Is Buying Off The Plan Right For You?
Buying off the plan can be a great purchasing strategy for property investors because it allows us to create equity for a small amount of money upfront.
In this article we explore what buying off the plan is, and what factors you need to consider in order to go through the process smoothly.
WHAT IS BUYING OFF THE PLAN?
Essentially, you’re entering into a contract to buy a property that is not yet built. It exists because of a need to eliminate the debt risk to those involved. In this scenario, developers and builders are required to provide the bank with sales for their development prior to being given construction money.
These off-the-plan purchases guarantee the bank that the market will buy out their risk, so they are not gambling on the back of the developer’s project. Developers always have a certain pre-sale requirement prior to the banks offering money to develop the property.
Generally, a builder or developer will need a deposit of 10 per cent.
WHAT IS THE BENEFIT TO BUYING OFF THE PLAN?
Let’s say you are buying a property off-the-plan for $350,000 (of course, it’s got to be in a good location and in an upward market cycle). In a typical scenario, you’d need to put down $35,000 as a deposit to hold the property. The benefit is that it can take years to construct and during that time, increase in value.
In theory, buying off the plan means that you could pay a lot less for a property now than it’s worth at the time of completion.
YOUR BUYING OFF THE PLAN CHECKLIST
While there are incredible gains to be made by using this type of purchasing strategy, like anything there are also risks to consider. Make sure you have a water-tight contract in place that you’ve had your solicitor look over to remove any room for error.
On top of that, ensure you factor in the following criteria and always do your due-diligence and market research.
Checklist:
- Understand the market cycle for future growth
- Always buy in stage one of a development, as this is always the best price. Don’t consider any other stages because you will have already missed the boat.
- An 18-month minimum time frame allows a property to grow well for profits and with just a deposit down you should secure 100 per cent cash on cash return.
- Always have the plan valued at the commencement, so you know you are paying the plan’s value in the beginning and not the value at the end.
- Don’t get in above your head and only choose great floor plans.
- Always plan to settle and confirm borrowing capacity first, before entering into an off-the-plan contract. Never buy to sell midway through the project’s construction.
IS BUYING OFF THE PLAN RIGHT FOR YOU?
Your property goals and overall risk profile will help to determine your investment strategy, so ensuring you get professional advice is paramount to your success as an investor.
Our coaches often work with clients to assess the different market options available based on your personal circumstances which include factors such as your income and other assets, your financial objectives and your relationship with money.
If you are just starting out on your real estate investment journey, get across all basics by joining us at one of our free property investing seminars.
You’ll hear from real estate experts who will be able to explain which property investing strategy is right for you.
Recent Articles
The Equity Tactic For Excelling Your Property Portfolio
While long term we know that cash flow is dependent on a good rental income, capital growth is the quickest way our property can pay us back. This comes down to having some smart tactics to get the most out of every dollar of value in our investment properties – something we like to call equity lock.
Are You at Risk of Losing Millions?
Considering that all major Australian cities are coastal, and most of the richest neighbourhoods are beachside, the growing threat of severe weather incidents due to global warming throws a serious spanner in the works when considering where to buy and invest. If you’re a climate change sceptic, we’re not here to judge. But that position isn’t going to help you if the institutions you rely on to protect your assets won’t have a bar of your $3 million beachfront house.
The Best Home Loan for Property Investors
Deciding on the right loan structure as a property investor, is a little bit like choosing the right outfit on a first date. It depends on what stage of life you’re at! If you’re new to the game, something a little daring might work best. Later on, you might want to play it safe. It’s the same for property investment and the stage you’re at reflecting how risky or safe your loan structure needs to be. Here we weigh up the pros and cons of principle and interest loans vs interest only loans for property investors.
The Three Golden Rules of Selling an Investment Property
Rules are an important part of life. And rules in most cases, are really just another word for common sense. They give us a clear framework around many important aspects of life, so it’s no surprise when it comes to selling your investment property, there’s a number of rules you need to follow in order to get the best result.
If you want to know when to sell an investment property, or even if selling an investment property is a good idea, all you have to do is read the rules.
Use Debt To Create Wealth in 3 Simple Steps
Most of us were raised with the idea that debt is bad. Debt drags you down. Rich people are never in debt.
While that may have been true for our great grandparents, it’s no longer the case. Debt is one of the keys that can unlock future wealth as a property investor. The more good debt you have, the more income you can create.
But, before you go out and put yourself $1 million in the hole, let’s talk about the right kinds of debt. The debt that’s going to lead to success, not ruin. This is called…
Harness Data To Help Guide Property Investor Profits
I’m sure you’ve heard – data is the new currency. It’s the next big thing for business and it will be a catalyst for driving the world forward over the next few years. Learning how to harness the power of data in property investing, will be a secret weapon all investors can use to create more wealth. So, what is data? It’s information, insights and predictions that property investors can use to help them make smart property purchases.
A Lending Boom Is Coming Are You Ready?
After a lot of bad news over the past 12 months – thanks a lot COVID-19 – it’s nice to be able to kick off 2021 with some good news. There’s going to be a lending boom which, if you have your property investment strategy in place, is going to make your life a whole lot easier so you can build your property portfolio faster and cheaper.
What Is the True Value of Your Investment Property?
Like a fine wine, the value of property gets better over time. Traditionally, the more time you have an investment property, the higher the value will rise.
However, unlike your favourite Shiraz, property values can go up and down, and up again.
Getting to know how, why and who is valuing your property can help us understand what property to invest in.
There are three ways to value a property – and three very different people doing the valuing.
The 3 ‘Big Rocks’ of Property Investment Success
What are your Big Rocks this year? What are your Big Rocks for your property investing journey?
If you’re scratching your head and wondering if you’ve accidentally stumbled across a blog for construction workers, bear with me.
Big Rocks is a concept often used in business or life coaching to essentially describe your priorities. The theory is, if you don’t have clear priorities, or if you have too many, chances are you’ll let smaller issues distract you and ultimately fail in your goals.