Buying Bulk Off Plan

Buying bulk off plan has been a fast growing trend since early 2002. In this time I have had the chance to experience first hand and with fellow investors the things that can go wrong in this type of investing.

Many people doing this type of investing are relying on information supplied to them by “finder” companies, and often pay fees of around 2% to get wonderful “no money down” deals and gifted deposits as well as large discounts of around 15 – 20 % below the market value.

What most of these investors are hoping to do is sell back to back and make a quick buck, or hold onto their property to rent it out.

The information we receive can make the deals sound very exciting, and they fail to inform you that you are at high risk of competing with fellow investors that have invested into the same development. Often the deals can be for 60 apartments or more, and therefore there are 60 investors, or less if some have taken more than one property.

You are enticed by paying a small deposit, for a very high return in say 1 or 2 years time.

Pre Valuations

Lets get a real picture of pre valuations that you may be supplied, or indeed that you can instruct yourself.

Valuer’s are people, and some, like everyone else are prone to persuasion and relationships, and can be encouraged to write a “suitable” valuation for the person paying for it.

If you are presented wit ha pre valuation, you must ignore it completely, and do your OWN research on the true market. In doing your research do not forget to mention to people you talk to how many of these plots there will be when they are ready.

Take an example of one purchase I was involved in: Plot XX was available for a discounted price of £220k, its list price was £390k, and its true current day market value was £250 (my own research) – that means that it would have sold for £250k in that week if it had gone on the market. My valuation was paid for on the basis that I wanted to have a loan to value financing, and achieved, from a friendly valuer, a valuation report for £390k – this would have meant I would have been able to get £332 cash out of this deal, giving 220k to the vendor, retaining £112 for myself. It also would have meant I would have not been able to dispose of the property unless I could come up with the shortfall. This valuer would have been in a lot of trouble with the lender if the property had been repossessed.

I have also had valuations done by video – but that’s a whole other story.

Specifications

When reserving your “fantastic deal” with the helpful finder, you are given mostly given very minimal spec sheets, which are in-fact open for interpretation.

Be wary with the term “High Spec”. This term is totally non committing, what we might think is high spec, might not be our builders idea. Make sure you get named brands, or named equivalent brands so that you at least have some information to pass onto your selling or letting agent that can influence the price quite considerably.

It is important before exchange of contracts you fully agree the specifications of your property. One flat I almost purchased made a £100k difference to the resale price. The builder would not commit to spec to I rejected the deal.

Funding

Funding is a fascinating one, most of the finders will promise you that some of the deals are no money down, or cash back deals, and according to their figures they may be. This however does not mean that YOU can get that funding.

Pre planning is very important on this one. YOU may not be able to get the type of funding they are referring too, you may not meet criteria and should be prepared also to acknowledge that lenders update their products all the time, and although they did gifted deposits last month, may not do them in 3 months time. NEVER rely on what your finder tells you about funding. I have many investor friends that have been promised the impossible, as they just did not reach the criteria of the lenders with the products needed to complete on that basis. The investor then end up having to find extra funding that they just did not have available, and get loans and credit cards to fund their purchase – they then end up loosing it all if the property will not sell or rent for what they needed it to.

Back To Back Sales

Selling back to back is one of the hardest things to achieve. It is my experience that most selling agents have no idea of how to sell a property that is not built yet, and will complain that they can’t sell it until they can take people around. This can be a major stumbling block.

Lining up your buyer if you have one, to complete at the same time as you is the next block. You are aware of the urgency of completion, and could have had all your financing and searches in place, but you rely on the person buying the plot on you to get theirs together in time, then at last minute they don’t get their mortgage offer through or they change their mind, and you loose the contract. This does happen – developers are more than happy to keep your deposit and sell to another buyer, as quite often the prices may have gone up since they sold it and they can make more money. This still leaves you with solicitor fees, losing a deposit and you will still have to pay your finders fee. So not being prepared to take over at the last minute can prove very costly.

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