Read this before you buy your next property

Establishing the right investment and finance structure is critical to the long-term success of any property acquisition.

Some people decide to convert their home into an investment property in the future. Seeking advice at the outset when you’re contemplating such a move is crucial, so that you don’t miss out on future tax deductions.

So let’s explore how you can establish the right ownership and debt structures from the outset, to reduce your risk exposure while to maximise your all necessary investment dollar and allowable tax deductions.

SEEK ADVICE

It doesn’t matter how much research you do into loan packages or lenders unless you are a professional working in the cutthroat world of finance, never assume you can go it alone.

It is extraordinarily important that you speak to an Awesome Lending Solutions mortgage broker, before you place the deposit down on a property, so that you have your debt structured correctly from the outset to make sure that you’re maximising your tax deductions on that borrowing.

An expert will guide you throughout the process, ensuring that each step is taken only after careful consideration of your personal circumstances and long-term goals when it comes to property ownership.

 If you used cash for the initial deposit of say 10%, then you’re potentially not going to get the full tax deduction that you might otherwise have received. Get that right at the outset by speaking to somebody before you sign on the dotted line.

Once you are ready to settle or you’re moving towards a settlement, make sure you have the loan structured correctly from a principal and interest perspective. Also consider the options of fixing or variable (interest rates) in light of your overall position, so that you’re not overcommitting and missing out on opportunities in the future.

It is critical for investors who need to be mindful of their cash flow.

As a professional property investor, you want to structure your finance arrangement(s) to maximise your borrowing power now and into the future and minimise any out of the pocket contribution.

Ideally, you will pay nothing at all to service the loan once structured.

This is particularly important when you’re still in the accumulation phase of your investment endeavours and are likely to have what we refer to as “bad debt” – the mortgage over your own home – which you should aim to pay down as quickly as possible, whilst capitalising on your “good” investment debt, where the government provides you with that extra negative gearing incentive.

MAKE YOUR DEBT WORK FOR YOU

A primary consideration in this optimal debt-constructing scenario is whether you have any intention of converting your home into an investment property in the future.

We have seen a lot of clients who have almost paid their initial (home) loan off.

Then moved into a new house over which they have a substantial borrowing and efficiently no tax deduction on that debt.

Whereas if they structure it correctly from the outset. Incorporate an offset facility, they can take their money into the new home and only have good debt, being the tax deductible loan on what is now an investment property that used to be their home.

LAND TAX SAVINGS FOR THE SAVVY INVESTOR

Interestingly, many people neglect to consider the ongoing cost associated with holding property when establishing an investment loan. And the price that takes the unsuspecting investor by surprise most often is the land tax.

When you are looking at ownership – be it an individual, super fund or trust – consider the stamp duty and property tax costs that are potentially attached to that particular structure.

As an individual, you have a substantial threshold before land tax is payable, whereas other entities don’t necessarily have those thresholds.

Likewise, if an individual already has an investment property in their name, your land tax bill could become expensive.

If you put another property in your name, as opposed to having it in your spouse’s name, who is not attached to another investment property title.

Given that electing to adopt this type of strategy for your ownership structures could save you a few thousand dollars each year in property tax obligations, this is something you should consider from the get go.

DO YOU APPRECIATE THE BENEFITS OF DEPRECIATION?

One of the things we find here at Awesome Lending Solutions, when investors approach us to assist with refinancing or implementing a new arrangement, is that they are underutilizing the taxation incentives available to them, particularly concerning depreciation schedules.

Depreciation schedules written by quantity surveyors, which assess the value of your property’s assets and the potential cost to replace them should the need arise.Provided the property fits within certain construction dates, depreciation, can be a substantial benefit.

Provided the property fits within certain construction times, depreciation, can be a substantial benefit.

Not only property that may have been wholly constructed after, say 1987 that should have an amortisation schedule drawn up. It can also be a property that has had renovations done since that time.

This means receiving deductions on two fronts, being the “building write off” – the cost of wear and tear on the property’s structure – and depreciation on fittings and fixtures such as wiring, lights, furniture and the like.

A quantity surveyor will come out to your investment property, do an assessment and prepare a report for you, which will provide a detailed report on those depreciation items that you can claim each year.

Of course, as with many property investment related expenses, the fee to engage a quantity surveyor is also tax deductible. So there’s no reason to not have this done and potentially save thousands on your annual tax bill!

FIND THE RIGHT HELP

Ultimately, if you establish yourself as a professional property investor, the best way to optimise your portfolio is to ensure you surround yourself with the good consultants and maintain strong, working relationships with them.

Your rapport should be based on trust, and you must feel comfortable enough to ask any questions upfront when contemplating the establishment or alteration of any type of investment or debt structure.

After all, a dollar saved is a dollar earned!

Like to read some other articles related to this topic? Have a look at the following links:

http://awesomelendingsolutions-com.hs-sites.com/blog/what-are-the-benefits-of-buying-an-investment-property

http://awesomelendingsolutions-com.hs-sites.com/blog/how-to-decode-a-property-advertisement

http://awesomelendingsolutions-com.hs-sites.com/blog/how-can-i-develop-a-property-investment-strategy

9 Wealth Creation Tips I have learnt from my clients in the last 10 years - by Albert Waldron

Recently it was pointed out to me that two things in life change you. The books we read and the people we meet. 

