Is a bird in hand worth two in the bush?

To those who might be considering buying property off the plan, I am here to suggest that doing so might not always be the best idea.

Take a quick look around property websites and you’ll soon see that there are quite a few properties for sale off the plan. One of the main reasons for this is so the builder can use the money generated by pre-sold apartments to fund the entire project. The benefit to the purchaser is that you may be able to purchase very cheaply, and pay far less (or no) stamp duty. It is worth, however, keeping in mind that as these properties haven’t yet been built, any value we place on them is purely theoretical.

My first investment property was off the plan and I bought it nine months before it was due to be completed. As soon as I signed on the dotted line, I committed the funds for the entire purchase. Two years later, it still wasn’t complete. My financial commitment to this property precluded me from buying any other investment properties. To make matters worse, the completed apartment wasn’t worth the forecast value (but at least it was worth more than I paid!). Ultimately, buying off the plan meant that my beginning in property investing took a lot longer than it could have.

So the lesson to be learned here is that if you’re looking at buying off the plan, you really need to ensure you fully understand all the implications of the purchase;

  1. You will most likely be quoted a value for a property that doesn’t yet exist so you can’t really know what it is worth, you can only guess
  2. You don’t know what the property market will be like upon completion (and for me this was two years after I signed on the dotted line, and over one year late!), therefore any guess as to what your property value will be at that time is pure conjecture
  3. You will definitely hear (from the builder) about the “massive stamp duty savings”. You will save money, but be sure you know your figures (there are stamp duty calculators on most property websites)
  4. As soon as you sign on the line to say you’re going to buy a property off the plan, it means you’ve committed that money. This means that you won’t be able to get a loan using any of that money but you don’t have any equity either because you actually don’t own the property yet. So for the time that your off-the-plan property is getting built, further loans will be very, very difficult to get and you will need to have money elsewhere to be able to continue to invest.

My advice to you when you find a “dream off-the-plan” property, spend a little bit of time considering properties that exist right here and now to see if there is anything similar. Investing in something that exists right now will give you both equity and returns immediately.

In short, be aware of off the plan properties. Nobody knows what they are actually going to be worth when they’re complete. Nobody even knows exactly when they will be complete! If you’re conservative with your investing, like me, buy properties that actually exist. That way you minimise your risks.

And good luck with your investing.