6 useful tips on investing in apartments off the plan
Many Australian property investors are cautious of buying apartments off the plan. However, if know what you’re doing such a property may have a higher rental return, lower maintenance costs, lower vacancies and several other advantages over existing properties.
The key to success is finding an investment that minimises the risk inherent in buying off the plan and maximises the advantages.
By the time you settle you could be buying the property for far less than it’s worth.
1. Get in as early as possible
When buying off the plan you’ll be able to secure a property at current market value for a deposit as small as 10 per cent. Construction may take two years or more, during which time the market value of the property could increase. That means by the time you settle you could be buying the property for far less than it’s worth.
With that in mind, usually the earlier you buy the property the better. At the start of the build developers usually need fast early sales, so the first group of properties available will often be the cheapest. Later they may increase the price to make up for lost profits during that initial stage.
2. Choose your property wisely
Another reason to get in early is because usually the best properties in a development are the first to sell. If you’re quick you may be able to select an apartment or unit with a better view, more sunlight, or in a quieter spot – all at the same price as other, less prime, properties.
If you find your property attractive, then tenants will think the same. That could make it easier to tenant, reducing vacancies, as well as increasing its rental yield and capital value.
Furthermore, you should be very careful where you purchase an investment. Only buy in growing areas close to infrastructure and amenities, where demand outweighs supply. That way you can be more confident that your investment will increase in value over time.
Only buy in growing areas close to infrastructure and amenities, where demand outweighs supply.
3. Make the most of depreciation
When you take possession of the property it’ll be brand new, and as it gets older its value is assumed to decrease. The decreases in value of both the assets within your home (light fittings, taps, stoves) and the construction itself can be deducted from your taxable income to reduce your tax bill. This is known as depreciation.
Unfortunately many investors miss out on this useful allowance, paying more tax than they need to. Don’t make the same mistake and always hire a quantity surveyor to asses your property and prepare a depreciation schedule for the build itself and the assets within it.
4. Thoroughly review the contract
Before signing the contract to buy off the plan always seek professional advice from a contract and property law professional. Property law expert Despina Priala spoke to Your Investment Property, recommending that you check your contract for:
- A cooling off period: how long is it and what are the conditions?
- Adequate plan disclosure: are you happy with the level of detail the developer has disclosed?
- Deposit: who holds it, and who earns the interest on it before settlement?
- Inclusions and warranties: are you protected if the developer makes a detrimental change to the property during construction?
- Finance: are you adequately protected if you’re unable to secure finance?
- Defect: is the developer liable to remedy all defects after construction is complete?
- Completion: what happens if construction isn’t completed on time, or at all?
With an airtight, professionally vetted contract in place you’ll minimise your risk exposure and protect yourself if everything goes pear shaped.
Check the developers website and find out if they’re building themselves or using a third party.
5. Research the developer
Always check the history and background of a developer before buying property from them off the plan. The best place to start is Google – search their name, on both the search and news tabs and look for articles about disputes, or court actions they’ve been involved in.
Check property forums and online message boards to find honest feedback from old customers and if you find anything damning reconsider your purchase. Check the developers website and find out if they’re building themselves or using a third party construction company. If they are using a third party conduct the same search on them to make sure they’re able to deliver.
6. Crunch the numbers
If you get in early, buy the best apartment for a song and have an airtight construction your investment can still fail if you haven’t crunched the numbers properly. Look at similiar properties in the area and speak to local real estate agents to get a good idea of the annual rental income the property will generate.
Deduct all costs from that number including: body corp fees, mortgage interest, maintenance, property management fees, and possible vacancies. Work out the net rental yield and consider if it’s a good enough return to justify the risk.
With a little expert advice from a local real estate agent and a lot of caution, buying property off the plan can be an incredible investment.