Are investments with a developer buy back attractive propositions?

In the past, we haven’t given much thought to developments by partner developers and marketeers when it came to investment opportunities that offered a ‘developer buy back’ scheme. In fact, we sometimes stated that it could be an attractive proposition in certain scenarios e.g. With student pod investments that do not have a defined exit strategy. However, upon reviewing some recent emails that we’ve received from marketing agents and vendors, it’s become strikingly obvious that almost all investments that offer such a buy back policy give of a feeling of one thing: desperation. That may sound harsh or that we are trying to be confrontational, but as a property sales group, that’s how it comes across.

Let’s put it like this: If you were selling your 3 bedroom semi-detached family home and informed the buyer that you promise to buy it back at 125% in the next three years, what would be your initial thought? Ours would be: Why do you feel the need to give a buy back option? It’s as simple as that.

Property investment buy back options are a poor man’s insurance

It’s obviously a sales tool that agents are using to  dress up the sell, but we have received one particular development in Sheffield from EIGHT different agents in the last four weeks. Only in the last week have we seen the addition of a buy back policy at 125% after 5 years. In the same email, it claims that there are “only 9 units left”. Yeah, sounds super duper. Let’s break it down:

1. The potential buyer is being told that apartments in this town will grow by 5% per annum over the next five years? Whereas in the last five years, we’ve seen annualised negative growth in the flats and apartments sector since 2009? (Source: Zoopla)

2. Why does a buy back need to be offered? Does the market not offer enough confidence that it can be sold to the market? If an artificially created exit option is created, does that not mean the product lacks security? It’s insurance that shouldn’t be required in a normal scenario.

Are there any plus points of developer buy back schemes?

The developer or sales agent is offering a buy back as a sales tool. Their job is to sell the product. We have seen buy back policies being offered by relatively new companies with domain names registered in 2013 offering a “10 year buy back policy”. The domain name is 1 year old, but they anticipate being here in 10 years time to buy the unit back from you at 150% of the price you bought it at. Are you sold? It is astounding the number of clients we speak to who are ‘sold’ on this concept and it’s usually on student pod investments or hotel room investments that offer very little flexibility and natural, organic exit strategies; it’s normally in these products that an artificially created selling option is created. However, we think our clients should be particularly cautious when developers and agents are offering buy back options on town centre new build apartments and houses.

Remember the old property investors saying: You make your money when you buy, not when you sell. Do your due diligence wholeheartedly and you won’t need to bother with the gimmicks such as buy back policies.