What is Buying Off the Plan?

Buying off the plan means that you are buying a property investment – for the future. Essentially this means you are entering into a contract to purchase a property prior to, or during the construction phase of the development. There is no tangible asset for you to inspect, but you are buying on the basis of floor plans and floor plates – hence the phrase “buying off the plan”.

There are many advantages to buying under these circumstances, but you also need to do your research. It is very important that you deal with someone you trust if this is something you intend to undertake – and more importantly, that you deal with a quality, reputable developer.

The first properties released usually go for the best price to ensure that the developer is starting to receive fast funds. In addition to this, you are buying a property for tomorrow at today’s prices – so typically, you can enjoy capital growth while your property is getting built. A savvy move, when the property market is on the rise! Many also offer interest on your deposit amount (which is safely held in a trust account on your behalf) as well – which means that while your investment is getting built, your deposit is also earning money for you.

When buying a new property, there are significantly higher tax benefits, as it is new. Your depreciation starting point is much higher, which means your deductions are higher. This applies to both the shell of the property and the fittings. Given that any “off the plan” purchase is yet to be completed, you get to enjoy those first time savings, against your tax return.

Typically, settlements for off the plan purchases occur anywhere from 18 months to 4 years – which means that while you will pay a 10% deposit upon signing a contract, the rest of the money (the balance) is not due until the property is complete. You have plenty of time to arrange your finance and plan for the future – as well as think about how you will further use your new asset. It also gives you more time to save money to further use for your purchase, to reduce your borrowings – if this is your goal. This may not suit everyone – if you are going to use it as a rental property, you want to ensure you are borrowing the maximum amount, so as to claim the highest interest payments against your rental income.

In some Australian states, there are considerable stamp duty saving benefits, if you buy off the plan. There have been recent legislative changes in this area though, so ensure that you engage an expert, when taking this into consideration.

By buying off the plan – particularly if you get in early – you get to choose the apartment that you want, from everything on offer. This means you get to choose the view you want, the position and size – as well as floor plan. In turn, by getting the best apartment, you increase your rental yield potential. This might mean choosing the penthouse apartment at the top of the building, or a ground floor apartment with a court yard – either way – you decide. In addition to this, you will own something that is brand new.

Newly built properties in Australia come with a 7 year builder’s guarantee, which means structural or interior building faults must be repaired by the builder. Again, make sure you engage an expert when decide to buy off the plan, to ensure you receive this.

In summary, it is fundamental that you know what to ask, when considering any investment off the plan. Ensure you are dealing with financially reputable companies, quality developers and viable projects to prevent yourself from any negative experiences that may see you considerably out of pocket. Once you have all these points covered, you can sit back and enjoy watching the development of your new investment.

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