20 Point Checklist For Buying Off-Plan

If you're thinking about buying an investment property off-plan, read our Buyer Checklist first.  Buying an investment property can be a complicated and confusing process, especially when you are buying off-plan. 

Our Buyer Checklist is a step by step guide to help you make successful property investment decisions by highlighting the things you need to think about when you purchase property off-plan. 

BEFORE YOU START ... 

It is important to give some thought to your property investment even before you start searching for a property. Here are the things we think you need to consider even before you start your search.

1. HAVE A PLAN

Do not buy an investment property without a plan. The great thing about having a plan is that it does not have to be right or wrong. There is no doubt that your goals and objectives will change over time. You need a plan to give yourself a starting point for where your investment journey will take you.

The first two questions to ask yourself are:

1. What is it you are expecting to achieve?
2. How long do you want it to take?

The best thing to do is work out where you want to end up, and you can work backwards from there.

Once you have purchased a property, making any changes to the way it is owned, or to sell it because it is not right for you, is an expensive process. As an investor it can take several years to recover your initial purchase costs from the rental income.

You also need to ask yourself are you looking for a single investment property or are you looking to build a property portfolio to fund your retirement? There is no right answer to this question. You simply need to give some serious thought to what your long-term objectives are.

Do the research and try and work out what type of investment property will best meet your long-term investment objectives.

2. WHERE SHOULD YOU INVEST?

Where are you going to invest? Part of this needs to be determined by your strengths, strategy and what your long-term investment plan is.

Your personal circumstances will significantly impact your income tax liabilities (both domestically and offshore if investing overseas) which occur through the ownership of investment property. Consider the following:

• Stamp Duty – Stamp duty differs significantly around the world and the costs can be truly eye watering. Make sure you understand the cost implications of buying both domestically and offshore. Many investors will find that it is far more cost effective for them to buy offshore rather than domestically.
• Income Tax – you need to understand how a property investment impacts your overall income tax situation. For many people, earning income outside of the country where they earn their principal income is highly advantageous from an income tax perspective. Others however, who are taxed on worldwide basis will need to give more thought to how they own their property investment – it might make more sense for them to own the property through a company.
• Expenses – you need to understand what your expenses will be and how you can off-set them against your income tax liabilities. In some countries you will be able to offset 100% of the costs and in other countries such as in the UK you will only be able to offset a proportion.
• Depreciation – asset deprecation can be a powerful tool for long-term investors, so determine whether you can depreciate your assets over time.
• Estate and Inheritance Taxes – some countries have estate and inheritance taxes whilst others do not. If a country has these taxes, you will need to give some thought as to how they will impact your overall plan and strategy.

How many locations you want to invest in will depend on your specific circumstances. Our recommendation is that you track more than one market. Look to track two different countries, and perhaps three locations in those markets.

As a minimum you should focus on countries where you can easily determine and obtain the following information:

• How property tenure works for domestic and international ownership
• Reliable market data
• Transparent information on taxation

3. YOU NEED ACCESS TO DATA

You cannot make effective investment decisions without having the right information. If you make assumptions or decisions based on inaccurate or misleading information you are setting yourself up for failure. An expensive lesson in real estate investment!

As an investor this is information which you should be willing to pay for, the reality is collecting this data can be expensive, but you should not be unwilling to pay for some of it. The cost of the information may be quite small relative to the impact it has.

Useful information to track includes:

• Demographic data – changes in demographics will influence rental growth
• General economic data – will help you to determine the point in the market cycle
• Macro Housing data – helps determine supply and demand
• Pricing data – average rents, values and yields should be tracked over time.

4. WORK OUT YOUR BUDGET

Before you go off speaking to agents and searching for your investment property you need to give some thought as to what your budget is. When determining how much you are going to spend give some thought to the following:

• Purchase costs – you will incur significant costs when you buy an investment property which you will not be able to borrow. You will need cash available to pay them. These include:
  • Stamp duty and other purchase costs such as transfer fees and registration fees.
  • Conveyancing fees. You will need to have a conveyancer act on your behalf to transfer the Title for the property you will find an estimate of these costs in our Buyer Guides.
  • Mortgage arrangement fees. If you are buying the property with a mortgage you will need to consider the costs involved in arranging the mortgage. These could include brokerage fees, arrangement and set up fees and valuation fees.
• Deposit – if you are buying the property with a mortgage you will need to have an idea of how much you can borrow. The best way to find this out is by speaking to a mortgage broker, but as a guide you can work off the following: Domestic investment you can typically borrow 80% of the purchase price for a first investment which will reduce for later investments. If you’re buying an investment property offshore you can typically borrow 65% of the purchase price.
• Ongoing top up payments - in an ideal world your investment property would simply take care of itself and the income generated would cover your running costs. However, this rarely happens particularly in the first few years of ownership. You need to determine how much money you will be able to set aside to top-up any unforeseen costs.

