Selecting the right off the plan investment property

Information verified correct on December 3rd, 2016

From locating growth areas, knowing the benefits of purchasing off-the-plan properties and understanding the process of buying and managing investment properties, we speak with property expert, Marc Cuscino, from Investorhelp.com.au about all things property investing.

Marc Cuscino from Investorhelp.com.au speaks about property investing strategies.

What criteria do you use to locate growth areas for investment properties? What is your research based on?

“We assess a number of key elements which determine the growth potential of a specific area. This involves an in- depth market assessment into investment areas and local infrastructure including local council, state government and national government as both current infrastructure and future proposed infrastructure are key drivers of growth.

"Key infrastructure investments include schooling, hospitals and medical services, shopping precincts, hospitality, park and greenland as well as technology advancements. If infrastructure allocation and investment plans are executed correctly it should result in increased job opportunities within the area.

“Dated and current property data is collected which assesses variations between past and current pricing; with this data we are able to analyse cycle trends and determine cash flow opportunities within that area. This involves reviewing past and current sales and rental data to determine positive fluctuations. Neighbouring suburbs are assessed to determine comparable and contrasting characteristics.

“Statistical data in relation to demographics is gathered which allows us to analyse target markets and determine population movement. Demographic information such as age, sex, ethnicity and marital status allows us to determine which areas are population drivers”, he says.


What are some benefits of off-the-plan properties compared to established dwellings?

“One of the main advantages is the ability to purchase a tomorrow's property at today’s price. Therefore if a key growth area is selected the property will have appreciated by the time it settles.

“Taking advantage of promotional development releases can result in substantial savings, as developers will often release the properties at competitive pricing within the market in order to secure a large percentage which allows them to begin construction and attend to their lenders and investors.

“Off-the-plan dwellings in most cases only require a 10% deposit. The deposit is held in a trust fund between the purchaser and developer, the deposit amount gains interest during the time prior to settlement.  If you have accumulated equity in other properties this allows for other methods of deposit funding through avenues such as deposit bonds and bank guarantees etc. Therefore a major benefit is that you have ample time to save additional funds prior to settlement.

“You're also able to take advantage of depreciation; this allows you to claim a depreciation in value of both plant and fixtures as well as Division 43 (calculated percentage). The depreciation value can be deducted off your taxable income and therefore is a key strategy in tax minimisation”, he says.


First home buyers and off-the-plan properties (NSW)

“Within New South Wales first home buyers grants at this point in time only apply to new developments. At this stage: If the property is newly established and under $550,000 you are able to take advantage of exempt stamp duty, concession stamp duty amounts are also applied to properties valued between $550-$650,000. A $15,000 grant is also offered for newly established properties.  This grant changes from $15,000 to $10,000 in January 2016 although any property under contract prior to then will still be able to redeem the full $15,000. A $5,000 grant is also available for non-first home-buyers who purchase a newly established property.

“As construction efficiency increases, new developments are usually being completed within a 12-18 month period. New developments carry a builders warranty guarantee: 6 years on structural defects and 2 years on non-structural defects. As a result this tends to reduce strata rates due to the fact that the sinking fund can be built up over 6 years.

“Established properties often require more maintenance and are at risk of wear as the dwelling ages over time.

“When it comes to finance, established properties require immediate finance whereas off-the-plan future dwellings allow you time to shop around and source finance that suits you best”, he says.


Generally, how long could it take for an investment property to start generating returns for the owner?

“This is where selecting a tailored property comes in. Through selecting the right property to suit your current financial position you should be able to profit within the first few years, whether it is directly through rental income, capital growth or through benefits of tax depreciation/deductions.

“By taking advantage of growth areas, it opens up a broad spectrum of opportunities which allows you to benefit through rental, sell and take advantage of gains or use the equity to build your property portfolio”, he says.


Should investors aim to achieve high rental income or high capital gains growth, or both?

“Depending on the future purpose of the property, this may influence what the investor is aiming for. Although by targeting key growth areas, you have the ability to take advantage of both. With an increase in demand, both rental and capital growth should in turn increase. The higher rental yield will allow for a better gearing ratio and the capital growth will allow for increased equity and the ability to expand on your property portfolio”, he says.


What’s the process of buying and managing an off-the-plan investment property?

