New property investors are often intimidated by the process of buying an investment property “off-the-plan”,
however knowledge is a powerful tool in that not only can it help you navigate the purchasing process, it will help alleviate the apprehension that often comes with trying something new.
An off-the-plan strategy is a great way to buy an investment property
at today’s value, without a huge outlay of cash. To steer clear of any potential pitfalls, use the following tips as a guideline when purchasing your first (or next) off-the-plan property:
1. Grasp a thorough understanding of the market cycle and its ability to grow by considering the six market drivers - infrastructure, yield variation, supply and demand, population, economics and demographics.
2. Go after low density, boutique properties because:
- High density buildings are harder to get financed
- Profits will be greater in structures with fewer than 40 units
3. Buy ONLY in Stage 1 of a development. This is where you’ll get the best price for the investment property
- buy later and you’ll reduce your profits significantly.
4. Don’t count on the agent’s idea of the property’s value. Get a “valuation summation” done at the commencement of the contract; not later in the process. The value will include the cost of the land and the building.
5. Buy below $600,000 because of the wider appeal in the marketplace - just in case you decide to sell. The “meat and potatoes” range of around $200,000 to $500,000 is where you want to be.
6. ALWAYS be prepared to settle after completion. Don’t sell half-way through construction. Have your financing arranged before entering into the contract.
7. We recommend that you purchase an off-the-plan under a 12 to 18 month contract. Since you’ll only have a deposit into the deal and the property value should rise, you should be able to secure a 100% cash-on-cash return.
8. Don’t miss out on opportunities because your deposit is tied up in a deal with a long settlement date. Plan ahead and make certain you won’t need your deposit to fund any great opportunities which might come along while you’re waiting for settlement.
9. To obtain funding for their projects, developers are required to pre-sell a certain number of properties. This fact can benefit you as a buyer because you can ask for additional and/or better inclusions as part of the process - this will help differentiate your property from others in the development; a difference which just may have a favourable impact on your rental yield!
10. Timing is important. Buy an off-the-plan property
in a market which is set for growth, so that while you’re waiting the 12 to 18 months for settlement, your property can increase in value without your having to cash flow it from your back pocket!
As you can see, having just a bit of knowledge in your toolbox about how to buy a great investment property
using an off-the-plan strategy can help you avoid costly mistakes, and reward your efforts with some great investment property additions to your investment portfolio.
Have you had success using the off-the-plan strategy? Please leave your comments below, we’d love to hear from you!
Sam Saggers is CEO of Positive Real Estate and Head of the buyers agency which annually negotiates $250 million-plus in property. Sam's advice is sought-after by thousands of investors including many on BRW’s Rich 200 list. Additionally Sam is a published author and has completed over 2000 property deals in the past 15 years plus helped mentor over 2200 Australian investors to real estate success!
Read more expert advice articles by Sam
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.
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