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YOUR SEARCH

So, you have worked out how much you must spend and where you are going to buy, now the hard work begins. Here are the things we think you need to think about when searching for the right property for your circumstances and goals.

5. YOUR PROPERTY SEARCH

When you’re searching for your investment property it is important to cast your net far and wide. Search all the different portals, websites and agents and make sure you are doing a complete search of your target location(s). Things you should think about when you are searching for your property are:

• Speak to letting agents - don’t just speak to property agents and search on portals for property – make sure you speak to leasing agents and property managers too. They will be able to give you a good sense of what the local market is like, what tenants are looking for and most importantly how long it will take to rent out and for how much.
• Who are you paying? – when you are looking at various properties make sure you understand who you are speaking too and what their relationship to the property is. In an ideal situation you want to be dealing directly with the developer or their directly appointed sales agent. If you are dealing with anyone else, it is likely they are simply a referrer or third-party marketing agent. These third parties work on commission, which the developer will add to the price of your property. Ask how much they are being paid! Sales fees are between 1% - 3%. If the agent is getting more than that you are paying too much!
• Check review websites – use the internet and other people’s experiences to your advantage. There are many websites such as Trust Pilot where people have written reviews of buying property from a developer or dealing with them post sale. Chances are if they have bad reviews, you could have a bad experience.
• Marketing Costs – how much did it cost for you to find out about the property and who pays the cost? Well the costs are paid by you! How much you pay depends on how where you buy the property from. Property exhibitions and slick marketing materials add significant costs to the price of property – which is paid by you the purchaser. If you are happy to pay these costs then that’s fine, but to us it makes more sense to find ways to purchase property without all this needless expense.

6. SELECTING THE RIGHT PROPERTY

Just as important as the location, is picking the right property. There are several things you need to consider when selecting the right property to invest in.

• House or Apartment? - there is a lot discussion around changes in the way we live and that more people will be working from home in the future. As a result, many more investors are thinking about buying a house rather than an apartment. We believe the proposed changes in tenant behaviour are overplayed in the media and we do not believe this represents a long-term structural change. For most investors an apartment with some outside amenity is the best bet. However, if you are thinking about buying a house, bear in mind the cost of maintaining the building and property will be significantly greater than that of an apartment.
• Location in the building – you need to think about the location of the apartment within the building, particularly in taller buildings. Whilst having a great view or being at the upper part of the building is likely to be great for the occupants, it is unlikely that a tenant will pay significantly more in rent for the view – leave these apartments for owner occupiers.
• Building Amenity – it is possible now to buy an investment property with just about every amenity possible from sky pools to cinema rooms. You need to give some serious thought to how much these amenities will increase the rent relative to the significant increase in services charges.
• Specification – just like building amenities you need to make sure you have the right specification. Fancy audio, lighting, and wine fridges all sound great. However, they typically cost a lot of money to maintain and replace when something goes wrong. Not only does an over specified property add a lot of additional cost to your property, it is unlikely to materially impact the rent.
• New or Second-hand – buying a new build or second-hand property is also a decision which investors will have to grapple with. It is true that it is more expensive to buy a new property than a second-hand one. This is because they come with warranties, generally require significantly less ongoing maintenance and are much more energy efficient. We think for most investors buying a well-priced new build makes more sense. However, if you are thinking about buying second-hand, we recommend you have a building professional inspection done and allow for annual maintenance costs of circa. 5% of the annual rental income. 

7. YOU NEED TO KNOW THE MARKET

Now that you have selected the right property. You need to ensure that the assumptions you are making about the performance of your potential investment are correct. As a minimum you need to consider the following:

• Price – the price you pay for your investment property is the key determinant of the financial performance of your investment. You need to check you are paying market price or less for the property. Importantly, do not pay today for tomorrows growth.
• Rent – you need to check your assumptions about how much rent the property is likely to achieve. Importantly, do not make assumptions that you will set records for rental levels. You need to consider what rent you are assuming relative to other competing properties. Additionally, you need to see how many properties are available in the market for rent.
• Service Charge – an increasingly important aspect of generating a strong investment return. You need to ensure the service charge is as low as possible and importantly not more expensive than other properties for rent in the market. You also need to check and see how the service charge is reviewed.
• Ground Rent – ground rents have received a lot of press attention in the UK recently, with many leases incorporating un-commercial review provisions. In June 2022 new laws mean developers are prohibited from charging ground rent on new properties in England and Wales. However, if you are purchasing a second-hand property, ground rents will still apply and you need to ensure the ground rent is in line with other leases in the market and more importantly how the ground rent is reviewed. You should not accept any review mechanism that increases the rent by a measure greater than inflation. 

