No investment is without risk. If anyone tries to get you to buy into something that’s “risk free”, run for the hills!
Take buy-to-let property investment. This can be a hugely stable and profitable form of investment, with income in the form of rent and the potential for capital growth. But it is not without risk.
Off plan property risks
First, there’s the risk of the developer running into financial difficulty during the build. This can result in delays to the project – and therefore to the point at which you begin receiving an income from your investment. It could even result in the project stalling entirely.
Then there’s the risk related to the overall, final specification of the homes and the demand for that type of property from a rental and resale perspective.
“With any type of investment, you also need to consider the macro-economic factors. So with property investment, that means thinking about house price growth and rental inflation, to ensure your property will deliver good scope for capital growth and rental increases over time.”
Dale Anderson, Managing Director, Fabrik Invest
Risk mitigation for your off plan investment
Thankfully, there are ways in which you can mitigate the risks of investing in off plan property. One is to ensure that you are dealing with reputable developers who have a solid track record and are in a financially stable position. Undertake due diligence and ensure that the developer is an established, trusted brand in the marketplace. Take a look at their completed buildings and assess their quality and financial performance. And be sure to check out customer reviews on trusted platforms such as Trustpilot.
Next, ensure that your due diligence process is robust by using a reputable law firm. The firm can check that the necessary securities are in place from a legal perspective.
Regarding the macro-economic situation, use forecasts from the likes of Savills and JLL to home in on the best areas in which to invest. Right now, for example, JLL is projecting that:
“Of all the housing markets that JLL monitors, Birmingham is forecast to see the strongest house price and rental value growth over the next 5 years.”
Savills, meanwhile, is looking to the North West to deliver the strongest performance in the country in the five years to 2025, with projected house price growth of 28.8% over that period. That’s followed by Yorkshire and the Humber, with anticipated growth of 28.2%. In terms of rental values, JLL forecasts rises of between 2.5% and 3.5% per year between 2022 and 2025 for Birmingham and between 3.0% and 3.5% for Manchester, the city that is home to Fabrik Invest’s superb Michigan Towers investment opportunity. Liverpool sits in the middle, with anticipated price rises of between 2.5% and 3.0% per year over the same period.
Depending on your personal goals and requirements, your expectations around capital and rental value growth may differ. Some investors will want higher yields with a passive, cash flow positive income, while others will be more capital growth driven.
Finally, examine the payment terms of the off-plan investment you’re considering. They should typically entail a 10% to 30% deposit during the construction period, with the balance due at completion. Anything more than this requested prior to completion is an alarm bell. Check if there is any deposit protection or insurance in place too.
Professional support
Of course, all of this can be very time-consuming. If you don’t have the hours to pour into this process, opt for an expert consultancy firm with the right experience, which can provide all of the above services for you. Just be sure to put the time into doing your due diligence on the firm. Our property experts here at Fabrik are here to help, get in touch today and let us mitigate the risks for you.
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