In today’s competitive real estate markets to attract buyer is a challenging task and requires creative outside box thinking. Collapsing stock markets left millions people without life savings, but that wasn’t the end as further global problems were continue to impact wealth of the people. For those who got just a fraction of their investments back life left a hard lesson, however appetitive to gain lost funds become even stronger. The aim of this article is to look into properties under 100% finance scheme and to assert areas to be agile before purchasing begins.
Developers due diligence: why necessary? As investor no matter which way you invest: cash, mortgage or SIPP stay alert and well informed who is delivering you property. It may be an incident or not but none of the well established developers are offering a 100% finance schemes. They may offer 50- 60% LTV or higher, but not 100% as they understand value and cost of the capital. Assess developer from every possible angle. History- how long developer is in the market and how many projects he delivered and what was the feedback on the projects. During crisis many local developers stepped into new markets without local expertise or building standards – you do not need a property which do not comply with local regulations and can’t be occupied. Check every open property forum, ask for testimonials, use different search engines for data (Developers SEO service may eliminate negative feedback from major search engines). Where developer is a public company profit and loss accounts can be access freely, but where private ask for a escrow account details to lodge your deposit, be aware of the offshore accounts as different capital protections laws operates there.
Why 100% finance scheme? The easiest way, to risk with other people’s money; in this scenario we will look into 100% finance scheme for off plan developments only. This financing method is popular in emerging economies or tourist hot spot destinations between new market developers. It is very attractive as with £4000-£8000 you can buy a unit which is under 100% finance. From the first point of view you need very little capital to invest, however the main thing to remember that property you purchasing is still off plan. In most cases it is structured as 30% non-status developer’s loan and 70% subject to status from local banking partners. The beauty of this is you still need to submit all the documents for mortgage approval; therefore 70% approved mortgage will become a 100% finance to pay for entire construction and maintain 30% developer’s profit margin. When mortgage is approved, investor takes a full burden for a property that will be completed in a foreseen future. The bright side of this is that banks will let developer to withdraw money only when certain milestones are achieved, at least in this way you capital is protected.
There are no magic money making schemes, where you pay little or no deposit and in 2 years time you will make 200% ROI, to believe such investments is naive and before making any decisions please analyse with scrutiny how the scheme works.
What happens with my deposit? The ugly truth about it is that it may be used to maintain current developers sales and marketing activities, that’s why it is so low to drag more investors into this scheme. Before you pay your deposit, get the details where it will be used.
Who owns the development land? Extremely important fact to analyse and understand tricks that some of developers may use. Where developer is making a Joint Venture with a land owner, usually a portion of your borrowed mortgage will be passed to the land provider, so you must be crystal clear on land title your purchasing property holds. Where developer fully owns land risk is greatly reduced and in case of bankruptcy your capital will be locked in land. So ask for a proof of land title deed translated in language you can easy understand. Each deed will carry a specific number, so take a further step and call local city hall for confirmation in writing.
Planning permission granted? Usually it takes a brief proposal outlining benefits of the future development and authority will give you a planning permission in principle. It is not the same as fully granted permission. For local authorities to grant a full planning permission developer must submit a full planning, environmental, architectural analysis on the proposed development and it may take up to 6 months to be assessed and approved depending on the country. Make sure your developer holds full planning permission before you pay your deposit as discrepancies between drawings and environmental managements may delay development for many months.
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