As many of you will know, I am an avid reader and have recommended many excellent books on wealth creation. When reflecting on this statement I started to think about the people I have met over the last ten years, and some interesting things came to mind.

It’s never too late to start.

I was recalling the number of fantastic people I had the pleasure of meeting that are in their late fifties and even their sixties who come to see us about creating wealth and developing a property acquisition plan.

Now these are often people who have a comfortable level of savings and income and could move into retirement comfortably.

Many get excited about the idea of increasing their wealth and it’s amazing what that mindset can achieve. Proving that new goals can be reached no matter what the age.

Too much bad debt equals tomorrow's slavery

I have met many lovely people who have increased their debt level as their income grew and now realise that they want help in achieving a more secure future. 

The feeling of being swallowed by debt will happen to all except for those people lucky enough to win the lottery or receive a huge inheritance for the majority of us life happens in increments.  It is easy not to realise that your expenses are creeping up and keeping pace with your income.

It is easy to seek immediate gratification and forget to delay the purchase of something that we want. 

Unfortunately, this leads many to fall into the trap of increasing bad debt. The fact is that bad debt robs people of their opportunity to use tomorrow’s earnings to invest.

Limiting your bad debt obligations will mean you have more control over your personal finances and give you the freedom to start investing.

It's easy to get caught up in the ‘Big Boys Toys’ game

Everyone has the ‘toys’ in their life that help them feel fulfilled.

The feeling that the more ‘toys’ I have, the more successful I am is among all of us, but they can be an enemy to money management.

It’s easy to look at how ‘the other half live’ in glossy magazines and on television and think this is something to aspire too. Many of us think life is all about working so that you can be one of the ‘have mores’ of the world is a good indication of just how alluring it can be.

The truth is possessions don’t make for 'a rich life', it’s the experiences and people – the things that money can’t buy – that make you truly wealthy.

Everyone is responsible for their own destiny

I have seen many people try to help set their children up for the future. The fact is; people who seem to be more successful in building wealth are those who accept responsibility for their own destiny.  These are the people who own their decisions; there are no rich victims. 

On the flip side, I have tried to help many people who always seemed to have someone or something to blame. People who feel they’ve been unjustly dealt a ‘bad hand’ and these people rarely seem to be able to create wealth.

For those courageous enough to cast a critical eye over their life, recognising where they are is a direct result of their own choices. This allows them to take ownership of their decisions to build confidence, self-esteem and self-respect.

People who have done this seem to have an inner strength in knowing they have become the master of their own destiny, rather than handing their power and control over to someone else.

Patience and Preparation bring success

The people I have met who have the ability to be patient also have the capacity to understand the difference between wants and needs.

They are able to recognise that all the money you spend on those material items you just ‘had to have’ today, is less that you’ll have to fund your retirement with tomorrow.

I have learnt from these people that if you work hard and invest even harder, your purchasing power will increase over time!

Luck is made through hard work.

Some people over the course of my life like to attribute the success of others all to ‘good fortune’. Perhaps they were in ‘the right place at the right time’, or knew ‘the right person’.

While a handful of people have lucked out by winning the lottery, truly successful people do the hard yards to reach the pinnacle of their chosen field or endeavour.

If you can find something that you’re passionate about, and make a living doing it. You will be far more likely to achieve great things because you’ll work harder to reach your goals and every day won’t be a struggle.

You don’t need millions to achieve financial freedom.

I have met a couple of people who claim to be millionaires but who in reality are up to their eyeballs in debt with their property portfolios not protected. 

Many of society’s wealthy power players are asset rich, but cash flow poor.

Some are obligated to their creditors indefinitely.

Whereas other people I have met who earn $50,000 a year, are without debt and have a decent amount of assets and are financially free.

One of the skills that a lot of my clients have mastered is that financial freedom is not dependent on money itself.

It is more about your relationship to it and the level of personal responsibility and fiscal discipline you’re prepared to exercise throughout life.

Spend less than you earn… and invest the rest

I remember this couple I was totally impressed by their ability to move financially forward and never could understand how they did it till I got to know them. 

They followed one golden rule above all else, and they quickly established themselves to a path of financial freedom.

If you seek to invest at least 10 percent of your earnings, the rest will take care if itself.

Your opportunities won’t last forever so use them wisely

A good example of someone that I met that created and grab opportunities wisely was a child of one my clients.

They were determined to purchase their first property by the age of 21 and was working three jobs to save the deposit. Nine years later five properties. 

Sometimes opportunities come when you are not ready but you need to grab them as they help create openings to shape your future.

Start saving and investing early in life and you’re likely to secure your financial future.

WHAT I UNDERSTAND BECAUSE OF MY CLIENTS

Financially secure people do certain things every single day that sets them apart from everyone else in life.

These people have good daily success habits that they learned throughout their lives. 

These daily habits are the real reason for the differences in people's path to financial freedom.

Unless we learn daily success habits, we will never find a future full of opportunities and wealth security.

So it might pay (literally) to give them a bit of your time.

Want to hear more about wealth creation and being credit ready then come along to our next event being held on the 7th July at 6.00pm.

The biggest problems with making a decision to buy off the plan

This article from has some fantastic tips for buying off the plan – whether you are an investor or an owner-occupier, it’s certainly worth a read.

