New, Established Or Off The Plan

Jun 20, 2018 | Property Development, Property Investment

One of the fundamental questions that investors must consider is what type of property they invest in and at what stage that asset is at in its lifecycle.

The answer is not always an easy one as the right answer depends on a number of factors that are individual to each investor. These factors include:

  • The age of the investor and what stage of the investment cycle they are at
  • The purchasing power/budget of the investor
  • Required rental return subject to personal income
  • Investment goals and plans for further acquisitions
  • Ownership entity structure used for investing
  • How long will the property be held before liquidation
  • Personal taxation position/ goals

Each type of property, established, new construction or off the plan has certain advantages and disadvantages. Let us explore the options in more detail.

Established Properties:

This property class is best suited to investors wanting to buy in specifically chosen established suburbs or wishing to find a home that can be renovated at a later date or subdivided and developed. Buying an established home also enables the investor to receive a return on investment as soon as possible after the property settles as there are no interest costs to cover through a construction progress payment schedule.

Established properties typically have a lower return on investment than a brand new dwelling. Also, the older the property, the higher will be the maintenance costs.

On the positive side, established dwellings can sometimes present opportunities for greater capital growth if situated in higher growth suburbs as well as the potential for future development.

All of the above factors should be taken into consideration, and how these factors have an impact on the individual’s financial circumstances.

Building a new home:

Creating your own brand new investment property can be the most rewarding way to begin your investment journey or to consolidate your portfolio. Having the power to choose not only your location but the exact size, layout and finish of the home provides many advantages.

The are some vital factors that must be considered though when choosing this option.

  1. What type of soil does the block of land feature and how will this impact on the cost of the footings.
  2. Are there any hidden foundations or leftover building materials remaining in the ground that are not visible from above the ground.
  3. What sort of council requirements need to be met for development/construction approval?
  4. What are the holding costs of the land and the interest payable on the construction loan?
  5. Can you ensure a fixed price contract with the builder?
  6. Is the total cost of the land plus construction over capitalising for the chosen suburb?

Off the Plan Apartments:

Buying a property off the plan essentially means that you’re entering into a contract to purchase a property before construction commences or before it has been completed. The purchasing of apartments by property investors off the plan has resulted in mixed results for property investors

While there may be many benefits associated with buying a property under these conditions, there are also some pitfalls that need to be considered before entering into such an agreement.

  1. What is the reputation of the developer?
  2. Will the project definitely proceed and when will it be completed?
  3. Will you receive interest payments on the deposit?
  4. What is the bank valuation of the apartment today and what will it be when completed.
  5. How many other units will be handed over at the same time and how will this affect the rental.
  6. What are the strata management costs?
  7. Is there any stamp duty concession available?

Off the Plan Houses and Townhouses

This category of property is becoming more and more popular with investors, as it offers the opportunity to buy in excellent locations where individual land holdings may not be available.

All properties purchased through the wholesale market are fixed price, full turnkey options which take away many of the risks associated with designing and building your property from scratch.

Most of these opportunities are in tried and tested suburbs and are executed by developers and builders that have researched the validity of the site and investment.

Otto Property has access to nearly 200 different developments from Australia’s most trusted developers in all capital cities and territories with options of all property types. We have access to and can provide detailed information on all opportunities including detailed 3-D renders and floor plans as well as local market statistics such as vacancy rates, other project listing numbers and local area demographics.

With so many different types of properties available in each property class choosing the correct property for your own set of circumstances can be a daunting task.

In the end, the most important thing for you is that you choose the property to suit your requirements and that will be in line with your future financial goals.

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Daniel Otto has been a part of the property industry for over 15 years, with experience that stretches across real estate sales, investment, rental management and development.

Please reach out to him if you have any further property related questions.