Off the plan
- Thread starter Brian84
- Start date
Pros/Cons ratio = 1/50
But rather than look at the general - can you ask yourself the big question - "Why".
Why do you want to buy off the plan?
What led you to that? did it come from yourself i.e. your strategy or did an external factor such as advertising, or a salesperson lead you towards that?
ps I just saw another of your posts asking about buyers agents - if a buyers agent is charging you and offering you off the plan run run run as fast as you can right now - you are likely paying twice and also likely paying far too much.
But rather than look at the general - can you ask yourself the big question - "Why".
Why do you want to buy off the plan?
What led you to that? did it come from yourself i.e. your strategy or did an external factor such as advertising, or a salesperson lead you towards that?
ps I just saw another of your posts asking about buyers agents - if a buyers agent is charging you and offering you off the plan run run run as fast as you can right now - you are likely paying twice and also likely paying far too much.
Hey Brian
There's been heaps of posts on this previously - you'll find loads of info from a quick search on "off the plan" or "OTP"
There's lots to consider with OTP! In my opinion - the risk of having finance fall over is the biggest of them all. The major contributors are changes to the applicants employment situation and/or the valuation coming in lower than purchase price.
Cheers
Jamie
There's been heaps of posts on this previously - you'll find loads of info from a quick search on "off the plan" or "OTP"
There's lots to consider with OTP! In my opinion - the risk of having finance fall over is the biggest of them all. The major contributors are changes to the applicants employment situation and/or the valuation coming in lower than purchase price.
Cheers
Jamie
Answers above.
The cons far outweigh the pros. The pros are the market could increase and you gain equity for only a 10% deposit. Reduced stamp duty and higher deductions but the buck pretty much stops there.
The cons. Market goes backwards and now you cannot get finance and lose your deposit. Or you need to come up with the difference and now find yourself with negative equity. Your paying a high premium for new! Would you prefer a brand new car or one for 10k less with an extra 1000k's on the clock?
If your trying to sell once completed then prepare to be up against everyone else thinking the same thing along with the developer trying to offload the excess. What do you think will happen to the value when 15 people are trying to sell at the same time?
No ability to manufacture any growth, can't renovate it.
Shall I go on?
The cons. Market goes backwards and now you cannot get finance and lose your deposit. Or you need to come up with the difference and now find yourself with negative equity. Your paying a high premium for new! Would you prefer a brand new car or one for 10k less with an extra 1000k's on the clock?
If your trying to sell once completed then prepare to be up against everyone else thinking the same thing along with the developer trying to offload the excess. What do you think will happen to the value when 15 people are trying to sell at the same time?
No ability to manufacture any growth, can't renovate it.
Shall I go on?
I haven't spoken to a ba yet so it didn't come from them but thanks for the heads up anyway. My cousin told me that her friends sister bought an otp property with only 5k outlay of deposit to start with, once the project was completed she made a $200k profit. Is this possible or is she talking ****.
she likley purchased a deposit bond, and the marker did well around her.
equally, the market may do poorly, or valuations or lender appetite may change.
Indeed, your personal circumstancesmay change so that you cant complete.
You are then usually liable for the 10 % deposit PLUS resale costs, plus any difference between your buy price and what the place was then sold for
ta
rolf
Gambling is not the right reason to buy OTP in my opinion.
The above only happens in a fast market and only if you buy really well. It can equally go the other way, often more so because most OTP sales happen at the top of a boom (where we are right now actually, in Sydney anyway). If settlements happen 2 years later that can be where a glut is due to excess construction during the boom.
If the market cools, or there is oversupply, you are at risk if your settlement plan is to not settle but to sell. If you don't settle you'll be chased for the 10%
Heya, good qn. I've had some success with OTP investing, some reflections below.
Personally, i wouldn't rule out OTP as a viable strategy to earn you returns and help you achieve your goals. Most of the time its not the best stock to invest in (could be good for PPOR though - given grants), BUT, it can be very effective IF deployed as part of a structured plan and in the right conditions.
They say early on to build capital - and do it fast. Pretty sure Steve Mcknights book talks about accelerating capital accumulation via stocks, etc.
OTP can be particularly useful here.
Conditions when effective:
(a) when you don't have the cash available at time of purchasing;
(b) a rising market (Brisbane for example, or Sydney 2 years ago);
(c) where oversupply isn't a problem (parts of Brisbane are a problem);
(d) and when you don't have TIME to do others (explained below).
(e) ideally not in mega complexes...
