July 20, 2021

How can you make 28.6% Returns through property?

How can you make 28.6% Returns through property?

The short answer is – by capitalising on off-plan leverage. 

When you Reserve a property off-plan you have the advantage of securing a brand new unit and Locking In the price at the time of sale. This offers an incredible opportunity to secure leveraged gains, as we shall now explore. 

How does the process work?

When buying an off-plan property from a developer you will be required to pay a ‘deposit’ during the build period, this forms your equity in the property. For example, if you were to invest with Prosperity Wealth the total deposit required is 35% of the property value, typically paid in monthly or quarterly instalments. Having Reserved the property you will then proceed to legal Exchange of Contracts. Exchange of Contracts between you and the developer means you are making a commitment to purchase the property at an agreed price, and the vendor agrees to sell the unit at said price. At this stage your financial and legal interest in that property asset is noted on the Land Registry. Thus the sales price of that property is locked in. 

Average UK house prices have increased significantly, and supply and demand fundamentals mean that prices are set to continue rising. On top of this broader market trend we encourage our clients to seek out specific town or city markets with distinct price growth drivers. These can include rising employment, infrastructure investment, a growing population, or acutely constrained supply. In such markets prices in recent years have in some instances increased by over 5% per annum. Prosperity Wealth specifically target development opportunities in such growth centres and consequently offer our clients access to markets with average capital appreciation performance. 

Off-Plan Leverage

Having ‘locked in’ the price of your property, you will benefit from 100% of the uplift as prices rise whilst having only 35% of the property value invested. This is a form of leverage. 

The formula for calculating this Return is as follows:

1. New Property Price – Original Property Price = the Increase in Property value aka ‘Return’

2. The Total Deposit you have placed is your ‘Investment’, in this instance 35% 

3. Return on Investment =

Return (1) / Investment (2) = Return on Investment (multiply by 100 to express as a %) 

Worked Example:

  1. New Property Price £105,000 – Original Property Price £100,000 = £5,000 Return
  2. Total Deposit aka ‘Investment’ = £35,000 (35% of the property value)
  3. Return on Investment = 

Return £5,000 / Investment £35,000 = ROI 14.3% 

The example above outlines that when you have only 35% of the property value employed as a deposit, a 5% property price increase represents a 14.3% return on the investment. However, if you had invested 100% of the property value and the price increases by 5%, you will have secured only a 5% return. This is the power of Off-Plan Leverage. 

This concept leads to the real question: 

What Return is your money achieving in the bank at the moment?

Available Now:

We have three bedroom freehold houses at our Norfolk development available for just £272,995. The current open market value for comparable completed properties is circa £299,995. If you were to Reserve a property today you could potentially secure over £27,000 of gains*. This is an incredible return on capital employed. 

Most investors focus solely on yield and price growth without considering the powerful effects of off-plan leverage. 

To learn more about how this could work for you, or to receive the information on the Norfolk housing development, please get in touch with Prosperity Wealth and Developments.

Disclaimer. The information above is expressed as opinion, not fact. Broad Oaks Three bedroom house price accurate at time of distribution. Estimated gains based on marketed list prices of comparable properties in the immediate vicinity of Downham Market. Market comparables research based on Rightmove price assessment. Estimated gains are dependent on house price movement and are not guaranteed. Property prices can decrease. Potential buyers should conduct independent market research or liaise with property, legal, and accounting experts for investment advice. 

Content by Samuel Richards