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Tips for buying “off the plan” property
By: Whitehouse Capital Partners
If done correctly, an off the plan purchase can be a very rewarding and lucrative experience and can assist investors in creating wealth through property investment.
Critical to success in buying off the plan is to do your homework and research – read read read! Don’t rely on other people’s opinions; look for the hard unshakable facts. There are a number of property research houses that offer market research, some of these charge, others offer free research. All product that Whiterock promote is extensively researched from a macro to a micro level with all information sourced, making it easier for our investors to gain a better understanding of the market that they are considering investing into.
Research and due diligence are critical and I would advise prospective investors, for projects in their state and interstate, to research the market, as well as stock in the market, to get to know the suburb and location as well as the demographic of the suburb.
Items to consider should include rental yields; typically rental yields should be around 5.2% (as a rule of thumb), however these yields may not always be achievable. Melbourne currently offers investors yields of between 4.5 and 5% , Sydney typically offers yields slightly higher at 4.75 – 5.2% and Brisbane yields are typically 5 – 5.5% for off the plan product.
I always advise investors to request research, ask the vendor or marketing agent to provide you with sales evidence in the area to ensure that the pricing is market related. Too often people get so caught up in the hype and are scared to miss out on an opportunity that that ignore these fundamentals.
There is nothing wrong with diversifying your investment portfolio interstate as there are benefits to be had from a well diversified portfolio
A 10% deposit could possibly double in 2 – 3 years should the value of the property increase by 10%. Should you use a deposit bond or bank guarantee your returns can be even better.
Don’t ever be sold a property on the basis that you will be able to sell on at a profit immediately on completion. Property, like any investment can move up or down in value and we always advocate a medium to long term hold. Many investors have been burnt by buying and expecting to sell immediately it is completed. Beware of agents that advocate a “quick flick” as a sales strategy to get you to invest.
Check to see if the developer has funds secured and the capacity to complete the project. If the project does not complete, then your deposit should be safe if it has been held in trust. Your loss would in this case be the opportunity cost of the project not completing. The cost a deposit bond may be forfeited if the project does not complete.
Be aware that the project may complete earlier or later than expected due to unforeseen delays.
Avoid being taken up the by all the hype surrounding the marketing.
Plan ahead: have the finance ready in time to complete the sale and organise for the management of the property on completion.
Consider the property cycle when buying off the plan. Each state may be at a different stage of the property cycle. You want to consider where that particular market will be in a few years time when your property completes.
Tips for buying “off the plan” property
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