Most here will talk about getting in (cheapie if you don't have capital), add some value and then go from there. While this is incredibly powerful and requires less 'market conditions', it requires TIME. Lots of people with the above conditions are quite young, ambitious and focussing on their careers. Their aim isn't to become full time property kings and add 'labour' to the process (which renos, etc, inevitably does - whether it be managing or self done).
Cheers,
Redom
Personally, i wouldn't rule out OTP as a viable strategy to earn you returns and help you achieve your goals. Most of the time its not the best stock to invest in (could be good for PPOR though - given grants), BUT, it can be very effective IF deployed as part of a structured plan and in the right conditions.
They say early on to build capital - and do it fast. Pretty sure Steve Mcknights book talks about accelerating capital accumulation via stocks, etc.
OTP can be particularly useful here.
Conditions when effective:
(a) when you don't have the cash available at time of purchasing;
(b) a rising market (Brisbane for example, or Sydney 2 years ago);
(c) where oversupply isn't a problem (parts of Brisbane are a problem);
(d) and when you don't have TIME to do others (explained below).
(e) ideally not in mega complexes...
Most here will talk about getting in (cheapie if you don't have capital), add some value and then go from there. While this is incredibly powerful and requires less 'market conditions', it requires TIME. Lots of people with the above conditions are quite young, ambitious and focussing on their careers. Their aim isn't to become full time property kings and add 'labour' to the process (which renos, etc, inevitably does - whether it be managing or self done).
Cheers,
Redom
That is a very good post by Redom and does highlight some additional benefits to OTP. It is true that you can get into the market on a very low amount and potentially get some nice equity which is much less time consuming than a reno strategy. You can definitely make money from OTP, my sister in-law bought OTP in a small complex in Northcote that has done very well.
BUT
And I along with probably 80% of the forum will keep coming back to it being akin to gambling which is purely speculative. The market COULD go up but it COULD also go down. Now the risks of the market going down IMO are far worse for your future investing compared to the benefits if the market was to go up.
Compare a house to an OTP apartment and say the market goes south. With an OTP apartment you are stuck. What happens if you need to exit? You have no option but to wear the cost. Now compare to say an older house. If the market goes south and you need to exit well there are a few strategies you can employ to claw back the loss to atleast break even, dust yourself off and go again.
BUT
And I along with probably 80% of the forum will keep coming back to it being akin to gambling which is purely speculative. The market COULD go up but it COULD also go down. Now the risks of the market going down IMO are far worse for your future investing compared to the benefits if the market was to go up.
Compare a house to an OTP apartment and say the market goes south. With an OTP apartment you are stuck. What happens if you need to exit? You have no option but to wear the cost. Now compare to say an older house. If the market goes south and you need to exit well there are a few strategies you can employ to claw back the loss to atleast break even, dust yourself off and go again.
Thanks albanga.
Agree that it requires a whole lot of luck. The conditions are very onerous.
Tbh, while it worked to accelerate my capital, i probably wont do it again (unless the deal is amazing) because of the risks identified by others.
I was just trying to put a structured framework for when it MAY be ok. Generally a one shot game to 'get in' earlier than otherwise.
Cheers,
Redom
With an established property, you don't need to exit when the market goes south.
A property I own in Canberra has a $30k capital value decline, yet I don't need to do anything I just keep it there earning rent and generating tax deductions. The only difference is I can't draw equity from it.
With an OTP, you're forced to meet the market at settlement, and it's not your view of the market that counts either, sometimes not even the market's view - you are at the mercy of the bank valuer.
If you're familiar with shares, this is just like having a margin call. If the market goes down, you need extra cash to make up the margin difference at settlement.
The scary thing is that often if the market goes down, everything can go wrong at once because others who purchased in the complex may also have trouble setting, this has a domino effect in:
-Lots of apartments on the market at once, all those who don't have the cash or the extra cash needed
-Some people selling too low, and this gets flagged as a comparable sale by the bank valuer
-The bank could add a high risk rating on the area if there is oversupply, which means they have different LVR requirements. If you are counting on a particular LVR, it can really screw you if that changes.
Remember your finance application only lasts a few months and will expire before the OTP completion, you have then 1-2 years in limbo where you have to worry what's going to happen with your new finance application and valuation prior to settlement. That also means you usually can't buy anything else in the meantime putting all plans on hold.
I feel alot safer personally buying established, subject to finance, and not going unconditional on the contract until the finance is a formal approval with no conditions. Sleeping at night is easier, and after each deal I can move onto planning the next one.
This opinion is because of my strategy. Others strategies are different, so there are many opinions but personally I don't like OTP, and I think it's there for the people who have no choice (overseas buyers), and I do not want to compete with them.
A property I own in Canberra has a $30k capital value decline, yet I don't need to do anything I just keep it there earning rent and generating tax deductions. The only difference is I can't draw equity from it.
