The biggest problems with making a decision to buy off the plan
The biggest problems with making a decision to buy off the plan
This article from has some fantastic tips for buying off the plan – whether you are an investor or an owner-occupier, it’s certainly worth a read.
MAKE CERTAIN YOU HAVE RESEARCHED THE DEVELOPERS REPUTATION
Research the backdrop for the developer and its particular track record. Have there been court against from the developer?
Is there a history of delivering exactly what happens to be guaranteed and disputes which can be settling and neatly?
Banks tend to be strict on who they provide finance too.
The online world is an instrument that is good research, to check out blogs and newspaper articles. Never judge a developer exclusively by its internet site, and ensure there is a working office where you can meet individuals face to face.
It is also an indisputable fact that it is good to visit the property website and look at the area. You will probably find various other constructions within the precise location, which may influence your view. It’s also wise to very carefully examine the display house, models and programs along with the fixtures and accessories.
WEIGH UP LEVERAGED INVESTMENTS CAREFULLY
In times, past many savvy investors would buy apartments off the plan, making only a deposit of 10%, and then on sell them before settlement to make an income this is certainly profitable. When the GFC struck these assets being leveraged made many individuals broke. Some speculators are tangled up in court with developer chasing their cash on units which have fallen in value, a value often a lot less than what was the agreed purchase price. This investment method is for those who are happy to simply take dangers that require a sound knowledge of residential investment.
Leveraging is actually utilizing various other people’s money, either as a home loan from a loan provider or occasionally from the developer, to improve the potential gain from a property investment over a fixed period of time. What separates investment from a long term investment is it must have a conclusion date that can be determined. The reverse of taking a mortgage out to buy your house, paying it well over 30 long years and having the property.
For example, if you buy off the plan and put a $10,000 deposit on a $100,000 property, you would need to borrow $90,000. If the $90,000 borrowed costs you 5% interest, it would add $4,500 to the entire cost. Therefore the $100,000 investment is, in fact, $104,500, if you sell within that one-year period. To make a profit, the property must be sold for more than $104,500. If the property sells for $110,000, you have made of profit of $5,500.
The revenue is impressive when determined as a share gain on the capital, nevertheless be aware: in the event that property sells for $102,000 it will instead cost you money than rendering it.
CAPITALISE ON STAMP DUTY CONCESSIONS ON OFFER
Purchasing flats and townhouses off the plan frequently lures exemptions or decreased stamp duty for property acquisitions in states across Australia. Each Australian state and territory have its concessions and bonuses, but you are eligible for a few stamp duty discounts or waivers if you are a first-home buyer.
The schemes mostly provide support for individuals purchasing their homes as first home buyers.
From time to time, projects have now been launched for upgrading purchasers geared towards stimulating the building of brand new homes. Some schemes have required purchasing off the plan before construction commences, and other subsidies part of the stamp duty after construction begins. The schemes typically have eligibility demands regarding the top price precludes consideration.
Some governments require stamp duty payments after exchange documents are signed, but other people delay the repayment of stamp duty before the registration associated with the property until the strata plan has been registered. To calculate potential stamp duty costs feel free to go to our website for research that has several useful calculators for this purpose.
4.TAKE RENTAL GUARANTEES WITH A GRAIN OF SALT
It is a good idea to treat rental guarantee with suspicion and ensure that you do the number crunching to be satisfied that they are genuine and stack up
Current rental guarantees are in the order of 5% to 7%. If an investment has a gross return of 6% and the developer promises $300 a week rent that would put the purchase price at $260,000.
But if the market rent is, in fact, $250 a week, the property is worth $218,000. This would have you paying 19.2% over the market value. The developer only has to pay $5,200 in total over two years to guarantee the $300 a week rent and the company would pocket $42,000 – or $36,800 net – on the sale price.
TAKE INTO CONSIDERATION RISING AND DROPPING VALUES
All purchasers must determine what their needs are. Owner-occupier’s are very different to people and want very different things from a home purchase compared to someone who is looking for an investment.
We would never suggest to our clients to buy for the short term as it is not a sound investment strategy. We also recommend holding onto the property over the long run.
Investors, which accounted for about 70% of product sales six years ago, once dominated buying of the plan.
However, the wave is switching.
Owner occupiers have become a lot savvier when it comes to buying off the plan than they were a few years ago. A large reason for this is that with an off the plan purchase you can have a lot more design input that is an important factor for someone buying a property for owner occupation. Emotion is always a critical factor.
The tight residential market in Sydney, where owner-occupiers have seemingly embraced buying off the plan or face never getting started on the property ladder according to research.
In Sydney, there are not many apartment buildings these days that are not already sold when they are finished, so they do not add anything to the available housing stock.
This keeps the market competitive and tight, and owners-occupiers understand that buying off the plan is a reputable way to buy and no longer the sole domain for investors.
However, do not always assume that property prices are going to rise. There have also been cases of people paying far more for a property at settlement than they could hope to sell it for in the current market.
When are considering signing a contract for a purchase of an off the plan property, it’s also advisable to investigate how many other projects are going to be completed over this time framework in identical areas as this may give you some insight on what might happen to the value of the property when it is time for completion.
There could, for example, be a glut of apartments being marketed off the plan our due to commence construction, which could create an oversupply rental situation or reduce values.
Not only can buyers select what they want upfront, they can sometimes make some changes to the floor plans so the property better suits their needs. Almost always the first units to be sold are those in the best positions, such as corners or penthouses. Some ground-floor apartments have courtyards, too. It is first in, best dressed. Investors can be found looking for these units, since they usually bring in a greater rent.
Some buyers may pick up two apartments and amalgamate them into a large three-bedroom apartment, while others may turn a two-bedroom unit into a large one-bedroom apartment. Most developers can offer buyers choices of finishes and a variety of upgrades for additional costs.
