updated 15th October 2016
I am thinking of investing in an ‘Off The Plan’ unit. Should I do it and what are the risks ?
The risks are as follows:
- Developer may not deliver the quality of construction as promised
- Real Estate agents can get commissions from selling these units
- Property Clubs can also receive commissions from these units
- Guaranteed rents can mean a loaded purchase price
- You better pray that after construction is complete that the valuation stacks up to what was promised from the agent/club previously.
- What if the market drops/busts
An off the plan if basically a developer purchasing a block of land, gets council approval to build a certain number of units, checks what units are selling for at the current time, load this price to make a profit, then get in people to buy the dream that property consistently goes up every year.
While the concept of the ‘Off the plan’ sounds ok, in reality it struggles to deliver due to the amount of kickbacks to agents/clubs/guaranteed rents as well as variables like the market going bad and/or valuations at completion not coming up to scratch.
On valuations, guess who has to find the extra money if the property doesn’t value to what you were promised years ago – YOU.
In saying this, I must say that I have sat down with a small percentage of investors who have made good returns from off the plans, but for every person that tells me a great story, 100 people counter that with horror ‘Off The Plan’ stories.
Off the plans are for investors with a large portfolio, extensive experience and know how to value these deals. If you are not in this league, proceed with caution or better still look for a safer investment!