Buying Off-the-Plan Property?

Thinking of buying off the plan investment property?

 

Buying off the plan property is one topic which generates more grumblings, rumors, and misinformation than any other investing strategy. When it comes to property investing, timing matters, right?

In context to “buying off-the-plan” does it mean safe, predictable returns and annual rental increases?

The purpose of buying off-the-plan is no management fees, vacancy periods with security of a long term lease, so you can live comfortably knowing your future is financially secure; buying a block of land without actually seeing the property before sale, right?

What’s the reason why many property investors like to buy off-the-plan? Obviously they want to make sure its as safe or as less risky investment with reliable and high rental yields…yet are they’re speculating that the property will be worth more when it is completed?

Is off-the-plan properties a good solution for investors needing to organise finances or first home-buyers which don’t have enough equity to purchase?

buying off-the-plan property
Buying Off-the-Plan Property

Would an established property which you can buy today, whereby value is easy to confirm and rental return is more assured? Confirming an accurate future rent return is also nearly impossible, as this is affected by demand and supply.

Where the development is large, depending on release dates or time frames, there could also be a sudden oversupply as all the completed developments become available and you could get far less rent than expected causing further financial distress to you.

While buying off the plan is an option may offer benefits, it’s important for both investors and home buyers alike to perform their due diligence and understand where many trip up.

Buying off-the-plan property, in reality…unless you’ve done this type of property investment strategy before, does it really mean the value of a good investment property is underpinned by attributes such as:

  • Location
  • Land size
  • Land value
  • Property style

When looking for an investment it is vital to focus on the tangibles which over time change because need to establish the value of your finance commitments in context to your investment finance criteria:

  • Target Market
  • Population growth
  • Unemployment rates
  • Consumer sentiment
  • Supply and demand
  • Dwelling approvals
  • Median value growth
  • Rental yields/rates
  • New DA applications
  • Project commencements

You cannot just move a house and land and drop in in a more desirable or handy location a few years after you buy it, right?

Even at great expense, you’re most likely not able to change orientation of land, position of block of townhouses/apartments or what surrounds the property. In reality, you have no control over the supply of new property coming onto the market around you…

Good investment property is often very hard to buy because you are put in a competitive environment, while risky investments are often easy to buy. Buyers need to understand the market and why they’re opting for off-the-plan instead of an established property.

Buying off-the-plan property carries far greater risk than an established property and has little advantage.

It’s very difficult to establish whether buying off-the-plan property is at a fair market value, even a registered valuer cannot forecast future values accurately to assure what you’re buying is going to be what it is worth when completed.

When you tie up your borrowing capacity on a yet-to-be completed project, you may not be allowed by the bank to borrow for additional investments, as your true position cannot be determined until the property is complete and owned by you.

If you’re getting a loan to buy property off the plan, what if the property has a value less than you agreed to pay?

Firstly, you may not be able to borrow enough cash to complete the sale because your bank will use the valuation, not your purchase price to determine how much they will lend you.

off the plan
Off the Plan, which is the better property strategy?

 

Off-the-plan, while this may sound straightforward, there are a number of considerations to take on board. If you cannot complete the purchase due to lack of funds, you’ll be forced to move forward at risk of losing your deposit.

Buying off-the-plan property and tracking changes: For example, off-the-plan apartments run work on the concept of putting down a deposit today and waiting for capital growth to kick in by the time the property is completed.

To avoid a potential purchase disaster, property investors need to put in the hard yards and do their on-the-ground research. The most crucial factor is knowing your target market, demographics, infrastructure, and whether the market is going to be over or under-supplied and to understand specific economic impacts of the area.

Due diligence: As a property investors you would talk to local councils or visit Department of Infrastructure website to find out about projects that are underway or in the planning stage.

Buying off-the-plan property by analysing supply and demand: it is critical to understand the strength and amount of supply in the existing market, because as a property investor you also need to be aware of other properties becoming available.

