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.
- 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.
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