Jump to content

Take the course

Recommended Posts

OK - so I started looking at the off plan opportunities in Liverpool City Centre.

It would seem that all of these off plan 'payment structures' require way more than a 10% deposit.

A typical example I have seen for an off plan 1 bed apartment, costing roughly £140k that is due for completion at some stage in 2020 (no spade in the ground yet) is:

Reservation £5K (instruct solicitor immediately) 

Payment on exchange of contracts (28 days later) - £15%

Further staged payment some time in 2019 - £15%

Final payment - 70% (less reservation deposit)

If I was to take the advice given on the property hub about performing all the due diligence tasks on the investment, then I simply have to walk away because I'm risking too much with the 30% 'deposit', plus the £5k reservation fee. And the Off Plan idea quickly dies a death (in Liverpool at least)

The developer is a reputable one and the Investment Company are (obviously) telling that they have never had a developer they've worked with who has gone bust.

I have explained my reservations to The Investment Company and I am prepared to drop this option.

The Investment Company insist this is the developer's payment structure and there seems to be no negotiation on it.

Have people experienced the same thing? What are the thoughts on this?

Share this post

Link to post

Hi Matty! It's very common for developers to want more than 10% before completion: when we're looking at deals for Property Hub Invest we have to walk away from a lot of otherwise great-looking deals because of the payment structure. We did an off-plan deal in Liverpool the other week that only required a 10% deposit...but that was after saying "no" to plenty of others!

Ultimately we're not happy with anything more than 10% because it can't be covered by warranty so it exposes you to financial risk. It's a personal decision though: if you do your research into the developer and you believe the upside is worth the risk, then go for it. Our rules of thumb are designed to keep you totally safe, but obviously there are plenty of developments with less favourable payment structures that still work out fine.

Share this post

Link to post

Thanks very much for your response Rob.

OK, so here's what I don't really get about the whole off-plan thing then, in tandem with the advice about not putting in more than 10%:

My understanding (from listening to The Property Hub Podcast) is that buying off-plan is advantageous to both developer and investor in the following ways:

1. For the investor, it (generally) represents an opportunity to purchase a property at a discounted rate because of the fact there is a certain element of risk in the investment and also because the property isn't a fully formed asset and there is no guarantee that it will be completed on time.

2. For the developer, it represents an opportunity to begin and continue to work on a project that will ultimately be a profitable one. This is on the basis that they receive funds along the way, in advance, from each investor, that allows them to purchase the necessary items to build the properties without having to find the funds elsewhere.

I noted in one of the Podcasts that Rob B's deposit was even held in an escrow account so the developer didn't even have access to that.

So, if the investor is unwilling to put in more than 10% until completion and may even request that the 10% is held in an account where they can't touch it, where is the advantage or the incentive for the developer to accept this arrangement?

Excuse me if I have misunderstood the advantages of off-plan arrangements for the developer above.

Share this post

Link to post

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now