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15/12/2015

Blog: Buying an investment property “Off-the-Plan” – should you do it?

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With 2016 on the horizon, are you thinking ‘new year, new property investment’? If you’re considering expanding your portfolio, you’ll likely be weighing up the benefits of purchasing a new asset ‘off the plan’ versus acquiring an existing residence. While the concept of spending hundreds of thousands of dollars on a property you can’t physically see is daunting, purchasing property ‘off the plan’ can offer landlords substantial benefits. Although not the perfect fit for every investor, buying ‘off the plan’ is ideal for landlords who are dispassionate about their properties – making their buying decisions based on their knowledge of expected rental return, capital growth and the tax benefits of depreciation schedules. The ‘off the plan’ investor is likely to have less emotional attachment towards their properties than the owner-occupier, being focussed on the potential financial rewards rather than the aesthetics or position of their asset.

Think ‘off the plan’ is for you? Next time you see a suitable development, ‘get in’ on it early! Being an early purchaser means being able to choose the best property to buy in a development, and can occasionally mean a lower purchase price, too – as developers look to draw buyer interest by boasting how many of their properties have already sold. Also, the earlier you purchase means the longer your property has to enjoy market growth before settlement – which means you’re ostensibly paying today’s price for tomorrow’s equity. There are also substantial government incentives for investors buying brand new properties, namely stamp duty concessions. You may also be able to claim depreciation for the aging of fixtures and fittings in your brand-new investment property – your accountant will assist you source a depreciation schedule specific to your asset which can improve your overall tax position. Aside from the initial financial benefits of buying ‘off-the-plan’, new properties also benefit from a seven year builders’ guarantee. Any structural or interior faults which develop within this time frame are the responsibility of the builder, not the landlord – resulting in substantial peace of mind for investors and added value for potential purchasers if you sell within seven years.

Before jumping into an ‘off-the-plan’ purchase, there are other factors to consider. While the notion of ‘today’s price, tomorrow’s equity’ sounds great in a booming market, there is always a risk that tomorrow’s equity won’t have grown. Also, make sure you understand your rights should the development fall over. Weigh up the benefit of stamp duty savings, too – are you paying an inflated price for a new property instead of paying your taxes? Stamp duty savings are attractive, but they shouldn’t come at the cost of paying over-the-odds for a property. Crucially, consult with your property manager to ascertain the potential rental income from any new investment – whether ‘off-the-plan’ or existing. We’re always here to help with our professional advice!

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