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Off Plan Investments
What is an off-plan investment?
UK and Spanish developers like to sell properties on a new development before they have started building. This helps to provide cash flow and reduce their risk. It is called buying off-plan and presents an excellent investment opportunity.
With Spain now officially the number one tourist destination for UK residents, the demand for accommodation remains healthy. The Costa Blanca and Costa Calida both offer a wide choice of properties, from fabulous beach-front complexes to prestigious golfing developments, making the region of Spain an ideal location for off-plan buying.
We use our considerable experience and knowledge of the area, to identify the very best developments which are ideally positioned to benefit from the off-plan concept.
How much does buying off-plan cost?
You should expect to place a deposit of between 15% and 50% with the developer. The remainder of the price is due upon completion.
How long before I can sell my property?This depends on the developer, but normally you can sell on the property any time after the deposit has been paid. We would recommend a period of about a year to allow for capital appreciation before you sell. The alternative is to complete on the property and sell at a later date.
It is important to remember that once you have paid the deposit, it is your responsibility to pay the builder the remainder of the purchase price upon completion.
What are the advantages of off-plan buying?
- Your property will rise in value as a result of being initially purchased below its true market value in the early stages of the development. So significant profits can be made in a relatively short time span.
- Excellent investment potential in a still rising market
- Initial capital investment is low.
- Good potential on rentals in the medium to long term.
- Highly competitive mortgage rules in Spain.
What are the potential risks of buying off-plan?
- Capital appreciation may slow down in a more mature market.
- Once you have placed your deposit, you are obliged to complete on the property
Off plan investment examples
Assumptions- Purchase Price including VAT and legal costs is £100,000 (model 1) and £150,000 (model 2).
- Deposit required is 30% (inclusive of £2,000 reservation deposit).
- Purchase is financed by a UK interest only mortgage at 4%.
- Property is sold 18 months after purchase and has increased by 20% in value (12.5% per annum).
- Sales price is £120,000 (model 1 or £180,000 (model 2).
| Financial model | Model 1 Upon Purchase £000 |
Upon Sale £000 |
Model 2 Upon Purchase |
Upon Sale £000 |
| Deposit (Paid)/Received | (30) | 30 | (45) | 45 |
| Mortgage Draw Down/(Repaid) | 30 | (30) | 45 | (45) |
| Capital Appreciation | 20 | 30 | ||
| Sale Cost at 4% | (5) | (7) | ||
| Gross Profit | 15 | 23 | ||
| Mortgage Interest @ 4% per annum | (2) | (3) | ||
| Profit before tax | 13 | 20 | ||
Highlights
- Return on investment of 43% over 18 months (28% p.a.)
- Profit of £13,000 (model 1 or £20,000 (model 2).
- No cash required upon purchase if financed via a UK mortgage.
- Monthly mortgage payment of £110 (model 1) or £170 (model 2).
- Capital appreciation required to break even is 7% over 18 months (4.5% p.a.).
- Independent bank guarantees protect monies invested.