1. MAKE CERTAIN YOU HAVE RESEARCHED THE DEVELOPERS REPUTATION

Research the backdrop for the developer and its particular track record. Have there been court against from the developer?

Is there a history of delivering exactly what happens to be guaranteed and disputes which can be settling and neatly?

Banks tend to be strict on who they provide finance too.

The online world is an instrument that is good research, to check out blogs and newspaper articles. Never judge a developer exclusively by its internet site, and ensure there is a working office where you can meet individuals face to face. 

It is also an indisputable fact that it is good to visit the property website and look at the area. You will probably find various other constructions within the precise location, which may influence your view. It's also wise to very carefully examine the display house, models and programs along with the fixtures and accessories.

2. WEIGH UP LEVERAGED INVESTMENTS CAREFULLY

In times, past many savvy investors would buy apartments off the plan, making only a deposit of 10%, and then on sell them before settlement to make an income this is certainly profitable. When the GFC struck these assets being leveraged made many individuals broke. Some speculators are tangled up in court with developer chasing their cash on units which have fallen in value, a value often a lot less than what was the agreed purchase price. This investment method is for those who are happy to simply take dangers that require a sound knowledge of residential investment. 

Leveraging is actually utilizing various other people’s money, either as a home loan from a loan provider or occasionally from the developer, to improve the potential gain from a property investment over a fixed period of time. What separates investment from a long term investment is it must have a conclusion date that can be determined. The reverse of taking a mortgage out to buy your house, paying it well over 30 long years and having the property. 

For example, if you buy off the plan and put a $10,000 deposit on a $100,000 property, you would need to borrow $90,000. If the $90,000 borrowed costs you 5% interest, it would add $4,500 to the entire cost. Therefore the $100,000 investment is, in fact, $104,500, if you sell within that one-year period. To make a profit, the property must be sold for more than $104,500. If the property sells for $110,000, you have made of profit of $5,500.

The revenue is impressive when determined as a share gain on the capital, nevertheless be aware: in the event that property sells for $102,000 it will instead cost you money than rendering it.

3. CAPITALISE ON STAMP DUTY CONCESSIONS ON OFFER 

Purchasing flats and townhouses off the plan frequently lures exemptions or decreased stamp duty for property acquisitions in states across Australia. Each Australian state and territory have its concessions and bonuses, but you are eligible for a few stamp duty discounts or waivers if you are a first-home buyer. 

The schemes mostly provide support for individuals purchasing their homes as first home buyers. 

From time to time, projects have now been launched for upgrading purchasers geared towards stimulating the building of brand new homes. Some schemes have required purchasing off the plan before construction commences, and other subsidies part of the stamp duty after construction begins. The schemes typically have eligibility demands regarding the top price precludes consideration. 

Some governments require stamp duty payments after exchange documents are signed, but other people delay the repayment of stamp duty before the registration associated with the property until the strata plan has been registered.  To calculate potential stamp duty costs feel free to go to our website for research that has several useful calculators for this purpose.

4.TAKE RENTAL GUARANTEES WITH A GRAIN OF SALT 

It is a good idea to treat rental guarantee with suspicion and ensure that you do the number crunching to be satisfied that they are genuine and stack up 

Current rental guarantees are in the order of 5% to 7%. If an investment has a gross return of 6% and the developer promises $300 a week rent that would put the purchase price at $260,000. 

But if the market rent is, in fact, $250 a week, the property is worth $218,000. This would have you paying 19.2% over the market value. The developer only has to pay $5,200 in total over two years to guarantee the $300 a week rent and the company would pocket $42,000 – or $36,800 net – on the sale price.

5. TAKE INTO CONSIDERATION RISING AND DROPPING VALUES 

All purchasers must determine what their needs are. Owner-occupier's are very different to people and want very different things from a home purchase compared to someone who is looking for an investment. 

We would never suggest to our clients to buy for the short term as it is not a sound investment strategy. We also recommend holding onto the property over the long run. 

Investors, which accounted for about 70% of product sales six years ago, once dominated buying of the plan.

However, the wave is switching. 

Owner occupiers have become a lot savvier when it comes to buying off the plan than they were a few years ago.  A large reason for this is that with an off the plan purchase you can have a lot more design input that is an important factor for someone buying a property for owner occupation. Emotion is always a critical factor.

The tight residential market in Sydney, where owner-occupiers have seemingly embraced buying off the plan or face never getting started on the property ladder according to research. 

In Sydney, there are not many apartment buildings these days that are not already sold when they are finished, so they do not add anything to the available housing stock. 

This keeps the market competitive and tight, and owners-occupiers understand that buying off the plan is a reputable way to buy and no longer the sole domain for investors. 

However, do not always assume that property prices are going to rise. There have also been cases of people paying far more for a property at settlement than they could hope to sell it for in the current market. 

When are considering signing a contract for a purchase of an off the plan property, it's also advisable to investigate how many other projects are going to be completed over this time framework in identical areas as this may give you some insight on what might happen to the value of the property when it is time for completion. 

There could, for example, be a glut of apartments being marketed off the plan our due to commence construction, which could create an oversupply rental situation or reduce values. 

