Buying a home can be an emotional experience for some. However, the first thing I tell most people (especially my wife!) when buying a property, regardless of whether as an owner-occupier or an investor, is to leave the emotions out of the process. Lets face the facts, whether you buy to live-in or to invest, it is ultimately an investment which is the single biggest commitment for most people, and if not done properly, it may cost them their livelihoods.
Buying property off the plan means you are buying a property before it has been built. Most large apartment developments are being sold in this manner today. One of the most attractive advantages of buying off the plan is that you are buying a property in the future at today’s prices. In a strong and bullish property market, this may result in large capital gains before you even move in.
I bought 2 properties off-the-plan in April and June 2009 here in Sydney Australia. One is due for completion before Christmas of 2009 and the other is due July 2010. Despite a soft property market here in Sydney until recently, I am happy to note that prices in these 2 developments which I bought into has increased by about 10% – 15% since I went in. I estimate that I have made a paper profit of approximately A$60,000 since exchanging contracts on these 2 properties just a few months ago. Although I do not plan to live in these 2 properties, I believe the following 5 strategies are key when buying off-the-plan:
1. Reputation of developer ~ This is one of the first things to be cautious and look out for. There are many “fly-by-night” developers who will disappear with your hard-earned deposit, never to be seen again! Do your research and go with those who have a track record of building quality developments. Some of Australia’s best developers are listed on the Australian Stock Exchange and this is credibility plus! Of course, they may also be charging a premium based on their reputation so you need to do your homework and make sure you are not overpaying. Check out their previous developments, finishings used and their locations. You can usually read about them and find out if previous customers are happy with their purchases.
2. Research your chosen suburb or location ~ Ask yourself why you would want to live in this location or what you prospective tenant will see as an attraction. Some typical attractions will include convenience to shopping and public transport and amenities, school and hospitals and local attractions such as beaches and parks. Always compare the price of similar apartments with quality finishes and understand what is the average suburb price to ensure you are not paying a premium or over-capitalising on your investment.
3. Research on the development and your particular apartment ~ Ask yourself what are the most attractive features of your chosen apartment and why would your prospective tenant want to rent your unit? Some typical attractions will include quality finishings and appliances, good layout and style, water views or great aspects for entertaining, access to facilities such as pool, sauna, gym, security, visitors’ parking and conveniences. However, you need to be cautious that these facilities come with added charges such as your strata levies and administrative expenses. These are usually estimates during the purchasing stage and may also vary depending on the final outcome of the development.
4. Negotiate and bargain ~ The old adage “if you don’t ask, you don’t get” is all but very true here. The developer is usually keen to increase sales in order to secure bridging finance from their bankers to fund the development. Once you have decided to take the plunge, get in early so that you have a greater choice of apartments with good floor plans, views, interior style and the like. Thereafter, don’t be shy to negotiate and bargain for “extras” such as appliances, finishings and delayed settlement. As an example, I managed to negotiate only a A$10,000 deposit for one of my properties with delayed settlement, additional air-conditioning etc. With another, I managed to get an extra car space at a substantially reduced price which enhances the property should I decide to sell in future. This is in addition to huge savings in stamp duty and taxes. Some developments also come with rental guarantees and one of my investments have benefited from this for the last 2 years where you save the trouble from looking for a tenant. Be sure this condition is not compensated by a premium on the selling price though.
5. Get a good lawyer / conveyancer ~ Here, I mean a “good lawyer” and not “a friend who happens to be a lawyer”. A good lawyer who is experienced in similar contracts will help you to go through the “fine print” to ensure you are protected and have recourse in the event of default by the developer. A good lawyer will also be able to assist in the negotiation process, explain the implication of by-laws and regulations and how that may affect your investment and occupation of the apartment.