Need help with off the plan investments

[stirling2006]

Hello everybody,

I am new here. Good to see such an investor forum site.
Its my first time seeing such a site.

Recently I made a few registrations to buy off the plan inner-city investments from several developers. Real estate is hot in perth , its hard to get even a decent place to stay. With so many people going for the same property, its hard sometimes. However, just a bit of luck and I am eligible to get two good properties. These properties are in demand these days.

Situation is: I dont have the capacity to back two properties at a single time.

Question: What are the options? What is a good approach to this all?
Should I start finding investors who are willing to fund this venture?
I havent started doing any of these yet... just waiting to get some good advice first..


Thanks in advance

 

[Rodney]

Hey,

What is your background in property?

I would suggust only getting one at a time. Even if the market is going really well you will always be able to buy another place in 3, 6 or 12 months.

It is not a race to buy as much property as you can in a week.

Enjoy the ride

 

[The Y-man]

Read as much as you can from this forum.

Use the search function.

....and as a purely personal opinion, I feel Off the Plan is the worst choice for a first time..... (been there, did that, regretted it ).

Cheers,

The Y-man

 

[Rodney]

I was reading something in the Melbourne Age on the weekend saying you should never buy off the plan.

They were saying that everyone loves getting a brand new house or car but as soon as you sign the line the item has lost value. (its no longer brand new)

I guess its an interesting way of thinking about buying off the plan.

Just be very careful

 

[The Y-man]

brand new .... car but as soon as you sign the line the item has lost value. (its no longer brand new)

I guess its an interesting way of thinking about buying off the plan.

Just be very careful

Interesting analogy. OTP purchases have a mark up similar buying a new car at a dealer (up to 30% or thereabouts?)

Buying an established property is akin to buying a used car from a private seller - sometimes you can pick up a real bargain, as the owner needs to sell quickly

Cheers,

The Y-man

 

[Jindaro]

Recently I made a few registrations to buy off the plan inner-city investments from several developers. Real estate is hot in perth , its hard to get even a decent place to stay. With so many people going for the same property, its hard sometimes. However, just a bit of luck and I am eligible to get two good properties. These properties are in demand these days.

I work for a company that builds some "off the plan" dwellings.

What happened in Sydney during the boom was that investors bought off the plan dwellings/ units to be finished 1-2 yrs later. The boom bubble burst and when the units were completed, they were actually worth $60-80K less than when purchased. There were a lot of people trying to get out of their contracts but they were watertight, so it was either go ahead (in which case the bank would ask for a larger deposit I suppose) or forfeit your deposit.

I have it in the back of my mind that this may occur in Perth too.

 

[alexlee]

The main issue with off the plan are:

1) Often big developments: no differentiation, you'll be selling / renting with hundreds of other owners with identical properties. Why should a renter/buyer rent/buy from you?

2) With a timeframe of 12 months or more, who knows what might happen? There are plenty of owners who bought OTP in 2002 and 2003 in Sydney, for example, who are hurting because the market turned down. Are you sure the commodities boom will last until after your place is finished?

3) Think of the worst case scenario: what happens if the market goes down and you can't sell the properties at a profit (or at all)? How will you settle? Will you just walk away? Can you afford that?

4) The hotter a market, the more likely the later OTP developments are overpriced. Developers will charge a higher price because they can. So you might be buying at an inflated price just as the market is topping out.

5) In a hot market, building practices get shoddy, because it's harder to find good builders. I've seen expensive units at Chatswood in Sydney ($500k, $600k units) that already have cracked cornices after a year. The agent I was viewing it with admitted that the builder didn't let the concrete slab sit properly before throwing up the building on top.

All in all, I agree with the others: OTP is NOT a good idea for a first timer. It is especially dangerous for a first timer at the end game of a market who intends to flip.

Don't get blinded by the glossy surfaces in the display unit and the fancy numbers showing how much rent you'll get (all speculation, anyway) and how much the tax man is going to help you by letting you depreciate stuff (doesn't help if you get $100 of depreciation but have to pay the developer an extra $100 for the stuff in the first place!)

Find something you can touch, has a rental history, and can be easily compared to surrounding properties. With OTP, often you're flying blind because it's so 'unique'.
Alex

 

[TomL]

Dont make the mistake of thinking all OTP purchases are bad.