6. CONSIDER CUSTOMISATION

Not only can buyers select what they want upfront, they can sometimes make some changes to the floor plans so the property better suits their needs. Almost always the first units to be sold are those in the best positions, such as corners or penthouses. Some ground-floor apartments have courtyards, too. It is first in, best dressed. Investors can be found looking for these units, since they usually bring in a greater rent. 

Some buyers may pick up two apartments and amalgamate them into a large three-bedroom apartment, while others may turn a two-bedroom unit into a large one-bedroom apartment. Most developers can offer buyers choices of finishes and a variety of upgrades for additional costs. 

A serious chef might want the dream kitchen with the best appliances and stone benchtops, while an asthmatic would probably opt for a timber or stone floor rather than carpet. 

Bear in mind, though, that changes to the plan and to fittings and finishes might push up the price, but might not have as great an impact on end value. Also, if it is an investment purchase, consider who is likely to rent it and whether they would pay more for high-quality extras. 

7. DO YOUR DUE DILIGENCE 

Nothing can be more important than ensuring that the correct research and checks have been conducted and that you are going into the purchase with your eyes wide open. First, it is absolutely essential to understand the buying process, precisely what funds are required and when you will need them. This will allow you to make an accurate cashflow analysis. It should cover investment and risk. 

High potential returns often equal greater risk, and vice versa. Take the time to identify the potential risk, and the returns that you have calculated should be acceptably balanced. It is important to settle for a purchase that suits your financial situation and investment targets. 

Be vigilant with money, and have your finance lined up when you put down the deposit.  Consulting with experienced Awesome Lending Solutions Broker can help with this. 

Don’t be caught out at settlement by not having the finance ready. Something as simple as changing jobs and entering into a probation period can affect your capacity to get finance,” says Albert Waldron, Director of Awesome Lending Solutions & Home Loans. 

If you are planning to buy off the plan interstate, familiarise yourself with the laws and taxes of that state. And if you have a friend or relative in that location ask him or her to go and physically see the site since there could be any number of factories or other developments nearby that could impact your decision. 

8. DON’T UNDERESTIMATE THE RISKS 

One of the biggest risks is that a developer or builder will go under before completion or that a project will fail to get off the ground, but this should result in no financial loss for the buyer. When you pay your 10% deposit to secure your property it is held in trust either by the selling agent or vendor’s solicitor. If the developer is unable to go ahead for whatever reason buyers will get their money back.

Another significant issue is often the final product. Waldron says the best way to protect yourself from a nasty shock is to check every detail on the sale contract, particularly regarding the finishes. “Most disputes arise from a buyer not being happy with the end product. The best way to avoid this is to be aware of exactly what all of the finishes should be,” he says. 

You should look at the schedule of finishes for all parts of the property, including floor coverings, colour schemes and kitchen appliances. Know everything about the interior, down to how many power points there will be in every room. All of this can be negotiated before exchange of contracts and should be included specifically in the contract if you want to be able to enforce performance against the vendor. If a contract is skinny on detail, there may be little room for complainT at the end of the day. 

Timing of delivery can also be an issue for buyers of property off the plan. Developers do need flexibility in the sale contract so they can ensure successful delivery of the apartments, and there are many situations that may cause the delivery date to be extended, such as wet weather.

"Become familiar with what is on the contract that will allow the ‘sunset’ completion date to be moved. Leave no room for surprises. If you do not understand the contract, take it to a conveyancer and have them read it and explain it to you. Do not cut costs, because with buying off the plan you cannot see exactly what you are signing up for,” Waldron says. 

When it comes to signing the contract you should be completely satisfied with all terms. If you are not satisfied by certain clauses, you should ask to have them amended, though the developer may refuse. The bottom line is that if you are not happy with the contract, you should seek legal advice. If the developer adopts a “take it or leave it” approach, your best bet may be to leave it. 

9. BUYING EARLY CAN HAVE ITS ADVANTAGES 

Not only can you often get first pick if you get in early, but there can be sound reasons for buying property off the plan. Before a property is constructed developers look for presales to give to the bank so it will provide funding for construction. 

However, you should not rush in to secure an early purchase simply to get a discount until you are satisfied with your investment and the contract you are about to sign. 

10. CONSIDER USING A DEPOSIT BOND RATHER THAN TYING UP YOUR CASH 

Buying off the plan will require investor pay a deposit, usually 10% of the purchase price. While developers prefer cash, some will allow buyers to use a deposit bond or bank guarantee instead of requiring cash deposit. 

An Awesome Lending Solutions Broker can assist with arranging this for you.

A deposit bond is a guarantee that says the insurance provider will pay 10% deposit to the vendor in any of the circumstances where the deposit would ordinarily be forfeited by the vendor. If the settlement does not occur and the deposit forfeited, the deposit bond provider will seek to recover the money from the borrower. There is no exchange of money in with the deposit bond in place until settlement. At settlement the buyer pays the purchase price in full, and the deposit bond lapses. 

The main benefit of using a deposit bond is that savings remain intact, as the cost of the deposit bond is far less than the deposit itself. 

The bond is provided in exchange for a one-off fee. According to Albert Waldron, a $50,000 deposit bond for a property settling in three years’ time would require the borrower to pay a one-time fee around $3,600. 

11. BE AWARE THAT YOU CANNOT EASILY GET OUT OF A CONTRACT 

A contract to purchase an apartment off the plan is a legally binding document. 

