Investment Strategy Options
With any investment the wise investor decides on his investment strategy before making the decision to invest and with off plan investment property OPAC recommends exactly the same logic is followed.
OPAC investment experts will discuss with you what your aims and ambitions are for your proposed purchase and how this purchase fits in with any existing investment portfolio to best form a recommendation that suits your own highly personal requirements.
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Investment strategy with overseas property can be a complex and detailed affair but for the purposes of illustration we have broken all investment strategies down into two main sectors, short term strategy where the client aims to sell on their contract or property prior to legal completion and medium/long term where the aim is to take legal completion of the property and potentially rent the property or use for personal use or a mixture of both and realise a capital gain at some point in the future by selling on.
As mentioned in paragraph 2 above your OPAC consultant will discuss in great detail your own aims and attitude to investment risk before making a recommendation as within these two strategies lie many differing options.
In summary please find an overview of the key factors behind the two investment strategies detailed above.
Short Term Strategy
The short term investment property strategy is 99% of the time fulfilled by buying a proposed off plan property that has yet to be built and would normally last for between 15-36 months depending on the time to legal completion of that particular property.
The short term strategy takes advantage of the fact that developers normally price their new developments at a discount to the completed market price, they do this for varying reasons but in main they are to minimise bank borrowings by the developer and to achieve a good level of initial sales which gets the market talking about their development and also for the simple fact that if you wish to sell without a finished product that the end user can physically see and touch you need to sell at a discounted level that will attract investors.
Off plan properties offer the investor fantastic gearing and the very highest return on capital investment opportunities as often the developer will only require a percentage of the total price of the property as a deposit, with the balance not being due until completion. This allows an investor to take advantage of capital growth on the whole value of the property whilst only having paid a percentage to the developer.
Lets look at an example:
- Purchase price of a 2 bedroom apartment in Morocco at €100,000
- Deposit required by developer 30% so €30,000
- Legal Fees incurred by an independent solicitor of €500
- So your total investment at this stage is €30,500 euros.
- The property is due for completion in 2.5 years or 30 months.
- Capital appreciation in Moroccan property is 10% pa over the next 2 years.
- So the value of your off plan property in Morocco in 2 years would be €121,000.
Lets assume you actually sold the contract on in 2 years time your gross profit would be €21,000 which means a return on your capital invested (€30,500) of 69%, I think you will agree that for a 2 year investment this is extremely attractive and this is without taking any discount from the developer into account as it was off plan and not actually completed.
Over the many years OPAC has been involved in overseas investment property we have often seen returns from 40-100% for investors who have taken our advice on our carefully selected off plan investment opportunities.
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The second major benefit to only having to pay a small deposit to the developer rather than the entire purchase price is that our investors often buy more than one unit and it is common that one of our clients will buy 2 or 3 and sell all bar 1 property and with the profits made from these sales substantially or even entirely reduce the size of the mortgage required on completion or the extra cash needed to pay the balance due to the developer. The client then has a property that is worth substantially more than they paid, that has been paid for by the growth of the other properties and can now start to generate a very healthy income stream by way of either long term or holiday rentals.
You must be aware that when purchasing an off plan property because there are no title deeds for the property as it has yet to be constructed it is not possible to raise a mortgage on the security of the property, so deposits or stage payments have to be funded via savings or as the majority of our clients do by remortgaging or releasing tied up equity from their existing property or properties in the country of their residence.
The key factors in ensuring that a short term investment strategy is successful are a low initial price, good property location and orientation and a genuine and viable demand for completed properties in that area to enable you to successfully sell on prior to completion, OPAC clients can market their properties either through OPAC itself or via other real estate agents, web portals or in cases the developer again themselves and again by our strict criteria of only selecting the very best value opportunities in high growth/high demand areas we reduce this risk considerable for our clients.