They are NOT.

Case in point, we bought one in Fortitude Valley Brisb a while ago ... Bought it in the first stage, in a boutique development (ensuring a unique product), with fantastic location, at a great price, at the correct time in the cycle..

It has made us real good money in the mean time, we have refinanced continuously, and am just about to refinance again to pull out more equity.

Have an abundance mentality. Look for opportunities.

There are always exceptions, your job as an investor is to find the good opportunities.


Perhaps you can supply some more details???
T.

 

[alexlee]

Stirling, can you also give us a bit of your background? Age, income, assets, experience? The reason I say that is, a LOT of people get burned buying OTP. Mainly because the market is always at its most frenzied at the top, and Perth has been booming for a while. Usually new investors buy OTP because it's the easiest to get into (the developer does most of the work for you) but the easier it is, the more likely it's not a good deal.

Can you honestly say you're confident the commodities boom will continue until after your units are finished? Do you have the experience to recognise whether the building you're buying into is unique (which adds to its value) and not just the same as every other building going up? If the market just stays flat, do you have the resources to settle on the units anyway? Looking at the Perth market now, your units would most likely be cashflow -ve. Can you afford -ve cashflow on 2 such properties?

OTPs in hot markets are hit and miss. You might be able to flip the property for a good gain (without very little money down, which I'm assuming is what is attracting you) OR you might hit the top of the market. Even if the market just flattens all the other people who bought thinking they would flip are going to have to sell. We saw this at the top of the market in Melbourne and Sydney. If you believe in business cycles, this is going to happen to Perth as well.

This is not advice, but just my thoughts if I were a first time investor with limited resources looking for my first IP. I'd stay away from Perth. Go to Brisbane, Melbourne or Sydney. Brisbane, probably, if I didn't have much money. Find a cheap older house. Buy the unloved / down markets. Buying in a hot market is always more dangerous than buying a down / cool market.
Alex

 

[Timmy]

The choice is completely up to the individual about buying off-the-plan. I'm looking very seriously at an off-the-plan project. Caculations suggest that the income from the property will be enough to pay off a P&I loan, plus there are some awesome tax deductions.

I am looking at this property from the view point that there will be no capital growth (and there probably will be) in the short term.

I've given up listen to other people's opinions about property, and I'm gonna buy whatever I want, in whatever structure I want, with whatever loan I want, whenever I want.

 

[tonyd]

I was reading something in the Melbourne Age on the weekend saying you should never buy off the plan.

They were saying that everyone loves getting a brand new house or car but as soon as you sign the line the item has lost value. (its no longer brand new)

I think that's a poor analogy.
The writer is comparing a (hopefully) appreciating asset with a depreciating asset.
Like comparing apples and bananas

cheers, Tony

 

[The Y-man]

.... comparing a (hopefully) appreciating asset with a depreciating asset.

cheers, Tony

Ahhh.... but why is the large depreciation such a drawcard in an OTP?

Cheers,

The Y-man

 

[geoffw]

I've given up listen to other people's opinions about property, and I'm gonna buy whatever I want, in whatever structure I want, with whatever loan I want, whenever I want.

That's a pretty big statement.

I've been in property a few years- and I've had some successes- but I always listen to opinions of people who I respect.

I may choose to ignore some opinions (based on my own criteria)- but I'm always going to at least take other peoples' opinions into consideration.

Without that, I will crash.

 

[Tizzy]

I'm not sure that its appropriate to brand all OTP sales as bad. I'm in the process of selling OTP at the moment and I know I've made money and the buyer certainly will too. I personally know several other developers who are further along in the process than I am and they also made money, as did their buyers. Maybe its the large developments (apartment type) that have the problems, because none of the ones I've heard of recently (duplexes/triplexes) seem to be a problem for either the seller or the buyer. all I've seen (so far) is win/win.

 

[Tizzy]

Actually I probably should add....if I could get my flippin titles THEN I would be selling off the plan. waiting....waiting.....waiting...

