In a nutshell what is Off Plan Property?

A simple overview to off plan property investment

At its simplest, this is buying a property in the very first stages of a development project, when there is nothing more to see than a site, a field or a site model and nothing to look at apart from the architect’s plans, some basic designs or artist’s impressions. Sometimes, there is a little more available to help you choose, a computer simulated video might be available or more comprehensive plans, but at its most basic this is all there is to guide you.

Already you can see it is not for everyone, you need vision and a degree of trust in who you are purchasing from. No it is not risky if you use good legal representation, take professional advice and use plenty of due diligence, but nevertheless you must be able to visualize the completed project and the property you are considering purchasing, above all else you need imagination to succeed.

It’s not something for everyone, or something that everyone can do! With IP Spain as a partner however, we try to make it as easy as we can. We always offer our clients as much information as we can possibly find, producing pages of information on the area, the project, future plans and plenty of financial information as well. More often than not it will also be possible to view some completed projects from the company that is constructing the development.

By investing in the project at an early stage, the purchase cost is significantly lower than the price the property could sell for if it was completed, up to 20% lower. Prices are more competitive at this early stage because the developer has so very little to show prospective clients. During the construction period, as the resort progresses, the developer will increase the price of properties for subsequent buyers. These “later” buyers don’t have to visualize the finished design; they can now see and touch the properties before deciding to purchase. Therefore the earlier you are involved in the project the greater your profit potential during this period. From the first release of a golf project to delivery of the first finished properties it usually takes around three years, although this can take longer.

OK we know what it is now, but how does investment in off plan work?

Well the key to making a good return on your investment is the gearing, which is something that is explained in more detail within our guide; basically what we want to do is to purchase the property with as little of our capital as possible, whilst the gain will be on the increase on the “total value” of the property during our ownership.

This means that that if we purchased a property with a 20% deposit i.e. paying 1/5th of its value and its purchase price rose by 5% in the first year, our investment has actually risen by 25%, i.e. invest 1/5 to receive the increase on the whole value or 5 times our invested capital.

We expect at least three years before delivery, so by the time that the keys are ready we will have already made a great profit.
When the property is completed the balance outstanding is funded by a mortgage, either with a mortgage available from the developer’s bankers, or by arranging an alternative. IP Spain will of course be pleased to help you with this.

With appropriate planning, strategy and advice, these mortgage payments should be covered by the rental income and over time as rental rates increase the rental income should provide an excess.

How long do I need to invest for and when can I sell my property?

The short answer is that we usually recommend a five to ten year investment term.

If the project takes three years to construct then you will have to wait at least that long before you are able to sell. It is not now easily possible to sell prior to delivery in Spain, even with the developers consent, although it may be possible to hand it back should you have a personal disaster to deal with; however you will probably lose any profits if you do so.

After delivery we recommend that you keep the property at least until the complete urbanisation is finished and the resort matures. Your unit would most likely have been in the first phase and there will be several more phases to deliver before the resort reaches its full potential. The greatest gains are usually made in the first five years of ownership.

Clients most suited to off plan property are those whose main priority is to make a return on their invested deposit, want to build a pension fund through property investment, or for clients who are interested in buying a property for their own use or to let out with a low initial payment and have no short term need for the property.

As a company we value honesty, clarity and transparency above all else and if you are interested in learning more about off plan property we really do feel that you should read and fully digest our fully comprehensive off plan buying guide.

Please note that this information is intended as a brief outline only and is not an actual example of an investment. Please also remember that any gains will usually be taxable.

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