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Everything you need to know about buying “off the plan”

By Richard Denholm*

HAVE you been considering a home loan for an off-the-plan investment?

This can be a very profitable venture, as long as you know what you are doing.

First homebuyers may find their capital stretches much further due to the risk, while investors can accrue some serious capital gains.

However, buying off the plan is a completely different beast to purchasing an established property, and it can be an excellent option.

Here is what you need to know about this investment tactic.

 

What do you stand to gain?

By purchasing off the plan, you are setting down a sum – sometimes at a discount – to buy a property that has not yet been built.

By doing this, you are giving the developers enough money to attain their own financing and make all the required development plans.

It’s a win-win situation – you get a property and the developers get a profit.

There are plenty of personal benefits as well. You will often get a discount on other incentives to put your deposit down, though you will need to pay for lender’s mortgage insurance if you are borrowing more than 80 per cent of the property value.

This is perfect for people wanting to rapidly increase their investment portfolio or simply don’t want to spend even longer saving for a deposit.

You can also customise your choice to an extent with the builder, as well as claim depreciation and even avoid stamp duty in some states.

 

The risks:

As with any investment, there are risks involved. The reason you are getting all these benefits is because things may go wrong and you may end up not getting the property you were promised.

A Cordell construction report for the March 2016 quarter revealed that there were 155 projects abandoned in this time, with reasons ranging from rejected applications to having their development withdrawn.

The construction company itself could also fall into financial difficulty and have to abandon the project. You may still get your deposit back, but you could have wasted years of time – that’s potentially thousands of dollars of capital gains had you purchased an established property.

Ultimately, buying off the plan does have risks and may not be appropriate for everyone.

However, with the right advice from your financial advisor and the right mortgage broker, you may find that it’s a perfect way to get a newly built project at an absolute bargain price.

For mortgage advice, contact Smartline mortgage advisor Richard Denholm on telephone 6237 0444.

 

*Richard Delholm is a home loan specialist at Smartline Personal Mortgage Advisors Rosny Park.