Buy Off Plan Case Study Example:

Assume that you buy a two bedroom villa for ˆ 200,000. Opportunities like this can be found, but are becoming harder to find.

The “Off Plan” phased payment would look like this:

Assume you have purchased a property early in pre-construction and qualified for a lower than market list price. Property could increase in value by 30-40% during an eighteen to twenty month build period. Therefore assuming the property value is 30% higher at the time of completion than at the time of purchase, its value would be ˆ 260,000. Obviously gains can vary depending upon the, country, location and market conditions.

If the developer increases the list price by 13% over an eighteen month period this would cause the price to rise 17% to create the 30% increased value example. In some cases investors have made returns higher than the example.

Complete, Rent or Sell?

Near the end of construction you must decide whether to; complete the purchase, use, rent the property, or sell on your contract prior to closing.

So far you, in this example have paid ˆ 80,000 plus 7% IVA (VAT) on that amount; a total of ˆ 85,600.. If you choose to complete the purchase you will now pay the balance of ˆ 120,000 plus 7% IVA, plus approximately 3% of the total value in stamp duty plus notary fees. When you have completed the final payment of approximately ˆ 134,400 you will have invested a total of ˆ 220,000 and will own a property valued at least ˆ 260,000.

Alternatively assume that you are an investor who decides to sell the property in May 2005 just before completion. The contract is sold on at the current value of ˆ 260,000. Allowing for the ˆ 5,600 IVA paid on the deposit, therefore, the return on the investment of ˆ 85,600 is ˆ 60,000 which equates to 70%. Selling prior to completion means no closing costs and great tax advantages.

Conclusion

Many investors buy several properties in early pre-construction and sell one or two before completion to use the profit generated to close on a third. Obviously resale cannot be guaranteed and so it is wise to select easily re-sellable properties in good locations and always invest within your means. Buy early . The greatest developer discounts are to be found in the earliest stages of a development.