This is a question that comes up all the time, and this technique was a hugely popular trend in the early 2000’s before it crashed with most other things in the financial meltdown of 2008.
There was a time when you could buy a new build property with just a £1000 reservation fee and as little as 5% deposit on exchange (there were even examples as low as 2.5%) which was a very small amount of money for investing in a property that was being built and could have been anywhere from 2 to 5 years away from being complete.
Example; you could exchange an off-plan property at a list price of £300,000 for a deposit of £15,000 and it would not be ready for another 2 years. During that time the property market was expected to keep appreciating and a year later the value of the off-plan property would rise to let’s say £400,000. This would mean that you would have a paper profit off £100,000 by just investing £15,000 for a year and also not having to pay any stamp duty because you did not complete on the transaction. You could then easily sell this on with a traditional agent and pocket the profit and repeat.
If the market didn’t rise or you could not find a buyer the risk you had was that you would have had to complete on the purchase and buy the property or sell it at a loss below the value you purchased it for. A number of people were caught out when the market crashed as they could not get any lenders to lend and therefore had to default as they did not have the funds to finalise the purchase.
Today’s market is a little different and is nowhere near as lucrative. New build prices in London are punchy as the market has risen significantly and also the quality of builds and the types of schemes on offer are of very high quality. The deposit required in most cases to exchange on a new build property is between 20-25% and prices can be anywhere from £400,00 to £5,000,000+, which makes it a very risky strategy if you are putting down £80,000 to £1,000,000 in deposit to just get back a small return as the market is not moving as fast paced as it did in the 2000’s.
Todays market is very steady and stable and has been seeing gains of single digits annually one the last decade rather than the double digit growth in the naughties. There are still plenty of investors who are attempting this strategy to flip before completion however, there are higher risks and there is a much higher chance of having to complete on the final transaction if the developer serves you with notice. Its not a strategy that I would recommend or advise on going for in todays market as it is very risky and carries very little upside gain for the level of investment you are going to invest for the period.
There are much less riskier opportunities within the property market and you should try to stay clear of this strategy unless you can absolutely complete and carry out the final purchase if needed.
As always if you have any questions feel free to ask in the comments or DM me and I’d be happy to answer them.