Generally, if you don’t proceed with the contract you will lose your deposit and may be pursued by the developer for the balance of payment or for any shortfall should the property be resold at a lower price. 

Changes in personal circumstances such as divorce, unemployment, illness or death of a partner are not grounds for legally cancelling an off the plan contract. 

You can generally only cancel a contract if the terms and conditions have not been met by the developer or builder. 

These may include conditions set out in a “sunset clause”, which usually pertains to a period of time in which the project must be completed and settlement should occur. You may also be able to cancel a contract if the builder has not registered the plans for the development by a set date in the contract. 

Off the plan, contracts are incredibly onerous to the purchaser, and we urge buyers to ensure they have arrangements explained to them by a qualified solicitor.

If you have a question or would like to know more about buying off the plan join us at our next seminar or contact me directly, I would love to talk to you info@awesomelendingsolutions.com.au

Whether you are looking to buy your first home, move home, refinance or invest in property, a mortgage broker can help. Access loans from all the major lenders, get help with paperwork – plus there is no charge for this service. Contact us on 1300 761 988 or info@awesomelendingsolutions.com.au

Common Misconceptions About How to Make Money Buying Off The Plan

Sydney is not alone in rapid sales of off-the-plan apartment projects, with new unit approvals hitting record levels. The number of new apartments is also rising in Brisbane and Canberra while Melbourne’s supply levels continue to grow almost four years after the city’s property market peaked.

Buying an apartment that’s yet to be built is a bit like buying a pair of shoes without trying them on. Even so, owner-occupiers and investors are falling over themselves to pay anywhere from half a million dollars – often much more – for apartments yet to be built.

The trend – driven by record-low interest rates, offshore investment and affordability issues – is shifting ­cityscapes and how people live and invest their money.

Property commentators and investment specialists are warning punters to pay ­attention to supply levels, location and capital gains potential as more towers crop up.

Oversupply concerns and a potential interest rate rise may put people off. But for now, developers and agents are cashing in, and buyers are hunting for the next unit boom suburb.

Last year’s rise in house prices filtered through the apartment market – and there is more growth to come.

Anybody buying a property over the next 12 months needs to be aware of the growth patterns. Now more than ever, it is important to do substantial research to back up your decisions with data and insight.

The best returns are expected to be in the inner suburbs – around 4 per cent to 8 per cent in the next five years. But each city’s market is at a different cycle stage and, therefore, offers ­varying growth potential.

Apartment numbers keep growing around Melbourne’s CBD, sparking ­oversupply concerns as rental yields soften and the vacancy rate increases. But the inner-ring suburbs, which are five to ­10 kilometres from the city centre, still offer among the best returns in the country, ­Residex’s Edwards says. Of particular note are Elwood, St Kilda and Richmond.

My feeling is that there is an oversupply of property, especially units.

Demand is currently being propped up by three main factors: property developers are managing their units well; international buyers are supporting new unit sales; and higher public confidence is being driven by factors like good clearance rates at auction.

Property pundits tip Brisbane as the next city to experience a rise in values and ­investment. 

Interest rate increases need to be accounted for ahead of purchase and settlement.

The overall negative impact of buying off the plan is that the valuation of the property is unknown until it is complete.

This makes lending difficult.

For example, a $500,000 apartment with a 10 per cent deposit from the buyer would require a 90 percent mortgage of $450,000.

Building apartment projects can take about 18 months to three years. If the market dips in that time and the final valuation comes in at $450,000, the bank’s 90 percent mortgage would be $405,000. The $95,000 shortfall between the mortgage and the original ­purchase price would fall on the buyer.

Another problem is customers aren’t always sure what value the bank is lending on – the contract price or valuation, whichever is lower.

Be ready for additional costs, if the valuation falls, then mortgage insurance may become a cost to the loan, which could negate stamp duty savings.

Buying so far in advance means buying a property in two years’ time at today’s prices, which is both a pro and a con.

Some off-the-plan buyers celebrate a rise in value between purchase and ­settlement, but with so much supply coming to market, and the potential for volatility in the broader economy, counting on capital gains is ­dangerous.

The Gold Coast market is still suffering after the apartment glut and market ­downturn after the global financial crisis.

Off-the-plan apartment buyers who signed contracts before the market slumped found themselves lumped with units worth less than the purchase price.

The result was a string of mortgagee sales that hit the market towards late 2010 through to 2012, which are still being absorbed.

Buying in over-supplied pockets becomes a problem if rental demand is overtaken by supply. Returns fall or, worse, the ­property sits vacant. An oversupply also makes it tougher for owners to on-sell their apartment.

The buoyant established housing market has made detached housing unaffordable for first-home buyers and upgraders ­wanting to live near the centre of their city.

At the same time, state government stamp duty discounts on new dwellings have made off-the-plan apartments more attractive, so there are more off-the-plan buyers than ever before.

Additionally, if the development is ­coming to its conclusion, the developer may reduce the prices of some of the apartments to sell, which again reduces the value of your apartment.

This is why securing the right mortgage terms, and the right location are crucial. Finding emerging areas where demand is likely to increase ahead of supply is the key.

Many suburbs that were once considered rundown and undesirable have since transformed into property investment hot spot. Clues are cafes and retailers opening in the area, as well as an influx of young residents with reliable incomes.”