Equally important are population growth and job opportunities in the area; this data can be used to compare the last Australian Bureau of Statistics census against the most recent census to get a snapshot of how an area is changing.

For investors, historical trends such as vacancy rates and rental yield growth rate are indicators to consider, including how vacancy rates performed over last five to ten years and which figures have established a sub-two percent as a good benchmark.

Buying off-the-plan contracts: Buying off-the-plan property involves entering a contract to buy a property that is not yet built.  Investors therefore need to find a professional lawyer who is able to comb through the details of the contract with them.

As a property investor you need to make sure you are happy with the length of sunset clause you understand the full extent of the contract in every complete and detailed ways as possible…

Buying Off-the-Plan Property

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Property Finance – What’s Stopping YOU?

Is Property Finance a Problem for You?

Property investment is all about the numbers stacking up. Property financing an investment property is not always straightforward. The reality is lack of money should never stop you because a good property deal finds finance…

When it comes to real estate investing there sure is a lot to learn.  Real estate is not only about the market or strategy…it’s more about the deal, which means property finance.

Each and every property you are going to see must be the very best deal in context to your investment goals and profit margins, which means you have to do your homework. Due diligence makes your life easier, mitigates risks and property investments profitable…

How to effectively finance your property investments…

Getting the most effective finance for your investment properties is absolutely critical to building wealth through property. As a property investor,  you can spend a lot of hours researching the many different finance options available through many different lenders.

The result can provide you with the knowledge on how to structure your investments and lending criteria which enables continued growth of your property investments portfolio.

Understanding each lenders assessment criteria is extremely valuable in selecting the right lender each time you make a purchase.

It may surprise you just how different each lender assesses the scenario you present them. If it is outside their preferred lending guidelines, they may not be able to assist you with finance.

So you understand how to source property finance for yourself, right? If not you’ll want to make a big effort to educate yourself on the options available to know various strategies so an educated decision on the right finance solution can be made.

Do you need an assessment?

If you would like a review of your current finance setup or require finance for future purchases, we can provide you with an honest assessment on what you have in place now and make recommendations based on your objectives.

Property finance is the foundation which every property investor does and should know.

property finance
Property finance includes using effective property strategies for profits…

Property financing must be set-up right because it makes every deal possible with or without a deposit (unless a major industry change happens).

Do you understand the most effective multidisciplinary nature of property investment and property development including:

  • Property investment analysis
  • Property portfolio analysis
  • Property finance and taxation
  • Feasibility studies
  • Property strategies for profits

Do you know how to develop the analytical and decision making skills necessary for property investment and property development as a property investor?

1. What is your single biggest obstacle which is stopping you from profiting from property investments?

  • Lack of finance
  • Not enough time
  • Lack of education to raise finance from private investors (your network)
  • Lack of education
  • Unable to find deals in your area

2. What one additional skill would enable you to make more money from property investing?

  • Raising finance from the people you know (your network)
  • Knowledge so you can use one deposit to buy multiple properties
  • Knowledge to maximise your return on investment
  • Knowledge so you can invest in property renovations
  • Sourcing below market value deals

3. What property goals have you set yourself for 2014?

  • Buying your first investment property
  • Buying 5 investment properties in a year
  • Buying 10 investment properties in a year
  • Sacking your boss and being a full time property investor

4. How can we better help you learn skills you need to make money from property investment?

  • More online trainings
  • More books or reports
  • More CD sets
  • More events

Loan Analysis

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Property selection criteria…have you ever found yourself working harder and harder only to go backwards?

