| by Kenneth Chase | 1 comment

The Problems With Buying Property Off The Plan (Ep182)


There are many different problems with buying
a property off the plan, so before you go ahead and sign that contract and put down
your deposit, let’s have a look through the problems of purchasing a property off the
plan. Hi I’m Ryan from OnProperty.com.au, your daily
dose of property education and inspiration. Every single day we list a new video, podcast
and blog post straight to the website at OnProperty.com.au. While buying property off the plan can sometime
seem like a great investment, this isn’t always the case and I have heard a lot of stories
of people getting stunned by purchasing property off the plan. So I wanted to list some of
the problems, not to say ‘never buy a property off the plan’, but just to make you aware
of what problems there are so you can make a more educated decision. Problem #1 is Inflated Prices.
A lot of times people will sell you to buy a property off the plan because if you put
down and lock in the price early and then if the market goes up, well then there’s a
windfall for you. But they don’t tell you that more often than not they actually take
market predictions into account. So rather than you purchasing a property at the value
that it is today, they’re predicting what the market will be like when the property
is finished and charging you accordingly. So it’s only if the market does extremely
well, much more than expected, that you’re going to get that windfall. So you are often
purchasing at an inflated price based on what they expect to be good market conditions and
so if the market stays stagnant, chances are that you’re paying more for a property than
it’s actually going to be worth. Problem #2 – Unsure Of Market Trends
Another problem with buying off the plan is that you’re unsure of what the market will
do. Will it go up, will it stay flat or will it go down? Now because we’ve already talked
about the inflated prices, you need the market to go up in order for that property to be
worth what you paid for it. So if the market stays flat or if the market goes down, well
then you’re actually paying more for a property than what it’s worth. Problem #3 – No Flexibility
Another problem with purchasing off the plan is that you’ve got a long time period where
you put your deposit down but you’ve got nothing to show for it and no flexibility there. So
because you’ve already decided what to buy, you put down your deposit and commit to purchasing.
Now the property needs to be built, which may take 12 months or even more than 12 months,
and you can’t really go out there and research the market and see if there are better deals.
As the market changes, you’re locked in and it’s very inflexible. Problem #4 – Locked In If the Market Goes
Down I’ve already talked about the fact that we’re
unsure of what the market will do, but you’ve also got the problem that you’re locked in
if the market goes down. Because you’ve paid your deposit, because you’ve committed to
buy, if the market plummets, if it goes down then you’re really committed to purchase that
property, otherwise you’re going to lose your deposit even if that property is not worth
what you’re paying for it when it is finally built. Problem #5 – No Opportunity
Another problem is that you can’t really do anything to improve your investment. I love
property investing because it gives you a level of control that you don’t get with stocks
or with other forms of investments. You can actually purchase a property that is a great
opportunity that you can do some work to increase the value and return on your investment. With
a new built property that you’re buying off the plan, there’s a limited scope of things
that you can do to increase the value of that property or to increase the rental yield of
that property because you’re getting what you’re paying for and its brand new so there’s
not really anything to go ahead and fix or improve. Problem #6 – Commissions
Another problem when buying off the plan that you really need to be aware of is built-in
or hidden commissions. Depending on who you’re buying the property from, whether you’re buying
it directly from the developer or whether you’re buying it from a marketing company,
there’s a good chance that there are commissions built into that deal. What I mean by this
is that the person marketing the property to you and hoping you’ll purchase it, isn’t
actually the person building the property and they’re getting a commission for the sale
of the property that you’re purchasing. Because it’s a new built property, there’s a semi
loop-hole where they can actually put these commissions unto the cost of the build itself
so you won’t necessarily know exactly what their commissions are, it’s not going to appear
in the contract of sale. So it could be $5000, it could be $40,000, and the risk of this
is obviously that it’s inflating prices even more. So before buying a property off the
plan, it might be worth asking whether or not the marketing company is getting commissions
and truthfully if they’re a marketing company the answer is going to be yes but they might
not actually tell you. And then ask them how much are you getting in commission and if
they (4:55) around the issue, well then I would be very careful. Problem #7 – Oversupply
The last problem with purchasing a property off the plan is an immediate oversupply of
housing when the property is finished. If you’re building a large block of units and
all of a sudden there’s now 200 units that are now available on the market either for
rent or for sale, well the chances are that you might have an oversupply of housing. This
could make it hard to rent your property, this could mean that your rental return is
diminished because you need to compete on price to get people in quickly, it could mean
that when trying to sell your property, now there’s a flood on the market and it becomes
a buyer’s market rather than a seller’s market. So you do need to look at supply and demand,
what developments are happening in the area and how this development is going to affect
the supply and demand of the area in the short to mid and even to the long term. So there you have some problems with purchasing
property off the plan. Obviously it’s not all bad but I just wanted to cover the problems
in this episode and cover the pluses in another episode. So purchasing property off the plan
isn’t inherently wrong and there’s no guarantee that it’s going to be a good or bad investment
but I just really wanted to educate you on this matter so that you can go out and you
can make a well informed decision. If you’ve decided that purchasing property
off the plan maybe isn’t exactly for you and you want to see existing properties that generate
a positive cash flow, well sign up for OnProperty Plus which is currently $20 a month or $200
per year. Go to OnProperty.com.au/plus and you’ll get full access to the new properties
that I list every single week. Until tomorrow, remember that your long term
success is only achieved one day at a time. I’m Ryan McLean and I’ll see you tomorrow
for the next episode at 8pm.

1 Comment

sami kaldi

Jun 6, 2017, 1:31 am Reply

Good job you did, it is very critical for people to know. Thank you again

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