Leveraging off-plan investing for wealth creation in real estate

Off-plan investing strategies for beginners

The off-plan investing in real estate is a strategy that seasoned investors use to make incredibly high profits in the industry and they know that at the same time so are the risks.

As an upcoming or newbie investor, don’t get caught and/or hung up on this fact – learn the ropes and what works for you.

Should you get someone to guide you through the backend of how pre-construction investing works, you will find that the greatest highs and lows (on all counts) which can be found in the field of real estate investing lie beneath the umbrella of pre-construction profits and many of the big names we know so well in the real estate investing field have made and are still making much of their fortunes through speculation and pre-construction sales.

Before I go further with this article, let me define the term “Pre-construction sales” in a simpler form so that you can understand it too.

“This is the act of selling and/or buying into a property before it is built and with only the plans available for inspection.”

It’s also better known as Off-plan investing in Nigeria

And to be honest, some of us totally love the idea, ideals and potential that off-plan investments have to yield, thus we are able to know/identify the risks early on and seek to prevent them.

Because given the economic nature of our society, off-plans present a unique opportunity. But as usual and as has been done from the start, this is a reminder – do note that it can all be gone due to the associated risks when you are not as known as you think you are and/or ought to be.

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When I speak to potential investors who want to be successful with this model of investing, the most reassuring way I have had to put it when explaining is this.

“If you have the heart and soul of a gambler or love extreme sports and activities such as skydiving or bungee jumping then you may be the ideal candidate for off-plan investing in Africa”.

While the potential for profits in this particular corner of the real estate market is unconventionally high the risks are also abundant.

Off-plan investing is speculative real estate at its very best and as we have all learned in the past when the bubble bursts in a specific market those who have the most invested are the ones who often lose the most heavily. So watch out for this when you are getting started and involved.

As far as what pre-construction real estate is there are a few interpretations of how it works. The first is also the most obvious.

1. You are buying real estate at some point before construction is complete. In hot markets, you will often need to purchase the units before ground has broken on the project in order to get the lowest price for your investment and the highest potential payoff for your pockets. Once you’ve purchased the unit or units you plan to sell you then begin seeking buyers for those units.

In markets that are on fire like the Lekki-Epe corridor of Lagos State, it is not exactly uncommon for an off-plan property to change hands and have a different owner by the time the unit is complete.

Whilst each person will earn something for their efforts; those who got in earliest often takeaway the largest piece of the pie.

So real estate investors buy these units at rock bottom prices because essentially they are paying for the idea of the unit (which hasn’t at this time been built) rather than a brick and mortar property. As the project draws closer to completion, particularly in markets where real estate is in high demand, the value of the property rises dramatically ending in profits from value appreciation for those who have managed to hang on.

A number of things can go wrong on a project such as this not the least of which is that the demand for housing will be met before the unit is actually built.

This has happened and continues to happen. Imagine that you are constructing an apartment block of 6 units and a prospect visits to see the site and plans because they are in your age bracket.

Some of the risks that can happen and should be looked out for when investing this way include inflation, recessions, business closings, economies collapsing, and tragedies premised on construction malpractice or inadequacies that can occur before the property is complete. All of which will leave everyone who has invested in the project holding a little bit of the bag and losing their capital, time, expected incomes and possible cash savings as were used for the investment.

Another very important factor to heed with off-plans is the wait time for delivery & quality of finishing.

For those who have to make it through successfully, they will tell you that it’s a windy road of possibility that can pay off or not.  

Should we agree to call this the 100% investment strategy?

Please share your thoughts

Till next week with another article, stay invested.