Buying off-the-plan - the Risks and Rewards

Deciding to invest in the property market is a big leap for the average investor. It is a situation where one may not know what to expect, or which route to take. Therefore, without the right guidance, one may not succeed.

Throughout the industry, many companies have been established to help first time property investors as well as further educate and guide 2nd and 3rd time investors. Property has always been promoted as a long term wealth creation strategy. With time on everyone’s side, it should be as simple as buying a property, holding it for an appropriate period of time and then hopefully selling it at a profit. Unfortunately it is not always that easy.

What makes investing in property such an intricate investment strategy is the amount of research required prior to investing in a particular property. If you ask any expert in any field of investment whether it be shares, businesses, or property they will all answer that without sufficient research or due diligence, no one can make an educated decision on whether to invest or not. Without sufficient research it simply becomes a matter of luck!

So, when it comes to investing in property, there are an abundance of options including buying off the plan units, distressed stock, house and land packages, vacant land, resale unit, resale houses or a property with development potential.

Each of these investment options suits different investors, and that’s why it is important for you to discuss your investment options. Sometimes more than one investment option may be relevant and a “one size fits all” approach is not suited.

There are many advantages in off-the-plan investments. Investors should chose an advisor who is a specialist in this area for the following reasons:

- It is one of the easiest and cheapest ways for an investor to enter, or increase his/her position within the property market; - There are significant tax advantages for the investor, utilising negative gearing techniques. - They do all the research thus minimising the chances of investing in a poor quality development or choosing a bad location.

With any investment there, are always risks but there are also excellent rewards and benefits. Some of these are mentioned are:

Buying Off-the-Plan Benefits / Rewards - Purchasing at today’s value, allowing for capital growth and increase in equity while construction occurs. Create additional equity by the time your investment property settles - Developer may increase prices of other units in the development during the construction period - Potential growth in assets with very little initial outflow - Being the first to buy gives you the best chance of securing the best units within the development - Discounts and investment advantages are often granted, to Marshe Group, from the developer, as they generally require some units to be sold before they can start construction - Full depreciation schedule available allowing the investors to maximise their allowable tax deductions and subsequent cash flows - Required deposits may be reduced, deposit bonds could be used, or even a bank guarantee. - Stamp Duty savings are available in some states of Australia - Ability to change style and finishes of the apartment - Foreign investors can purchase new property if it is FIRB approved

Risks - Intangible at time of purchase - cannot walk through the property – you are buying a promise from the developer based on architectural plans, project model and computer rendered designs - Sunset Clause – Stipulates the end of your contractual agreement. That is if settlement can't occur at the time the sunset clause expires, either party has the right to terminate the contract and any deposit moneys (plus interest) will be returned. - If the property market falls, you still are required to proceed with the purchase of the property once the development is completed - Possibility that the final bank valuation may be lower than the contract price, meaning you may need to refinance existing arrangements - Interest rates could rise affecting your after-tax cash flows

The Marshe Group specialises in sourcing investment stock which meets stringent investment criteria. Determining the needs of an investor and providing significant research and due diligence reports support what we represent. This goes a long way to making investing in property a simple, stress free occurrence.

For more information on Marshe Group, please visit our website: http://www.marshegroup.com.au