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What does buying off-the-plan really mean?Buying off-the-plan essentially means that you are entering into a contract to purchase a property prior to, or during the construction phase of the development. Hence the phrase buying off-the-plan, as there is no finished product for you to inspect.Why is it more beneficial?
What's the difference between buying an existing property and buying off-the-plan?There are essentially two main differences:1. Contract Details A contract for purchasing off-the-plan will be much more detailed given that construction may not have commenced, or may have only just begun. In this case, the contract will include everything from proposed body corporate assets and expenses to an outline and schedule of finishes for each property. 2. Settlement Timeframe While settlement for an existing property generally occurs 30 days from the contract date, purchasing off-the-plan allows more time (approximately 12 to 18 months or more) between contract date and settlement. Investors often use this to their advantage as it provides them with more time to ensure they are in a strong financial position. How much deposit is required when purchasing off-the-plan?As per standard real estate practice, a 10% deposit (generally) is required upon the contract becoming unconditional. This deposit is usually required within 14 days of the contract date.How do I arrange finance for off-the-plan property?When buying off-the-plan it is important to understand that banks will only provide approval in principle for finance. Generally, settlement of the property is too far in the future to approve a loan. Some banks will even pre-approve your finance for 12 months, but still require an update of your information prior to lending you the money and settling the property.Putting this aside, you should still speak to your bank or finance broker before signing a contract to determine if your current financial situation would allow you to purchase a property. If you believe your situation at the time of settlement will be the same or improved, it is then appropriate for you to proceed with purchasing off-the-plan. As the property you have purchased nears completion you will be advised of the official settlement date and need to organise your financial arrangements in readiness for settlement. Should I furnish my investment property?For the investor, furnished properties generally attract much higher rents and it may be $100 or even more per week. The downside to furnished properties is the initial outlay of cash for the furniture - a cost that can quickly add up. Of course, of even more significance is whether there is a demand for furnished properties in the area where you have just purchased. This is where you really need to do your homework.If your property is within walking distance of a CBD then there is every likelihood that there will be strong demand for both long-term and short-term corporate lets. This market segment generally requires a far greater investment in the furnishings because of the style of tenant you are likely to attract. With this type of property you may need to provide everything from the sheets and towels to the cutlery and crockery. If you get it right, a furnished property in a suitable area can provide handsome returns. Perhaps you've purchased in an area near educational institutions such as a university or a TAFE college. Here also, a furnished property may improve your chances for a good tenant and great returns. International students, in particular, are more likely to choose a furnished property over one that is unfurnished. Properties in the suburbs are more likely to be rented unfurnished. Most tenants will have their own furniture and a furnished property may not provide many benefits in terms of attracting and keeping tenants. Part of the decision making process will depend on your personal circumstances and include the tax depreciation benefits that you will be entitled to when investing. Furnishing an apartment will provide additional tax benefits through increased depreciation that can be claimed against your income. It's critical to discuss the impact of this with your accountant, who will be best placed to advise on whether this strategy will be beneficial to your personal circumstances. What is a tax depreciation schedule?A professional tax depreciation schedule has the potential of substantially reducing your taxable income. Thus, by claiming these depreciation benefits, you as an investor, can significantly enhance your after-tax return from your investment and generate a healthier cash flow.What tax benefits are available?Residential investment properties can be depreciated over many years and can reduce the holding costs for investors whilst they are still acquiring assets to provide for income in later life. The building write-off allowance (division 43) allows you to depreciate the construction cost of the building from new at its original cost, for a period of forty years at 2.5% per year. If you already own property as an investment and it is less than forty years old, you are still able to legitimately claim depreciation benefits on that property.In addition to a building write-off allowance, your tax depreciation report will also detail additional depreciation benefits you are entitled to claim for plant and equipment (division 40). These extra depreciation benefits are for such items as air-conditioning, carpet, clothes dryers and hot water systems. In the case of strata titled property, these additional depreciation benefits can also include some of the items in the common areas of the property such as fire extinguishers, gym equipment, closed circuit televisions and monitors, barbeques and so on. All of these items are depreciated over a much faster period of time than the building cost allowances. Together, the building write-off allowance and the depreciation of the plant and equipment will provide you with substantial taxation benefits. This is even more so the case if the property you purchase is brand-new, as the cost base for depreciation is much higher. When do mortgage repayments commence?When purchasing property off-the-plan in Australia, the mortgage repayments do not commence until after settlement (when construction is complete). This is a great advantage to you, especially when buying off-the-plan as there is generally 12-18 months before settlement. This provides you with more time to prepare for upcoming repayments.How do I choose a property manager?Selecting the 'right' property manager can often make or break your investment. When choosing a property manager, treat the process with as much (if not more) care as you'd give selecting a tenant. Ask the following questions:
You should consider meeting the property manager who will be directly managing your property, especially if you have some special requirements as to how you would like to have your property managed. What should I expect from my property manager?A good property manager will help to manage your investment and will do more than just collect the rent. Good managers will take care of regular inspections and maintenance issues and handle the letting of your property to minimise any vacancies. They will also perform credit and background checks on your prospective tenants.How much will a property manager cost?Property management fees can vary and you can negotiate directly with your property manager on the level of fees they charge. Whilst lower fees are always helpful, a good manager is worth every dollar you pay and any savings may be insignificant when compared to the benefit of having your property managed well.In terms of how much of your rent you will need to pay to have your property managed, in Queensland, fees for a long-term residential let are generally 8% plus GST. Charges over and above this fee, for example advertising your property for rent, is a separate fee again. Management fees for short-term letting such as holiday letting are much higher, up to 13%, and involve much more work for the manager. Is it better to have an on-site property manager?An on-site property manager can offer you considerable peace of mind. Not only do the managers reside in the complex, but they are on call every day. On-site property managers are often the largest investors in the complex having bought their own property to live in, as well as the management rights to the development. This means the property manager has a vested interest in the management of the complex and in ensuring all the properties are kept in good condition and occupied by stable, trustworthy tenants.An on-site manager can often carry out minor repairs at no or minimal cost. This means tradesmen are not always required for small repairs that could otherwise be quite costly. An on-site manager is also better placed to keep you informed about the complex, its performance and condition. It is our experience that a good on-site manager clearly has more to gain if your property is managed well as they are building the value of their own considerable investment in their property and business. Why is it more beneficial to purchase property off-the-plan? |