8. ANALYSE BEFORE YOU BUY

Before you buy a property, it's important you analyse how it is likely to perform. The two most important outcomes of an investment you should consider are:

• Cashflow – both before and after tax
• Capital Appreciation – both before and after tax

In order compare investment property in different countries, you'll need to set out the following for each property and forecast over the next 5 or 10 years (don't forget to convert to the same currency too).

1. Fee cashflow (before tax)
2. Tax on income
3. Free cashflow (after tax)
4. Equity Position
5. Net income if the property sold

Once you have calculated these figures, you'll have all the information you need to compare investments in different countries.   This will be invaluable in determining which investment, in which country is suited for your investment goals.

9. STRESS TEST

Things don't always go to plan. So, when you're running your analysis, make sure you stress test an investment by running calculations based on 'worst case scenarios' such interest rates increasing or rents or property values not increasing by as much as you forecast, or not increasing at all? If the investment still works when you run the stress tests, it's probably a good investment.

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NEGOTIATING THE BEST DEAL

This is where the rubber hits the road! Getting the right deal is not only about price, but also about making sure you have the right protection and proper structure to ensure your investment meets your objectives. You need to consider the following.

10. NEGOTIATE, NEGOTIATE, NEGOTIATE

When you are buying an investment property price is everything. The great thing about being an investor is that you simply do not need to buy the property. You need to go into negotiations with clear intentions of what price you are willing to pay and stick to it!

If you cannot get the deal you want simply walk away – I promise you there will be other properties to buy.

11. BUY IN THE RIGHT STRUCTURE

You will have the opportunity to purchase a property in a company or a trust. Companies and trusts are legally recognised as separate entities from their owners, which means that you can create a separate legal entity to own the property on your behalf.

Trusts and companies can be complex structures when used for investment property and can be created for multiple reasons to achieve specific objectives.

When buying a property individually, it can be easy to forget the legal protection you may need in the future. If you are buying with a spouse, friend or relative, or business partner, you will need to consider how you are holding the investment. When buying property together, those purchasers have the option to either register the property as with joint tenants or tenants in common.

Whether buying as a company, trust or individual it's important to seek legal and taxation advice from qualified lawyers and accountants operating in the same jurisdiction as the country of the property.

If you get the structure of ownership wrong, it can be very expensive to change once you've exchanged contracts because you can create tax events which trigger additional costs.

12. HAVE YOU GOT PROTECTION?

The specific level of protection you have as an investor will change between countries and developments. You need to be very sure that you know what your rights are and the obligations of the developer before you sign an agreement. Generally, you will find that less developed markets will have less protection for investors.

As a buyer you should be concerned with two items, specifically:

• Deposit protection: Is any deposit you have paid against the purchase of property protected if a developer gets into trouble financially?
• Insurance and building warranties: What happens if something goes wrong with the building after you have completed the purchase?

Most countries have rules and regulations which deal with these issues. However, they vary significantly between countries, meaning you must do your due diligence.

13. CAN YOU ASSIGN THE CONTRACT?

You need to think about what could happen if your circumstances change and you need to sell the property before it completes. Do you have the right to sell? It sounds silly, but unless you have legally completed on your property you may not automatically have the right to sell it.

Generally, sale and purchase agreements will have one of three arrangements:

• No right to sub-sell or assign: If your agreement says this, I am afraid you have limited options. If the agreement does not include the right to sell before completion, it will have been done for a reason. Most likely because the developer has a lot of apartments to sell and they do not want you to compete in the open market with their development. If you are in this situation, I would have a conversation with the developer. All good developers will have a strategy to deal with these scenarios.
• Right to assign your contract: You will have the right to 'assign' the benefit of your agreement to another party. In this scenario, the new purchaser will assume your position in the contract. There are two things you need to be aware of with Assignments:
  • Generally, you will need the developer's permission to assign the contract so you need to understand the process and in which scenarios the developer could decline.
  • More importantly just because you assign your interest in the contract it does not mean you no longer have any obligations in the contract. If the new purchaser fails to complete the transaction, you will be required to 'complete' and purchase the property.
• Right to sub sale: This is your 'cleanest' possible way to sell an off-plan property. In this situation, you simply sell the property to a third party. Generally, there will be limited recourse from the developer if the new purchaser fails to perform their obligations under the agreement.