Off-the-plan-properties

Marc Cuscino provides a general outline of how investors can purchase and manage an off-the-plan property:

  • Search for the property that suits your criteria/goals/budget.
  • Meet with your chosen solicitor/conveyancer who will explain all the terms and conditions.
  • Sign the contract of sale and pay a holding fee. Usually equivalent to 0.25% of the sale price.
  • Enter the predetermined cooling off period (usually 5 or 10 days) whereby in that period you are required to complete the remainder of the deposit payment, which is usually 10%.
  • Organise the remainder of the finance with broker/lender 1-3 months prior to settlement.
  • On settlement, pay the remainder of the purchase price and the stamp duty less the deposit amount.
  • Seek a real estate agency that offers the best opportunities/rates to rent your property.
  • Take out insurance, such as landlord insurance to protect yourself.
  • Continually monitor the rental amount to ensure it is up to date with the local market and surrounding areas.
  • Buy another property...and another...and another.

When is the right time to invest in property?

“Determining whether you are ready to invest can be influenced by both financial and personal factors. Prior to purchasing an investment property you should seek the advice of a mortgage broker/lender.  They will make an assessment of your lending capacity with is usually formulated based on current liabilities, assets, earnings as well other factors such as dependants.

“In regards to personal factors, investors should attempt to assess the current and future lifestyle including determining their job security, lifestyle patterns (e.g. dining out, new cars etc.) as well as plans for changes which may have an effect such as children, pets, or holidays.

“Once you have taken the step of purchasing an investment property, it may be wise to seek the advice of a financial planner to determine how you can protect your new assets”, he says.


What trends do you see on the horizon for investment properties?

“Within the media there is a lot of talk about the ‘property bubble’ although within the past 50 years housing prices have continued to grow with fluctuations, of course. Yes, wages, lifestyles have changed as well although property growth still has maintained steady growth rates in 10 year periods. The major cities such as Sydney, Melbourne and Brisbane are continuing to grow”, he says.


What types of properties do you think are the most viable investment? (i.e. unit/apartment, granny flat etc)

“When searching for dwelling types each individual property should be assessed on a case-by-case basis. There may be good opportunities within that specific property type. Although through our research, apartments have proven to provide substantial growth and property prices are still under $1,000,000 for apartments. Key areas have seen annual growth of numbers between 7%-25%.

“House and house/land can offer good opportunity in the right location although the prices have escalated beyond cost expectations, therefore these are becoming a large input investment and may not be targeted to entry level investors”, he says.


What advice do you have for people managing several investment properties?

“The following should be continually monitored and assessed to ensure all your properties are optimised to their full potential. You have the ability to self- manage your properties or outsource the management. Self-managing can save you management fees, although saving time by outsourcing may allow you to focus on further investment opportunities.

Rental return

“Ensure your rental income is maximised to its market potential. Review current rental prices within the same area of similar property types. If you are above the market asking price, then you are taking advantage as you should, however if you are below the market you should speak to the agent managing your property and put forward a request for a rental increase. It may be wise to be slightly negotiable so the tenant feels like they have a say and will be more reluctant to vacate. It is also essential to follow up rental arrears (non-payment) and in some cases evict the tenant if they are continually defaulting on payments; searching for a more reliable tenant may be beneficial.

It is also necessary to continually keep up to date with maintenance,repairs and tenant requests, as this will ensure your tenant is satisfied and does not vacate or continually raise issues. If any conflict arises, ensure each issue is mediated and resolved; do not let issues linger on and cause tension”, he says.

Market assessment

“A key factor to property management success is continually reviewing the market. Determine whether the property is prosperous or if it is under-performing. Assessments must be made on several factors including:

  • Property value
  • Property growth
  • Rental demand
  • Rental amounts
  • Future plans for the area

“By assessing the necessary criteria you must make an informed decision whether it is necessary to sell, keep the property or take advantage of earned equity to invest in another property and diversify your portfolio”, he says.


Future predictions

“By continually monitoring market trends it will allow you to make decisions and gain a better perspective on the future of your property and property in general within the market. The market will fluctuate but do not fear it will always go up again! Therefore, you should take advantage of every situation and market fluctuation for both short term and long term possibilities”, he says.

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Belinda Punshon

Belinda is a journalist here at finder.com.au. Specialising in the home loans and property sections, she is passionate about helping Australians improve their financial wellbeing.

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