 

[alexlee]

Maybe its the large developments (apartment type) that have the problems, because none of the ones I've heard of recently (duplexes/triplexes) seem to be a problem for either the seller or the buyer. all I've seen (so far) is win/win.[/

There aren't any major problems...... yet. The reason you’ve only seen win/win so far is because the Perth market has been great. How long have you been at this and how many cycles have you seen? Were you selling OTP during the 90's when, according to APM, the mediam price was almost dead flat for a decade? Personally, I was just entering puberty during the last crash, but I remember enough, have read enough and observed enough (Sydney in the last couple of years) to know that good times don't last forever. The better a market is (especially a frothy one so dominated by investors as the current Perth one) the more careful true investors would be.

I’m sure everyone thought of win / win with the $ signs flashing when they bought OTP in 2002 / 2003 in Sydney. The risk of OTP is that the market turns between when you buy OTP and when the project is complete, and often OTPs at the top of the market have contract prices higher than equivalent finished units at the time you sign the contract. Who can tell what the Perth market will do in 2 years?

If the boom continues, of course, you'll make a ton of money for very little down, but there ARE risks.

Dont make the mistake of thinking all OTP purchases are bad.

They are NOT.

Have an abundance mentality. Look for opportunities.

I agree some OTP purchases are good. I’ve bought a few (just a few months to completion, small blocks in Brisbane in a rising market) that have turned out well. A high-rise in Perth, priced at the back end of a huge boom, with investor demand through the roof.... riskier, don't you think?

To me, abundance mentality means that yes, there ARE ways to make money. It means I should be optimistic and believe that I can learn how to make money and be able to find good opportunities even if I start with nothing. It DOESN'T mean every deal will work just because I am optimistic.

True gurus attain guru status by selling at the top, when I'm sure everyone else would say they were crazy. Fools guy and the top. I'm not a guru and I don't know how to tip the tops and bottoms, so I don't intend to sell, but I know that by limiting my buying to buying when the market makes sense, I'll be more successful long term.

In the current market, I'd look at Melbourne or Brisbane.
Alex

 

[Tizzy]

Perhaps I wasn't clear enough Alexlee. I assumed it was understood that the win/win I was referring to was in relation to the specific few deals I have personal knowledge of. These are also below the current median price quite comfortably so I don't envision there being much of a problem once the market cools. And yes I've seen a number of cycles. Whether you buy succesfully with any real estate, new, OTP or established, is going to come down to the individual deal, the merit of the particular location and the market at the time IMO.

 

[Aceyducey]

I've given up listen to other people's opinions about property, and I'm gonna buy whatever I want, in whatever structure I want, with whatever loan I want, whenever I want.

Timmy,

So why do you bother reading or posting on this forum?


Stirling,

I'd suggest you consider carefully the amount of building underway in the areas where you're looking at OTP purchases.

Is there the possibility of an oversupply situation?
Are there better opportunities with pre-existing property?

Cheers,

Aceyducey

 

[Timmy]

So why do you bother reading or posting on this forum?

Timmy's total Posts = 3
Aceyducey's total Posts = 6,541

(Answer to question, I don't.)

I was merely trying to suggest to the thread starter than he should perhaps do what he wants to do, rather than trying to follow the countless number of opinions on this forum. I reckon I've heard every argument for and against every single type of property out there (available to investors). So I've decided to stop trying to please others (by agreeing with their opinions), and do what I want to do.

 

[alexlee]

Timmy's total Posts = 3
Aceyducey's total Posts = 6,541

(Answer to question, I don't.)

I was merely trying to suggest to the thread starter than he should perhaps do what he wants to do, rather than trying to follow the countless number of opinions on this forum. I reckon I've heard every argument for and against every single type of property out there (available to investors). So I've decided to stop trying to please others (by agreeing with their opinions), and do what I want to do.

Yeah, but the rest of us are very interested in other people's opinions because I, at least, believe I can still learn new stuff. Far more experienced investors than me still learn new things (or so I've been told) so you've obviously got even more experience again if you believe you've heard every opinion on property out there!

I can only assume the reason Stirling posted was to get other opinions. I certainly don't think he has heard all the arguments for and against.

We gain nothing here by having people agree with our opinions. Personally, I learn the most when people are attacking my opinions: I learn from different arguments, and when the others are right, I learn even more because I can change my view.
Alex