eBook Rules of Property 6 by Unknown

Author:Unknown
Language: eng
Format: epub
Published: 2014-09-29T07:38:14+00:00

By the way…some investors who buy off the plan won’t be able to settle and will need to sell their property at whatever price they can achieve. Unfortunately that’s what the banks will value your property at – the going selling price on completion - not what you paid for it.

Combine this with a lower loan to value ratio and you’re likely to need an even bigger deposit than you initially thought.

3. Low land to asset ratio

Remember that old investment rule; land appreciates while buildings depreciate? If you go by the book, you should aim for the highest land to asset ratio possible and to get as much valuable land under your apartment as you can.

However, the developer wants the opposite and squeezes as many apartments onto the site as they possibly can.

So essentially, the interests of the developer and you - the investor - are in direct opposition.

4. Investor imbalance

Most off the plan developments are sold to investors. This means that you end up with a building occupied by far more tenants than homeowners.

Fact is, owner-occupiers tend to be far more careful when it comes to maintaining the building and enhancing the development’s long-term capital value.

By the way… it’s not much fun going to a body corporate meeting full of investors who are not keen on spending money (or simply don’t have it) to maintain the building.

5. Too many too soon

Currently there is a looming oversupply of new apartments in some of our capital city CBD’s. This glut of properties driving down prices poses a problem for investors relying on the value of their property to increase by the time it reaches completion.

You’ll also be competing with all the other investors who are trying to rent out their new investments.

Both of these issues mean that your investment will lack scarcity value, one of the factors that I look for to help increase the value of my properties.

6. Developer dilemmas

Did you know that many off the plan projects currently being marketed won’t get off the ground? Sure you’ll get your deposit back, but it means you’ve lost precious time with your money not working in the market.

On the flipside, when the developer completes the project don’t be surprised if they have made some amendments to the floor plans or substituted different finishes or fittings. While they have the right to do so in the contract, you’ll usually find the changes are in their favour and not yours.

7. Rental guarantees are not as solid as you might think

Often developers will offer a rental guarantee to entice investors who might be more focused on their cash flow and worried about vacancies. The problem is, you pay for these rental guarantees in the purchase price, which is another cost that inflates the apartment’s already premium price. And once the guarantee expires the rental income reverts back to the going market rate, which is usually lower than that offered in the guarantee.

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