It is becoming increasingly popular for clients to call up and say either:
I am thinking about buying a property off the plan– is it a good idea?
I have been contacted by a property expert and they think I can buy a property worth $500,000 in a new estate in Brisbane and make a great return– is it a good idea?
There is nothing like a brand new property, it is like buying a new car, the freshly painted house, beautifully fitted interiors, amazing gardens - it looks great, but is it a sound investment decision?
Firstly, if you see a property that comes with a rental guarantee, run in the opposite direction! Why would a quality property need a rental guarantee? Rental guarantees are usually a sign of:
Over-supplied area;
Weak market;
The rental guarantee is usually factored into the initial purchase price, therefore, the property is overvalued.
The main differences between off the plan purchasing and buying a new property are the following:
An existing property is there for everyone to see– building flaws can be seen and you can undertake pest and building inspections.
Off the plan purchases are usually:
Built as investments for developers to sell quickly with high margins;
Built in areas that are high on demand today;
Built to maximise developers return, i.e. lower ceilings, more common walls and floor plans to cram in maximum amount of units at the expense of a better unit and living space.
Therefore, regardless of whether the property is new or old, you need to make sure the property is still a good investment property. Purchasing off the plan is similar to buying an old property, you need to make sure:
It is the right price;
What is my forecast return on the property;
Is it in the right location;
Are you buying it at the right time;
What is the cash flow forecast for the property.
Finally, never do anything just for a tax benefit. This includes off the plan purchases. Sure, the tax depreciation benefits you will receive are great, but without these benefits, is the property still a good investment decision? Treat the tax benefits as an added bonus!