Investment is all about numbers. What’s better than to buy investment property lower than its value, renting it out and enjoying the income growth? If only one knew the key to snatching a property at a lower value. The answer may not be as straight but off the plan properties offer some unique advantage for investors when it comes to saving big on your property investment. An off the plan property is purchased before the physical structure is built. You can view plans and designs but the property will only come up in a few years. As an essential principle of real estate goes, property prices are bound to grow. And this is why investors like to sign a purchase contract that allows them to obtain it at a deposit of no more than 10% of the current market price. The plan is to on-sell the property before the settlement. Here are some important points to know when you buy off the plan property and building packages –

The Pros

Best rates

When developers release properties is when you can expect the best rates since they are looking to meet their capital requirements as soon as possible. The rates go up once that is done and the developer can cover lost profits by increasing purchase price later. Buying early will also ensure you have access to the best land and building package investment with more options to pick from. Whether a great view or one on the quieter side of the location, you’ll have first dibs on features you can choose to leverage later.

Home Equity

Whether deciding to hold the property off for long-term or become the owner/occupier or arrange finances for the investment, the call is always yours. In addition, once the ownership is locked in you are able to leverage capital growth at the time of settlement when your initial deposit will have gained in value.

Timing

With plenty of time for settlement, you are able to plan out the investment extensively whether you intend to move your home or arrange the finances required for settlement. Buying off the plan lets you get a head start on buying your own property without having to wait.

The Contract

An off the plan property contract is different than a regular purchase contract. Some of the things you’ll need to ensure are included in your contract are –

Cooling off period

Allows you a window of 5-6 days to make up your mind about the purchase. You can choose to withdraw your deposit but in most cases a cancellation fee of 0.25 percent of the purchase price is applicable. However, at the end of this time window, you become legally bound to buy the property.

Plan details

An off the plan land and building package process of buying include a plan disclosure. Since the property hasn’t come up yet, the developer provides you the details and specifications of what the property will look like and entail. This includes floor plans, finishing details, development schedules, and phases. More often, these plans are pending approval by the local council but good enough to give you a clear idea of the property you are investing in. It is essential for you to go through the plan thoroughly before signing the contract making sure you are comfortable and on board with the level of details disclosed. Developers retain the right to make changes in the plan if required.

Interest on deposit

The interest on your 10% deposit goes to the developer in most cases, however, asking doesn’t hurt. Some developers are open to negotiations on sharing the interest received.

Warranties

The contract of purchase has provisions that allow developers to alter the plan. It is important to keep this flexibility in mind although the contract also ensures that the property be constructed in compliance with the plan disclosed. In such a scenario you want to be able to retract your deposit if the changes made to the contract are prejudicial to you. The contract also provides for any customizations to the design of your property within structural policies of the property. Make sure you review the contract for a prejudicial disadvantage and personalizing designs and fixtures for your property.

Defects

Any defects identified by the buyer is to be remedied by the developer according to the plan contracts. This means you are given an opportunity to pre-inspect the property for any shortcomings right before settling.

Background checks

It is essential to know who you’re getting into business with. Investing in an off the plan property can be a risk unless you invest with a reputed developer. Do thorough background checks and an extensive research on the credibility of the builder to make sure who the directors and developers are. Next, get a license check done by requesting the builder’s license number. An investment advisor will able to advise on all the other checks you can undertake. Expect an 18 months sunset clause, anything more can add to the risk.

Home warranty insurance

Your developer is legally responsible for providing home warranty insurance along with the contract of sale. Any loss or damage incurred due to non-completion or losing the deposit is covered by the warranty.

The finance

Off the plan properties could find it difficult to procure financing. Investors tend to be careful since the properties can go for a lot more than they are worth or end up fetching a fraction of the investment in the event of a volatile market trend. One way lenders protect themselves is by capping loans at 80% LVR. Some other loans require review of pre-approvals issued at the time of signing the contract. Getting a loan rejected can damage your credit score which is why waiting for the development to near finish when procuring finance is an ideal way to ensure financing ease. There are a lot of factors to take into consideration so do not shy away from taking professional help. Contact Richman Property Investors to find out more about how to find a good builder and leverage the pros when you buy off the plan property.