future market trends that may see the rest of the houses in the area go up in price. Even if your property’s value goes up, you will not need to pay extra. You can then invest in another property and continue growing your property portfolio.
Your Property is New
The house you pay for off the plan has never had a previous owner. You will be the very first owner. Whether you choose to live in it or rent it out, it is new. And everyone likes new things!
Disadvantages of Buying an Off Plan Property
Unpredictable Market Trends
You can never be sure of how the market will turn out when buying property off the plan. It is like literally putting all your eggs in one real estate basket. If the market goes up, you made a good bargain. If the market remains flat or goes down, then you will have paid an inflated price for the house.
Home buyers usually think they are locking down the price by buying off the plan and actually don’t consider the fact that the seller has taken market predictions into account before selling the house. This means that they are predicting how much the house will cost once complete. If the value of the house goes up, the situation is fair for you. If nothing happens in the market conditions, then you buy the house at an inflated price and there’s nothing you can do about it.
There is no Flexibility
Between paying for your off-the-plan house and the completion of the house, there could be around 12 months or more. However, you do not have the luxury to look around or compare prices in this time. You have already locked down the price, but also got locked down since you have already paid.
No Opportunity for Improvement
Once you have committed to pay for an off-the-plan property, there’s really not much you can do to increase the scope of your influence on how the property turns out. You might have great ideas on things to improve its value or the rental yield, but there’s nothing much you can do.
Summary on purchasing an off plan house or apartment
You know your situation and real estate investment goals best. Having read the pros and cons of buying property off plan, you are ready to make your decision. The following tips might help you make a more informed one;
- Carefully research and check on all the parties involved; developer, management company, contractors etc. It is better to have a developer with a good track record of successfully completed projects that have been sold off plan. This is what we call due diligence.
READ ALSO: The Due Diligence Checklist for Home Buyers in Kenya
- An investigation of similar neighborhood properties would also be beneficial. You should carefully examine and gather information about comparable nearby properties, their prices or rental amounts etc. and whether there’s a possibility of rent increase in the future. This will aid in projecting the amount of return you expect to get if you sell or rent out the property in future. Estate agents will help you a lot in this since they have all this information at their fingertips. Never rely on the developer for this information.
READ ALSO: Neighbourhood Guides – Nairobi
- It pays off to buy properties in prime locations. Location is a great factor in understanding the potential of a property. A site near appealing facilities like transport links, schools, hospitals and shops is more promising. It pays off to buy the cheapest property in a good location than an expensive property in the worst location. Additionally, visiting the site constantly with your agent helps a lot.
READ ALSO: Why Location is Important to a First-Time Homebuyer
- Carefully study the contract and ensure you watch out for any restrictions on sales the developer might have imposed in case you have plans to flip the house. If possible, ask for advice from professionals e.g real estate agents or your lawyer.
READ ALSO: 4 Vital Roles of a Property Advocate
- Understanding your target market whenever to buy property is a must especially if you are planning to let or sell it after completion. Discuss with local estate agents to understand where the demand is likely to come from. Details, dimensions and specifications should be suitable for the target market.
READ ALSO: Becoming a Successful Real Estate Investor
- Finally, know your financial position, your borrowing capacity and the lending policies of the bank or your financial provider. It is advisable if you have a good payment plan to avoid putting all your money in the investment.
READ ALSO: A Beginner’s Guide to Mortgages When Buying a House