What to look for when buying off the plan
6 financial pros and cons to consider when buying an apartment off the plan.
There are many benefits to buying off the plan just the thought of moving into a brand-spanking new place, or having it as part of your investment portfolio is enticing enough. Let alone the fact that many developers often list new projects on the market at drastically lower prices.
However, there are a few pitfalls to be mindful of when it comes to your personal finances and purchasing property off the plan.
The key is to do your research so that you understand all of the pros and cons before signing on the dotted line.
To help get you started, here are a few important considerations regarding the purchase price, calculating your costs, understanding the contract of sale and tax benefits, when you will receive approval for finance and the truth about mortgage insurance.
1. LOW DOWN ON PURCHASE PRICE
Be sure to compare the price of purchasing an off the plan apartment with sales of established properties at the time of buying. Don't be pushed into thinking the price should be based on a projected figure of what the property might be worth in the future.
2. STAMP DUTY DUES
When it comes to crunching your numbers, take into consideration the total cost when comparing your off the plan purchase with established properties. For example, if an established property in the area is worth $500,000 plus $25,000 in stamp duty, the total cost is $525,000. For a similar new property, you could look at (and justify) paying a premium for a brand new apartment up to $520,000 plus $5000 in stamp duty because of the current stamp duty exemptions for new property purchases. This means your total cost comes to the same as an established property, but you've also got the luxury (and peace of mind) of the all-new facilities.
3. UNDERSTANDING YOUR CONTRACT OF SALE
The fact is, contracts of sale are more complex for off the plan properties. This is because you can't touch, feel and see the property before signing the contact. As a result, you must do your due diligence on the developer, builder and architect to get an understanding of their track record for delivery quality and timeliness.
4. TAKING TAX INTO CONSIDERATION
If you are intending to use the property as an investment, there are tax gains to be had, especially when the property is brand new. This is because there will be more tax depreciation available over time. And so, buying off the plan can be a good financial strategy for improving your after tax cash flow.
5. GETTING APPROVAL FOR FINANCE
You can usually wait until about one month out from the completion of the build until seeking final approval for the finance. However, in the time between when you signed the contract for your off the plan property, and when you actually require the finance things can change, such as:
- Your personal financial position may have reduced;
- The assessment policy may be more difficult; or
- The value of the property may have dropped requiring you to put in a larger deposit
6. WHEN MORTGAGE INSURANCE MATTERS
Be sure to investigate firstly whether you will need mortgage insurance if you are borrowing more than 80 per cent of the property value and secondly whether you can secure it. Remember, some mortgage insurers may not approve your loan if they deem the development unsuitable due to factors such as the area or size.
Got questions about the financial considerations of buying off the plan? Contact us today to speak with an expert lending consultant.
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