CHECKLIST

For first-time buyers or investors considering off-the-plan, the process can be daunting. Albert Waldron Director of Awesome Lending Solutions. Offers some pointers.

• Get out of the mindset that you need to invest in the area you live in. That could limit opportunities to buy in areas experiencing capital growth and rental demand. Remember growth can happen in regional areas as well as urban. Successful investing needs a business mindset.

• Target areas where new infrastructure is to be built. Suburbs close to where new roads, freeways and public transport are to be constructed will be more attractive to tenants and are a sign of where the population is expected to grow.

• Identify commercial and social investment areas. Find areas where new shopping centres, hospitals and schools are to be built in the future. This also applies to gentrifying areas where new cafes and shops are opening.

• Invest in areas with more demand for housing than supply. Look for areas just starting to experience an increase in house prices and with low vacancy rates. A low vacancy rate means you will be more likely to tenant an investment property quickly.

• Invest in surrounding suburbs. If you miss out on a property in a booming area, consider the suburb next door. In many cases, the surrounding suburbs are likely to become hot spots themselves with time. You can piggyback the success of the existing hot spot while probably paying less for your investment.

• Speak to investment experts and like-minded investors.

Pros and Cons
It’s the million-dollar question for any prospective home buyer – do you put your money into a brand new home or is it better buying an established property?

Buyers’ agents often steer prospective home owners towards older properties because they have a track record. But many consumers feel they’re buying peace of mind by purchasing new.

Established properties the same size in the area can be a lot more expensive. Local amenities can sometimes not be anywhere near as advanced than they can be buying in a zone where there is lots of development.

People make assumptions based on one development that’s been packaged well and that can be dangerous.

If you have a question or would like to know more about buying off the plan join us at our next seminar or contact me directly, I would love to talk to you info@awesomelendingsolutions.com.au

Whether you are looking to buy your first home, move home, refinance or invest in property, a mortgage broker can help. Access loans from all the major lenders, get help with paperwork – plus there is no charge for this service. Contact us on 1300 761 988 or info@awesomelendingsolutions.com.au

How to solve the biggest problems with off the plan?

Property investors love numbers. It doesn’t get much more satisfying than snapping up a house or unit for less than its value, renting it out for a good return and then sitting back while the compound growth machine clicks into gear.

Owner occupiers, on the other hand, need much more than this from a property. They want a place to be easy on the eyes, practical for their work and lifestyle requirements and in possession of a comforting home feel.

For these reasons, buying off the plan is probably easier for the former than the latter. It is hard to figure out if a place is just right for you when it is nothing more than a blueprint, council plan or artist’s impression. The finished product can be a similar disappointment to when your favourite book is turned into a movie, and the main character looks nothing like you imagined. All you can consider is whether or not the numbers stack up, how likely the developers are to deliver on their promises and whether the contract conditions are beneficial for your situation.

The pitch

 Developers can be up against it when trying to sell properties off the plan. They need you to help them cover their up-front financial requirements and help ensure the project is a success. For this reason, getting in at the early stages of development can be quite beneficial. Some of the positive points can include:

 The best price – the first properties usually released go for the cheapest, because the developers need fast early sales. Once they meet their financial requirements, they often up the purchase price on the remaining properties to make up for lost profits.

Today’s price for tomorrow’s equity – An off the plan purchase means you can lock in the ownership of a property, without having to settle for an extended period. It may be one or two years before settlement, so capital growth can often make your initial deposit more valuable in the meantime. The risk here is that the value may decrease in this time, so it is important to be sure about the area, not just the property. If you intend to hold the property long term, value fluctuations in the immediate future may not overly concern you.

Time on your side – The long settlement period means you have some breathing room to take care of the investment, or to organise to move house if you intend to be an owner-occupier. You can also use the time to save money and reduce the amount of finance you will need to borrow.

Government incentives – New properties are all the rage at the moment, as far as state and territory governments are concerned. Most provide stamp duty concessions for brand new properties, as they attempt to stimulate their economies through construction. 

Pick of the bunch – Getting in early allows you to choose your purchase from a range of properties within the development. You can grab the one with the best view, or that’s furthest from a busy street. You don’t usually have multiple options within the one particular location when buying an established property. 

If you have a question or would like to know more about buying off the plan join us at our next seminar or contact me directly, I would love to talk to you info@awesomelendingsolutions.com.au

Whether you are looking to buy your first home, move home, refinance or invest in property, a mortgage broker can help. Access loans from all the major lenders, get help with paperwork – plus there is no charge for this service. Contact us on 1300 761 988 or info@awesomelendingsolutions.com.au

The Ultimate Cheat Sheet To Off The Plan Research

Always wanted to know if buying an off the plan property was the right investment decision for you?

Don't want to have to think about the amount of research that would be involved in making this decision.

Well, keep reading as we bring to you our insider cheat sheet on researching if off the plan is for you.

The benefits show that buying off the plan can be a strategy that works for many investors. Naturally, you have to do your regular research to ensure that the numbers work for you, including finance, return, growth potential, gearing, depreciation benefits and so on. Also, the complex nature of an off the plan purchase means you should conduct a range of other checks to make sure the investment runs as smoothly as you wish.




