Buying Investment Property Off the Plan
    • 1 November 2022

    Buying Investment Property Off the Plan

    Buying a property off the plan involves purchasing a property that is yet to be built, and your impression of the final property is often based on a drawing, elevation, and a set of plans. One thing you will know for certain is the location where your new property will be built.

    Many property investors wonder whether they should consider buying an investment off the plan. There are many pros and cons to this decision, and like any property investment, you should do thorough research before you make your final choice.

    Investment Property Off the Plan: Pros

    Purchasing for less

    One of the biggest pros to buying investment property off the plan is that you can often purchase the property at a reduced price. As the developer/builder may be looking to encourage initial investment (seed investment) before they can obtain bank finance to complete the rest of the build, investing early can get you a great deal in a highly sought-after area.

    Less stamp duty

    Depending on the type of property, how the deal is structured, you may have less stamp duty to pay on the land component of the property.

    You will be the first owner

    Buying off the plan will ensure you are the first owner of the property, there will be no wear and tear on the property, and there will be a far lower chance of hidden costs in the form of property repairs. You will also have access to full Deprecation claims in most instances.

    You could make a nice return

    If the property market changes during the development stages, a rising market could play to your advantage. Recently, a Property Club Investor made $120,000 in equity on settlement day because the property had grown so much in value while it was being built. The original contract price for the property was $520,000 but when it was finished, it was valued at $640,000. Instant equity gains for that Investor!

    Investment Property Off the Plan: Cons

    After it’s complete, the value of the property may be less than what you paid

    Purchasers can get stung when the final valuation of the property does not match the price. If, for example, you signed a contract to purchase an off-plan property for $450,000 your bank may decide that when it is built 18 months later that its value is only $400,000.

    Your bank is going to be asking you for a bigger contribution than what you had planned and because your ‘subject to finance’ clause has been exhausted, you will need to find a way to come up with more of a deposit.

    You won’t be able to immediately return income on your investment

    If there are any issues with the pace of construction, you may be left paying interest on a deposit and not returning any income to cover it. If a project gets delayed and delayed, this wait can be a long time and can restrict the growth of your portfolio. And, if for whatever reason, you can’t finance your property come settlement date, you lose your deposit.

    Should You Purchase an Investment Property Off the Plan?

    I usually don’t recommend that first time investors buy off the plan, as navigating some of the hiccups that can happen throughout the process can be difficult for even the most seasoned investors.

    More savvy investors may choose to invest in property off the plan, and can protect themselves by:

    1. Negotiating a low deposit (as low as $1,000),
    2. Careful contract clauses that state if the valuation comes in short, they can either walk away or renegotiate the price,
    3. Having a good financial buffer in place.

    In my work as a Property Investment Mentor with The Property Club, I protect my members by ensuring as low a deposit as possible is required (commonly only $1,000), adding special clauses in the contract to protect my members, and encouraging them to build financial buffers.

    Learn More From Property Club Mentors

    If you are wanting to learn more about the pros and cons of buying an investment property off the plan, or investment properties as a whole, Property Club has experienced mentors that can help you along every step of the property investment journey. Learn more or join our club today by getting in touch with our team at enquiries@propertyclub.com.au.

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