Another thing you need to consider if you want to sell, is if you can use the developer's images? Remember if you want to sell before completion there is nothing to photograph or at best there will be a half-built property. Marketing materials cost a lot of money, far more than you might imagine. The cost of getting the photography and computer generate images are all costs the developer has assumed to sell and promote their property. These materials are the Intellectual Property of the developer. You do not have the automatic right to use them to sell your property nor does anyone else. Developers have a lot of their staff constantly calling agents, asking them to stop the unauthorised use of images.

14. CONTRACT PROVISIONS

There are other contract provisions you need to be aware of too, these include the following:

• Notice to complete and special notice provisions – you should take note of the provisions in the contract which allow the developer to serve notice on you to complete the building. You need to think about how long they give you to complete and the timing of when the completion can take place.
• Apartment Size – what happens if the apartment which is delivered is smaller than what you are promised? Sounds silly but it happens and can happen. The reality is that during construction mistakes happen and compromises need to be made. This is not necessarily an issue as the differences are unlikely to be significant but why pay for space you don’t get? You need to consider how the contract deals with these types of issues.
• Short stop and long stop dates – What happens if things go wrong with construction and are delayed, or alternatively move too quickly? You need to ensure that your contract incorporates adequate long and short stop provisions which cover scenarios where construction is taking too long or is completed too early.

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GET READY FOR COMPLETION (SETTLEMENT)

Finally, there are things which you need to consider during the construction and handover period. These include the following.

15. MORTGAGE

It takes a lot longer to get a mortgage than you think, especially when buying offshore. The last thing you want to have happen is being caught short and be forced into a position where you take on a bad mortgage simply because you need to just get a mortgage to complete. You need to do your own investigations with respect to getting a mortgage.

• Principal & Interest mortgages (repayment mortgage) you’ll make monthly repayments for an agreed period of time (known as the ‘term’) until you’ve paid back both the capital and the interest.
• Interest Only mortgage you only pay the interest due on the amount you borrowed each month, and repay the capital at the end of the mortgage term.
• Penalty Clauses – beware of penalty clauses for early redemption or for paying off interest early. You never know what will happen and it may make sense to pay off capital early or to sell the property and the last thing you want to have happen is to be heavily penalised to deal with these.

Getting the right mortgage is a complicated and time-consuming process, the reality is the more time you leave to get one, the better the deal you will be able to get.

16. USING A PROPERTY MANAGER

Using a property manager is wise, particularly if your investment is overseas. It makes sense to appoint a property manager as soon as possible (and speak with them before you buy the property if you can).

In any event make sure you appoint them well in advance of completing on your purchase. You want the property manager promoting the property available for rent as soon as possible. You want to get a tenant in place as soon as possible after the day you complete.

17. FURNISHING YOUR PROPERTY

If you are going to furnish your property (your property manger will tell you if you should or not) allow plenty of time to purchase furniture. The easiest way to do this is by buying a furniture pack for the property from one provider – shop around and there are deals to be had. Things you need to think about for furnishing are:

• Allow a long time for delivery – furniture can take between 3 - 6 months to obtain, deliver and have installed so order early. You don’t want to be waiting for a tenant to move in because you don’t have any furniture.
• Shop around – if you shop around, you will be able to get a deal so give yourself time to do so.
• Spares – make sure whoever you get the furniture from can readily provide spares, you don’t want to buy a new couch because you can’t replace a cushion. 

18. CURRENCY EXCHANGE

If you are buying offshore, you will need to purchase foreign currency. It makes no sense to do this with a bank given the fees they charge and the number of great alternatives there are out there. Shop around for currency. You might end up saving a lot more than you think.

19. SNAGGING AND HANDOVER

Snagging a new property is a time-consuming process and you want to make sure you get everything you paid for. If you don’t feel confident to do this yourself look for an independent consultant to do this for you. Or get your property manager to this work as part of their appointment.

20. RECORD KEEPING

As an investor, you need to make sure you track and operate your property (or properties) well:

• Record keeping – records are useful for tax but also as a quick reference
• Cost Management – keep one eye on costs, do not make the fatal mistake of underestimating them
• Track Performance – make sure you track your performance; it will help you understand what has worked and what has not – you are not going to get everything right

FINAL THOUGHTS

Successful property investment requires a great deal of thought, planning and knowledge and it's impossible to summarise everything you need to know and consider in one brief article.

This checklist should help you think about some of the key aspects you should consider in order to be a successful property investor. Our team of experts are on hand to help with any questions you have, do don't hesitate to reach out if you'd like more assistance.