Top 10 rules for buying off-the-plan investment properties

updated 4th October 2016

Buying a property before it’s constructed can be a risky move,

as there’s no guarantee what the finished product will end up looking like. Your Investment Property presents the following guidelines to help you minimise the risks and boost your profits

There are several qualities that make a potential property attractive to both investors and tenants. A central location close to amenities and transport is usually at the top of the wish list, with additional features such as proximity to schools, a decent view, lock-up car spaces and a courtyard or garden being bonus features.When buying property off-the-plan, however, there are additional factors you need to consider, warns Rich Harvey, director of Sydney-based buyer’s agent consultancy propertybuyer.“People always need a place to live, so there’s always going to be demand for property,” says Harvey – but the trick to owning a profitable investment lies in buying the right type of property, in the right area, with the right features.

A small unit is no good for a family with two small children, so a development of one-bedroom apartments located in a suburban area near schools and parks isn’t going to be appealing to young families – and nor is the location going to be suitable for the young professionals who seek apartment living.

“Don’t fall for the glossy marketing brochures promising a great lifestyle and high returns from an apartment block stuck way out in the suburbs,” cautions Harvey.

“Since units don’t have as much land content included in the value as compared to a freestanding house, you need to make sure the unit is located in an area with strong capital growth prospects. Choosing the right property is critical to your long-term wealth creation strategy.”

Harvey recommends that investors choose areas that have the fundamental drivers of growth either in the suburb, or about to come on line.

“These include universities, hospitals, retail strips, great transport links to the CBD, and the right demographic profile for renters,” he says.

For investors thinking about buying a property off-the-plan, Harvey offers the following tips and suggestions.

1. Project type

The property should be located in a small, low-rise, boutique style apartment or townhouse project. Ideally there should be less than 50 units in the complex

2. Location

The property should be located within 15km of the CBD or on the coastal fringe, and should be near amenities with easy access to public transport

3. Owner-occupied stock

Does the suburb have more than 70% owner-occupiers? If not, strong competition from surrounding investor stock will reduce the potential rental yield of your investment property. Aim for an area with a balanced mix of owners and renters

4. Builder

Ensure that the project will be constructed by a reputable builder. You can do this by checking that the builder has a strong history of completed projects with quality finishes

5. Certification

Ensure that the project has development and construction certificate approval, and that the builder and developer have taken out all relevant levels of insurance

6. Finishes and fixtures

Make sure that finishes and fixtures are guaranteed in the contract of sale – the last thing you want is to be left with a half-finished property

7. Quality

Seek out projects that have a superior level of finishes. The types of high-quality fixtures to look out for include:

  • Granite benchtops
  • Timber floors
  • Stainless steel appliances
  • Double showers
  • Spacious bedrooms with built-in robes
  • Quality doorknobs and tapware
  • Designer bathrooms
  • Sisal wool carpets
  • Brand name architects

8. Depreciation

Properties that have an abundance of high quality finishes and extra features generally attract the highest levels of depreciation, which will help you maximise your tax deductions and increase your cash flow

9. Yield

If the rental yield is below 5%, you need to be confident that the future capital growth will far outweigh the negative cash flow

10. Size

The internal size of the property should be above average to maintain a point of difference in a competitive market and increase rent potential

  • 2 bedroom apartment – over 80m2
  • 3 bedroom apartment – over 100m2
This article has been republished with permission from Your Investment Property magazine. Try our Loan Repayment Calculator and find the best repayment strategy for you.

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