Check 1: Contract

Buying off the plan involves signing an off the plan contract of sale, which is drafted and tailored quite differently to a normal contract.
According to many of our property law experts, one essential piece of advice is that before signing, you seek legal advice from a contract and property law professional. It is critical to check that the following factors are included in your contract:

Cooling off period if you change your mind: A cooling off period of between three and five days applies to your contract in most states. That means you can change your mind about purchasing the property during this time. However, if you decide to withdraw during this period you may be charged with a termination penalty by the developer (0.25% of purchase price). Once this period ends, you are legally bound to buy the property.

Adequate plan disclosure: In an off the plan contract you are provided with plans and specifications of what the developer intends to build and construct as the finished product.

Usually, you will be given proposed plans yet to be approved by the local council of the entire project.
Also to proposed floor plans of the particular property, you have chosen, plus a schedule of finishes for the property (sometimes identifying an appropriate standard the developer has decided to use).
That is usually done prior to signing the contract of sale and discussed with the agent.

It is crucial you read and understand these plans before signing the contract to make sure you are satisfied with the level of disclosure the developer has provided to you and the detail and standard of the finishes.

In the contract of sale, developers almost always retain the right to alter these plans if required to complete the project.

Deposit: Up to a maximum of 10% of the purchase price is payable and usually held in a legislated trust account and invested until settlement.

Your contract should be checked to see who ends up with the interest earned on the investment at settlement, that is, the seller or buyer or both.
Sometimes customers are entitled to share in the interest earned.

Inclusions and warranties: The contract usually provides that the property will be constructed by the finishes and materials described in the contract.

It usually also provides the developer with the sole right to alter the finishes and materials in certain circumstances, provided the alternatives are of no less quality.

You should know that from start to finish, the developer is given a lot of flexibility in how the project is to be completed. The developer can make changes, provided they will not materially prejudice you as the buyer. If the changes are prejudicial, you want a contract that allows you the right to withdraw and obtain your deposit back. Sometimes, contracts enable you to customise the design (within the structural constraints of the building) to suit your individual needs. You can also select from a range of various fittings, fixtures, appliances, internal colour schemes and latest designer finishes.

Review inclusions and warranties in the contract to ensure you are protected from prejudicial changes and to see whether you can make your custom changes.

Defects: Normally, off the plan contracts provide that the developer is to remedy any defects identified by you as the buyer, prior to you settling on your purchase.

Prior to settling, as the buyer you are given a right to pre-inspect the property and identify any defects to the developer.

Stamp duty: Stamp duty must be paid on all purchase contracts. There are strict time periods involved and certain concessions and exemptions available to buyers of residential property. There are certain conditions that must be met to gain these exemptions or concessions. You need to obtain appropriate legal advice early as to your stamp duty liabilities in the contract.
Completion: The contract will usually offer buyers with an estimated time of when the developer intends to complete the project. The developer is provided with the flexibility to extend or alter these time frames while to take all reasonable steps to carry out the project as quickly as possible. If the developer cannot complete the project within this period, then both the developer and the buyer can terminate the contract. In those circumstances, the deposit is refunded to the customer. Again, legal advice should be obtained prior to signing the contract to ensure the buyer’s rights are adequately protected.


Check 2: Builder/developer

Before entering into a contract with a developer, it’s important to perform a background check. Start by visiting the company’s website. You should be able to access information relating to the past and present projects, as well as business numbers and contact details. It should also be clear who the directors of the company are.

Then, utilise online forums to find out whether other investors have had positive or negative experiences with the same developer in the past.

Once satisfied, ask for the licence number of the builders used for the construction of the property. You can then do a licence check on any of the state government web sites, to obtain information such as:

-Details about the licensee, including address, date of birth and the work he or she can do

-The date of issue and expiry of the license

-Conditions endorsed on the license

-Names of partners in a partnership, or directors of a corporation

-The results of any disciplinary determinations and prosecutions

-The number of insurance claims paid in respect of work done by the holder

-Details of penalty notices issued to the holder

-Any cancellations or suspensions of the license


If the search turns up any concerning results, you may want to reconsider entering into a contract with the developer. A legal professional will also be able to advise you of other available checks you can carry out.
If you pay over the odds, you may be waiting for others to fulfil the requirements of the developer to start and could be sitting a while. An 18-month sunset clause is standard. Be cautious of longer dates.


Check 3: Home warranty insurance

It is the developer’s legal responsibility to provide home warranty insurance cover before entering into a contract for the sale of the off the plan property, provided the deal is for more than $20,000. The insurance covers the owner of the property for loss or damage resulting from non-completion of work, loss of deposit, or breach of statutory warranty.

Residential buildings of more than three storeys in height are exempt from home warranty insurance cover.

Construction of a multi-unit residential building of less than three storeys (not including car park) requires the developer to attach a home warranty insurance certificate to the contract for sale.

A certificate of home warranty insurance should be an original, issued by the insurer. It should feature the property’s address, the name of the homeowner, the name of developer, the name of insurer and the total sum of the contract. You should contact the insurer directly if unsure that the insurance certificate is valid.

Check 4: Financing the purchase

It can be tricky to have finance approved for an off the plan purchase and many investors end up losing their deposit after being unable to complete the deal. Some lenders are reluctant because properties may be sold for more than they are worth, or in an uncertain market their values may decrease between the signing of the contract and the property’s completion.

