Off The Plan: Pros and Cons
Buying off the plan is when a property is purchased before construction is completed. When you enter into a contract to buy off the plan a deposit is paid to secure the property, while the balance of the purchase price is payable on completion of the building.
Developers will usually offer their properties at a reduced price initially to encourage a faster sales rate and meet their construction finance requirements. If you are willing to commit early there are big savings to be taken advantage of.
As with any investment there are tax benefits, but there are more tax depreciations available for new properties.
Secure property at today’s price
When buying off-the-plan, an investor can secure property at today’s price, yet often not have to settle for up to 18 months or in some cases even longer. What this means is that while you’ll pay a 10% deposit when the contract is signed, you don’t have to pay the balance of the money until the property is complete. A bonus could be that the property increases in value before it is even finished, resulting in capital gains before settlement.
The time between purchasing and moving in can often be longer than a year. This should give ample time to sell your current place and make sure everything is in order. It also gives you the luxury of shopping around for a mortgage. Selecting the right one can save you plenty of money and stress down the road.
The extra time before settlement also gives you the opportunity to build up your bank account. As the balance of the purchase price does not have to be paid until construction is complete, you can build up a substantial amount to help pay off the mortgage so you can borrow less.
You may have the right to have input into the design and finishes of the property. This could save you renovating or repainting if you bought an existing property.
Secure Property at today’s price
The main concern for off the plan investments is that it is impossible to predict the future market. If you purchase property at today’s price and the market declines by the time of completion, you may end up with a capital loss.
May not be what you were expecting
A property can be difficult to assess without physically observing it. Your expectations and the finished product may be different and not to your liking.
Rising Interest Rates
Can be problematic if you wanted to fix a portion of your loan.
A worry for many investors is that the developer could go into liquidation before the project is completed. If they do you may not be able to recover your deposit.
Off the plan is an attractive option for many investors as it can be very profitable and save a lot of money. However there are risks involved that need to be considered. To avoid a negative outcome do your research to ensure the developer and builder are reputable with a track record of delivering quality buildings as specified.
To talk more about off the plan or need finance please do not hesitate to contact our friendly team on (08) 9289 7777 or email firstname.lastname@example.org.