Thinking about buying off the plan? Many savvy investors who want to find the best deal on the best real estate investments on the market should look at buying off the plan as an efficient, time-saving option.
We at East Coast Conveyancing want to provide you with educational content that can help you find the best investment properties for your money. Learn about the pros and cons of buying off the plan before you take the plunge.
Benefits of Investing in Real Estate off the Plan
When you buy off the plan, you buy a property before the developers finish it—before it is ready for occupancy. As such, these properties usually have an attractive price, making it a draw for investors looking for a great deal. The price is only the beginning of the benefits of off-the-plan purchases, though. Other benefits include:
- Stamp duty concessions and exemptions for first-timers: Although this only applies to first-home buyers, the government does give first-time owners a break on stamp duty for off-the-plan purchases.
- Government grants: Some states offer grants to off-the-plan buyers’. These grants require that the purchaser is a First Home Buyer. What this means is they will be eligible for the above stamp duty exemption and a $10,000 grant.
- A brand-new property: With older properties, investors often face repair challenges. With an off-the-plan property, provided the seller completes the work as agreed, you have little to worry about regarding repairs, other than routine maintenance.
- Tax depreciation benefits: Off-the plan buyers also can realise depreciation benefits, given that they are starting with a new property. As the mechanicals depreciate, owners can write that amount off on their taxes.
Risks of Buying Real Estate Investments off the Plan
Since you are essentially buying unimproved or under-improved land—and a promise that the seller will complete the work as promised and on time–there is an element of risk involved in off-the-plan investments. Learn what risks you face before you buy so that you can make an informed real estate investing decision.
- Variation clauses and what they mean: Make sure you understand all clauses involved in the contract. Developers will generally have variation clauses in the contract allowing for minor variations to the plans, including construction plans, restrictions on use, allowance to create easements that weren’t identified in the original plan and their choice of materials. This means that developers can chose cheaper materials, that are not necessarily of the best quality. Essentially this is one of the biggest risks when purchasing off the plan.
- Contract terms ambiguity: Make sure you have a comprehensive, ironclad contract that spells out everything you need to protect your purchase from loopholes that could spell trouble. These items include voting rights for strata properties, dispute resolution processes and procedures, insurance, completion timeframes, as well as the fittings, features, and fixtures that your completed property will have. Make sure you have a qualified conveyancing professional look over the terms before you sign.
- Market fluctuations: Do your due diligence about the real estate market in the neighbourhood in which you want to buy your off-the-plan real estate investment. Stability and growth are key to making sure your ‘great deal’ doesn’t go sour. Also, other housing developments, such as planned subdivisions and high-rise buildings, can affect your investment property’s value
- Lack of insurance: In NSW, for instance, home warranty insurance certificates aren’t required until the building process starts. Make sure you have proof that the property is insured before you settle on the purchase. Once the deal is settled, you can’t cancel the contract.
- Finance: Purchasing a new home, also means going through the process for Loan Approvals. Loan Approval is not always obtainable when buying off the plan. Do your research in this area as most are only approved when the registration of the plan is complete and the lender has carried out a valuation of the property.
- Access and convenience challenges: Do your research on the area’s amenities as well as the market overall. Look for easy access to public transportation and major roads, as well as the ease of finding conveniences such as shopping, schools, recreational facilities, and social and religious organisations. If you plan to use the property as a home rental, these amenities are what creates greater value—and commands a higher rental price.
- Personal circumstances: Be sure to remind yourself that life is usually unexpected and personal circumstances change over time. The lengthy time frame of these contracts means that you need to expect the unexpected. Be sure to understand the terms and conditions of rescinding the contract if this was to become a necessity.
- Developer Bankruptcy: The contract will generally include a clause allowing for rescission of the contract by the vendor should they go into bankruptcy. Whilst in most cases you would have your deposit refunded this scenario can have further consequences. Prior to entering into any building contract where the land contract is not complete you should speak to the builder about what consequences there are should your land contract not complete.
Finding a good deal on an off-the-plan real estate investment is all about taking the time to make smart decisions, choosing wisely, and consulting qualified legal professionals to double-check your work before you sign the contract.
To learn more about how to get your best deal on investment properties, download this complimentary e-book from the conveyancing professionals at East Coast Conveyancing today.