The principles for selecting investments properties include:

  • Property must be in an area of existing or potential high mid-to-long term capital growth
  • Property must be in an area of high population growth and high employment
  • Property must be close to schools, shops and transport etc
  • Property should be new or renovated to allow maximum depreciation and therefore biggest taxation savings
  • Property must be high quality in terms of design, materials and construction
  • Property requires minimal maintenance
  • Property must be in an area, which has a sound long term rental history

Check list with must ask questions for every property investor – how to of find an area to invest in and understanding specifics of individual property:

  1. What is the cashflow of the property?
  2. What is the vacancy rate of the area?
  3. What improvements are being planned for the area?
  4. What is the population growth?
  5. What is the competition?
  6. Is the property tenant friendly?
  7. What structural condition is the property in?
  8. Does property have furniture?
  9. Is there a body corporate?
  10. Is there a rental guarantee?
  11. What is the current property management arrangement?.
  12. Is there a leaseback?
  13. In the case of a new or off the plan property, who are the developers? This particularly in relation to companies like the ones you’re looking at
  14. Is there a dual purpose if this is a niche market ( purpose built ) property?
  15. What is the land availability in the area?
  16. What is the proximity of the area to a large city?
  17. What is the age of the property?
  18. Is the property at market value or under market value?
  19. Is the town you are considering based on just one industry?
  20. 20. Are you being commercial in your approach?

Want a clear and concise approach to creating profits, cash flow and equity through property investment?

Want a detailed roadmap with a step-by-step guide to property finance, buying property with no money down, instant equity and much more?

Want property investment financing solutions and strategies that work?

Property Finance

How to Avoid Over Finance?

How to avoid over finance? It’s a common mistake in a property investment strategy and with the introduction of 90% to 100% loan to value mortgages on investment properties, many property investors are taking opportunity to refinance their properties at a higher percentage of value than ever before…

Many real estate investors are taking cash out at the closing for personal use and are thinking of this borrowed money as a profit.  Do yourself a big favour and avoid the temptation (and the strong come-ons by some lenders) to do this…

over finance
How to Avoid Over Finance - financial fears and if your money be safe?

Avoiding over finance…here’s why? If you over finance your property, you might not be able to sell it for what you owe on it. We get calls from landlords in this position literally everyday.

Last week we talked to a guy which paid over $780,000 (full value and his first mistake) for a home last summer. He borrowed $676,000 to buy the property (close to full value and his second mistake).

Now his tenants are driving him crazy and destroying the investment property and he wants to sell. He really can’t sell to another property investor because no educated investor will pay him what he owes for this property.

He can’t sell to home buyers because the property is too damaged. His choices are to keep it until appreciation and mortgage pay-down bring value of property and debt into line or spend another $15,000 restoring the property so he can sell to a home owner for retail value.

If you over finance your property your cashflow suffers and your property suffers. We got a call yesterday from another long time property investor which got a second mortgage a few years back to take some cash out for personal reasons.

Unfortunately, the total of the two payments plus taxes, insurance and other expenses are more than total rent tenants pay. He’s taking about $250 a month out of his pocket to own the property and hasn’t been able to keep up with repairs.

Now the city has placed work orders on the house and he doesn’t have the money to complete them and he doesn’t have any equity to borrow against.

Two of the 3 units are vacant because of the condition of property and he’s trying to unload it because he can’t afford to make his mortgage payments. In all likelihood, he’ll lose the property.

In the short and long term, you’ll pay an arm and a leg for the additional money you borrow. If you’re offered a 100% cash-out refinance of an investment property, ask the lender what costs are associated with the loan.

You’ll find many mortgages like this carry costs of 5-10% of loan amount in points and fees. Get out a financial calculator and check out the difference in total interest payments between a $700,000 property financed at 80% of its value over 20 years.

Do the same calculation for the property financed at 100% of its value. At 100% financing you’ll pay additional interest payments and this is money which comes straight off your bottom line. Please don’t think you should never pull cash out of an investment property.

There are some great reasons to do exactly that when you want to buy more investment property. Keeping your total debt to less than 80% of value of property is the safest and most profitable way to manage your cash flow and portfolio.

How to avoid over finance? Spotting the mistake before it happens like borrowing more money than you can afford may make you feel richer in the short term, however it’s a financial recipe for disaster.

http://en.wikipedia.org/wiki/Rollover_(finance)

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Over Finance