With an OTP, you're forced to meet the market at settlement, and it's not your view of the market that counts either, sometimes not even the market's view - you are at the mercy of the bank valuer.
If you're familiar with shares, this is just like having a margin call. If the market goes down, you need extra cash to make up the margin difference at settlement.
The scary thing is that often if the market goes down, everything can go wrong at once because others who purchased in the complex may also have trouble setting, this has a domino effect in:
-Lots of apartments on the market at once, all those who don't have the cash or the extra cash needed
-Some people selling too low, and this gets flagged as a comparable sale by the bank valuer
-The bank could add a high risk rating on the area if there is oversupply, which means they have different LVR requirements. If you are counting on a particular LVR, it can really screw you if that changes.
Remember your finance application only lasts a few months and will expire before the OTP completion, you have then 1-2 years in limbo where you have to worry what's going to happen with your new finance application and valuation prior to settlement. That also means you usually can't buy anything else in the meantime putting all plans on hold.
I feel alot safer personally buying established, subject to finance, and not going unconditional on the contract until the finance is a formal approval with no conditions. Sleeping at night is easier, and after each deal I can move onto planning the next one.
This opinion is because of my strategy. Others strategies are different, so there are many opinions but personally I don't like OTP, and I think it's there for the people who have no choice (overseas buyers), and I do not want to compete with them.
I think this has been covered well by other posters.
Its not luck though... its timing the market, could say that with any property purchase I guess.
However OTP is crucial and there is more risk IMO. If you buy at the beginning of a boom cycle then you may do OK, you get this wrong you get burnt.
If the project takes longer to build and you miss the boom cycle then you risk the values coming under expected/projected values you get burnt. Higher risk proposition with OTP.
A recent thread "the Armchair developer", read it, pretty scary stuff.
These investors got burnt with OTP project....because when the project started it was clearly a rising market in Perth. Unfortunately the project has had numerous delays which in effect has equated to additional costs for investors. The market has now turned and my guess is values will come in under what was estimated by this company. Not only will they lose money, they also missed a fantastic opportunity to make money with less risk just by simply buying in this rising market.
MTR
Its not luck though... its timing the market, could say that with any property purchase I guess.
However OTP is crucial and there is more risk IMO. If you buy at the beginning of a boom cycle then you may do OK, you get this wrong you get burnt.
If the project takes longer to build and you miss the boom cycle then you risk the values coming under expected/projected values you get burnt. Higher risk proposition with OTP.
A recent thread "the Armchair developer", read it, pretty scary stuff.
These investors got burnt with OTP project....because when the project started it was clearly a rising market in Perth. Unfortunately the project has had numerous delays which in effect has equated to additional costs for investors. The market has now turned and my guess is values will come in under what was estimated by this company. Not only will they lose money, they also missed a fantastic opportunity to make money with less risk just by simply buying in this rising market.
MTR
As an investment , for me OTP comes down to timing and the specifics of the deal . We came across at OTP which was being marketed around 50 k under the then current prices and around 100k under current prices .
Interestingly the developer has decided he doesn't need to offer a 50 k discount to sell his development , so the next block which is currently being marketed has prices which reflect current prices ie 100 k over what we paid and ours is yet to be completed .
At the same time ( mid last year ) our daughter was looking for a unit on the lower northern beaches and couldn't find one she wanted , but then we found an OTP development which also appeared to be priced slightly under current market prices . I think she's sitting on around an 80-100 k profit . There have been delays in the project which the developer has apologised for and he generously offer the option for people to walk away from their contracts if they wanted to ...
I would be wary of buying generic units as an OTP . I'd contemplate one if the position was unique , the price represented a significant discount ( this does happen ) or I believed the market was going to be moving strongly in the position prior to completion .
In both the above two cases I felt the last two conditions applied .
Cliff
Interestingly the developer has decided he doesn't need to offer a 50 k discount to sell his development , so the next block which is currently being marketed has prices which reflect current prices ie 100 k over what we paid and ours is yet to be completed .
At the same time ( mid last year ) our daughter was looking for a unit on the lower northern beaches and couldn't find one she wanted , but then we found an OTP development which also appeared to be priced slightly under current market prices . I think she's sitting on around an 80-100 k profit . There have been delays in the project which the developer has apologised for and he generously offer the option for people to walk away from their contracts if they wanted to ...
I would be wary of buying generic units as an OTP . I'd contemplate one if the position was unique , the price represented a significant discount ( this does happen ) or I believed the market was going to be moving strongly in the position prior to completion .
In both the above two cases I felt the last two conditions applied .
Cliff