A serious chef might want the dream kitchen with the best appliances and stone benchtops, while an asthmatic would probably opt for a timber or stone floor rather than carpet.
Bear in mind, though, that changes to the plan and to fittings and finishes might push up the price, but might not have as great an impact on end value. Also, if it is an investment purchase, consider who is likely to rent it and whether they would pay more for high-quality extras.
DO YOUR DUE DILIGENCE
Nothing can be more important than ensuring that the correct research and checks have been conducted and that you are going into the purchase with your eyes wide open. First, it is absolutely essential to understand the buying process, precisely what funds are required and when you will need them. This will allow you to make an accurate cashflow analysis. It should cover investment and risk.
High potential returns often equal greater risk, and vice versa. Take the time to identify the potential risk, and the returns that you have calculated should be acceptably balanced. It is important to settle for a purchase that suits your financial situation and investment targets.
Be vigilant with money, and have your finance lined up when you put down the deposit. Consulting with experienced Awesome Lending Solutions Broker can help with this.
Don’t be caught out at settlement by not having the finance ready. Something as simple as changing jobs and entering into a probation period can affect your capacity to get finance,” says Albert Waldron, Director of Awesome Lending Solutions & Home Loans.
If you are planning to buy off the plan interstate, familiarise yourself with the laws and taxes of that state. And if you have a friend or relative in that location ask him or her to go and physically see the site since there could be any number of factories or other developments nearby that could impact your decision.
DON’T UNDERESTIMATE THE RISKS
One of the biggest risks is that a developer or builder will go under before completion or that a project will fail to get off the ground, but this should result in no financial loss for the buyer. When you pay your 10% deposit to secure your property it is held in trust either by the selling agent or vendor’s solicitor. If the developer is unable to go ahead for whatever reason buyers will get their money back.
Another significant issue is often the final product. Waldron says the best way to protect yourself from a nasty shock is to check every detail on the sale contract, particularly regarding the finishes. “Most disputes arise from a buyer not being happy with the end product. The best way to avoid this is to be aware of exactly what all of the finishes should be,” he says.
You should look at the schedule of finishes for all parts of the property, including floor coverings, colour schemes and kitchen appliances. Know everything about the interior, down to how many power points there will be in every room. All of this can be negotiated before exchange of contracts and should be included specifically in the contract if you want to be able to enforce performance against the vendor. If a contract is skinny on detail, there may be little room for complainT at the end of the day.
Timing of delivery can also be an issue for buyers of property off the plan. Developers do need flexibility in the sale contract so they can ensure successful delivery of the apartments, and there are many situations that may cause the delivery date to be extended, such as wet weather.
“Become familiar with what is on the contract that will allow the ‘sunset’ completion date to be moved. Leave no room for surprises. If you do not understand the contract, take it to a conveyancer and have them read it and explain it to you. Do not cut costs, because with buying off the plan you cannot see exactly what you are signing up for,” Waldron says.
When it comes to signing the contract you should be completely satisfied with all terms. If you are not satisfied by certain clauses, you should ask to have them amended, though the developer may refuse. The bottom line is that if you are not happy with the contract, you should seek legal advice. If the developer adopts a “take it or leave it” approach, your best bet may be to leave it.
BUYING EARLY CAN HAVE ITS ADVANTAGES
Not only can you often get first pick if you get in early, but there can be sound reasons for buying property off the plan. Before a property is constructed developers look for presales to give to the bank so it will provide funding for construction.
However, you should not rush in to secure an early purchase simply to get a discount until you are satisfied with your investment and the contract you are about to sign.
CONSIDER USING A DEPOSIT BOND RATHER THAN TYING UP YOUR CASH
Buying off the plan will require investor pay a deposit, usually 10% of the purchase price. While developers prefer cash, some will allow buyers to use a deposit bond or bank guarantee instead of requiring cash deposit.
An Awesome Lending Solutions Broker can assist with arranging this for you.
A deposit bond is a guarantee that says the insurance provider will pay 10% deposit to the vendor in any of the circumstances where the deposit would ordinarily be forfeited by the vendor. If the settlement does not occur and the deposit forfeited, the deposit bond provider will seek to recover the money from the borrower. There is no exchange of money in with the deposit bond in place until settlement. At settlement the buyer pays the purchase price in full, and the deposit bond lapses.
The main benefit of using a deposit bond is that savings remain intact, as the cost of the deposit bond is far less than the deposit itself.
The bond is provided in exchange for a one-off fee. According to Albert Waldron, a $50,000 deposit bond for a property settling in three years’ time would require the borrower to pay a one-time fee around $3,600.
BE AWARE THAT YOU CANNOT EASILY GET OUT OF A CONTRACT
A contract to purchase an apartment off the plan is a legally binding document.
Generally, if you don’t proceed with the contract you will lose your deposit and may be pursued by the developer for the balance of payment or for any shortfall should the property be resold at a lower price.
Changes in personal circumstances such as divorce, unemployment, illness or death of a partner are not grounds for legally cancelling an off the plan contract.
You can generally only cancel a contract if the terms and conditions have not been met by the developer or builder.
These may include conditions set out in a “sunset clause”, which usually pertains to a period of time in which the project must be completed and settlement should occur. You may also be able to cancel a contract if the builder has not registered the plans for the development by a set date in the contract.
Off the plan, contracts are incredibly onerous to the purchaser, and we urge buyers to ensure they have arrangements explained to them by a qualified solicitor.
If you have a question or would like to know more about buying off the plan join us at our next seminar or contact me directly, I would love to talk to you firstname.lastname@example.org
Whether you are looking to buy your first home, move home, refinance or invest in property, a mortgage broker can help. Access loans from all the major lenders, get help with paperwork – plus there is no charge for this service.