Some lenders protect themselves from possible loss by capping such loans at 80% LVR; while others will require later reviews of any pre-approvals they issue at the time you sign the contract.

Talk to Awesome Lending Solutions for more advice around the best way to structure your finance.

Check 5: The property and its suburb

Choose wisely

For most of the plan developments, it’s a case of first in, best dressed. Penthouse apartments and others with the best views are often snapped up first and may go for more than the other properties on the development. It’s a good idea to go in knowing what you want from your apartment. Questions to consider include:


-Is it facing towards the nicest aspect?

-Is it removed from noise sources such as busy roads or workshops?

-Is its car space conveniently located?

-Is it as high or low in the building as you would like?

The right choice of the apartment can make your purchase worth more than others in the same building while costing the same amount. This maximises its potential for capital growth and rental yields.

Prime position


Naturally, there is no point picking the nicest apartment if it’s in a suburb that is likely to stagnate. Your research on the area that the development is in should be the same as if you were buying a property anywhere. It is important to remember the following:


-An apartment in the development may seem cheap, but it may be over-valued compared to other properties in the suburb

-You may have been promised a high rental yield, but this won’t last if tenants find other properties with less rent

-The suburb itself should have regular growth drivers; such as good amenities, infrastructure, a favourable supply and demand ratio and be close to public transport.

If you have a question or would like to know more about buying off the plan join us at our next seminar or contact me directly, I would love to talk to you info@awesomelendingsolutions.com.au

Whether you are looking to buy your first home, move home, refinance or invest in property, a mortgage broker can help. Access loans from all the major lenders, get help with paperwork – plus there is no charge for this service. Contact us on 1300 761 988 orinfo@awesomelendingsolutions.com.au

What about off the plan finance?

Continuing with our theme this month of the off the plan purchases we look at the finance side of things.

When to arrange finance? What are the risks if the property doesn't live up to expectations?

So what about financing an off the plan property? And how do you mitigate market risk?

1. What happens if I can’t get finance when I’m required to settle?

At this stage is where many investors get caught out with buying off the plan. Once you have entered into the contract, you are required to pay by the agreed date. If you can’t fulfill this commitment, you may be forced to sell (potentially at a price lower than the original contract price) and could risk being sued by the developer.

Make sure you’re fully aware of the following before signing on the dotted line.

*   Obtaining pre-approval can be challenging. Loan pre-approval from your lender will be required for you to complete the contract of sale with the balance due at settlement.

Banks are conservative and won’t lend for something that doesn’t yet exist.

*   Your pre-approval may not stand until settlement.

 The banks will usually impose additional conditions on off the plan pre-approvals because of the ‘unknowns’.

These include market movements, interest rates, your personal fiscal situation, etc. - all of which can change in the time it takes for the project to reach completion.

The bank may impose a time limit on the validity of your pre-approval and will conduct another review of your financial position when the actual loan is required.

When they do lend, which will be close to the completion date, finance will be based on the value of the property at completion.

Usually at a loan to value ratio of 80% - 90%.

This means if the market has dropped and the value of the property is less than it was when you signed the contract, you will need to find other ways to fund the shortfall. 

Unless, of course, you can obtain a better valuation from another bank.

A shortfall situation can often be avoided with careful market research, but it’s still wise to be prepared.

Aim to have l0% of the property’s value on hand (in cash or equity) by settlement so that you are not caught short in the event of a market fall.

2. Is there going to be a demand for my property when construction is complete?

Market research when buying off the plan follows the same principles as any other property investment. It is an essential step in the buying process to ensure you’re not going to be left with a property you can’t rent out or a loan that’s greater than the value of the property.

Assess the supply pipeline in the area and the drivers of population growth, and then determine whether an undersupply or oversupply is likely. Two key areas to investigate:

*   What else is being built in the area?

Look at other developments under construction or in planning and compare location, developers, price, quality, etc. Investigate the quantity of development and what impact this supply pipeline will have on future demand.

 *  Who makes up the rental market and will your property be appealing?

Understand who makes up the rental market in the area and make sure your property (both in terms of quality and location) will be desirable to this demographic. Professionals, students and empty nesters – the three top groups that make up apartment dwellers will all have different requirements and expectations.

3. Is the property a fair price?

Based on the above research, do you feel the developer is asking a fair price for the property? Prices for off the plan apartments can be over inflated.

Don’t be afraid to open negotiations and back up them up with market data and comparisons with similar properties.

Final advice?

Don’t discount off the plan investments, just be smart!

Get a lawyer experienced in off the plan contracts to review yours in detail. Off the plan, arrangements will always, unsurprisingly, favour the developer.

Be informed about what you’re getting into.

If you feel 100% confident about the quality of the build, market demand and your ability to cope if things go pear-shaped, then there’s no reason to avoid buying off the plan!

Whether you are looking to buy your first home, move home, refinance or invest in property, a mortgage broker can assist. Access loans from all the major lenders, get help with paperwork – plus there is no charge for this service. Get help from a local Awesome Lending Solutions broker. 

If you have a question or would like to know more about buying off the plan join us at our next seminar or contact me directly, I would love to talk to you info@awesomelendingsolutions.com.au