When considering a new build property investment, evaluating the right funding options is crucial for maximizing returns. New builds, also known as 'off the plan' properties, typically come in two primary packages: the 'land and build' package and the 'turnkey' package.
Last week we covered off Turnkey package here. Be sure to read that in addition to this here.
This week we explore why the Land and Build package stands out as a compelling choice.
Understanding Land and Build Properties
As the name implies, this approach consists of two distinct components: securing the land and the building (construction) of the property. This method allows prospective investors to take a structured approach to their property investment.
One major advantage of the land and build package is the potential for cost savings. Although it may require more upfront planning and coordination, Land and Build packages can often be more cost-effective than complete turn-key funded builds. Additionally, the ability to stagger payments throughout the construction process helps align costs with key development milestones. However, it’s essential to be prepared for the increased management and effort required to handle the construction process and the corresponding mortgage drawdowns.
A key benefit of the Land and Build approach is the ability to secure lending approval early in the process. This approval is generally tied to the settlement of the land rather than the completion of the property. If your financial position is going to change, you can use this build option to secure a property prior to this.
Purchasing a Land and Build
Choosing the Land and Build option starts with signing a sale and purchase agreement for the land, which includes a due diligence clause for assessing the property before commitment. This agreement typically covers basic details like site size, while a separate building contract with the builder outlines construction specifics, including plans and specifications. It's crucial to have a lawyer review both agreements.
Once due diligence is complete and you're ready to proceed, instruct your solicitor to notify the vendor's solicitor for "buyer unconditional." An initial deposit of around 10% is required, the land portion is held in trust until settlement, with the build portion going to the builder for initial costs.
You must settle on the land before construction begins, usually within 1 to 3 months after the initial deposits, depending on obtaining building consents. After settlement, you'll handle monthly mortgage payments for 6 to 9 months until the property is built and rental income starts. Payments to the builder, known as "staging" or "progress" payments, occur at specific construction milestones, typically totalling 6 to 8 payments.
Thorough due diligence in selecting property is vital to avoid extended build times and increased holding costs. Partnering with equiti ensures that the builder you purchase with maintain high standards.
In conclusion, the land and build property package offers a rewarding investment strategy for property investors. By understanding the steps involved and preparing effectively, you can confidently navigate your investment journey, ensuring you make a smart decision for your portfolio. Whether you’re a seasoned investor or looking to expand your holdings, the land and build option is certainly worth exploring.
If you’re ready to make a property investment, we recommend reaching out to your mortgage adviser to discuss your lending options. This allows you to act swiftly when a promising opportunity arises. You can also contact our team at equiti, and we’ll assist you in discovering properties that align with your investment criteria. Financial advisers, feel free to share this article with your clients to aid them in making informed decisions about their property investments!