How To Successfully Invest In Off-The-Plan Real Estate

There’s nothing that divides the real estate community more than talking about pre-construction property. 

For the most part, this is due to slight confirmation bias amongst investors. Everyone has particular properties they steer clear of based on preconceived ideas, and off-the-plan is high up there on the list. It certainly was for me.

However, once I understood how it really worked and how I could make money off it, my whole perspective changed. In fact, it was a pre-construction property that actually changed the course of my life as an investor.

Now, if your plan is to buy two or three properties maximum then there’s no need for you to even consider choosing off-the-plan. But, if you’re going to aim for over eight or nine, then this could be an excellent way for you to control your wealth during periods of adjustment. 

Let’s go through the good and the bad of pre-construction investment, and then I’ll share my top tips for succeeding with this strategy. 

THE GOOD STUFF

So many Australian investors get stuck at just owning two real estate assets; their own home and one investment. Believe it or not it’s a tough slog to get up to seven or eight properties that are all successful.  

For the people that do however, it’s often because they have used off-the-plan real estate as a tactic to leapfrog wealth creation. See, the biggest benefit of pre-construction property is that it allows people time.

Typically, what happens when you purchase off-the-plan is you will buy from a developer who needs pre-sales, and they get those pre-sales by selling you real estate that does not yet exist. Essentially you put down a deposit and the developer shows the bank that they are holding that money for the construction of the property.

Deposit power is a huge part of this strategy; you can pay such a small amount upfront (sometimes 5%) – making it easier to enter the market if it’s your first investment – and still control hundreds of thousands of dollars of real estate.

Now because it takes time to build, you’ve got at least 18 months before you need to settle the contract. So, all that time you’re mortgage free and you can spend it saving more and readjusting your portfolio to put yourself in a better position.

THE BAD STUFF

First and foremost, if you have a fearful relationship with money, buying off-the-plan is potentially not the right strategy for you. That is because there are absolutely risks involved – not everyone will encounter them, but they are there. 

Sometimes the project may not proceed. This can happen when the developer is unable to get the project off the ground because it’s not feasible. While you will absolutely get your deposit back, it can take some time. Having already waited so long with that money locked away, unable to touch, to have nothing come of it can be extremely frustrating.

Another risk may be that the finished product doesn’t actually match what you thought you were going to buy. I’ve heard some horror stories of people thinking they’re going to get a beautiful facade to a property only to rock up on the day of settlement and discover something completely different. 

The truth is most of the issues involved with off-the-plan investing can be minimised or avoided completely if you make sure to work with the right people. Look out for award-winning teams who have a proven track record; they’re the ones who you can put your trust in. 

The biggest mistakes are made when investors buy from developers who have no reputation or vested interest in succeeding. Here’s a little tip: if they don’t even have a website, run!

MY TOP TIPS FOR BUYING OFF THE PLAN

• Only buy in ‘A’ grade locations

Location is pivotal for pre-construction, off-the-plan real estate. Whichever area you build in has to be in a position where it can offer an owner-occupier more than just a home.  

Of course, the market you buy in also needs to be heading towards an upward trajectory of capital growth. The mistake so many investors make is selecting a marketplace that has already met its peak. If it’s already doubled in value, where else can it go from there?

The location should be undervalued so that there is a lot of room for it to rise in value and build capital growth. 

• Consider behavioural influences 

One of my golden rules for any investment is ensuring you have a property that has behavioural economic influences behind it. 

Is it a property designed in a street which is mobile and walkable? Is the property a well-designed and functional place? Is it surrounded by a lifestyle or knowledge precinct? 

All of these things add so much liveability to real estate and a smart owner-occupier will be happy to pay more for them. 

• Focus on design 

The purpose of buying off-the-plan is to design a beautiful property which is worth more on completion. 

One of the most exciting things about pre-construction real estate is you get to work with some of the best architects, builders, and developers in the world. 

A lot of the pressure is off when you’re collaborating with the right team. However, make sure you are still reading the inclusion specs to ensure it mirrors what an owner/occupier will want. Putting in extra amenities where possible could also add thousands onto the final evaluation.

Never forget – design brings value. 

• Have a lawyer review the project

Whenever you buy off-the-plan always have a lawyer review the project and the contract. 

Unlike brokers who tend to have confirmation bias when dealing with pre-construction deals (because they have to wait until settlement to get paid), a lawyer won’t sway your decision-making based on bias. 

Don’t be afraid to ask them their opinion on the brand, the architect and the builder. The more information you have to work with the better chance you have of creating a valuable property. 

YOU CAN MAKE MONEY OUT OF PRE-CONSTRUCTION REAL ESTATE

I truly believe having pre-construction in your portfolio can be a blessing, not a hindrance, and if you put yourself in a good position to settle, it is more than possible to create lasting wealth from this investment. 

Remember, off-the-plan buying is just one strategy you can use to build up your portfolio. At our free property seminars, our expert coaches offer a tonne of information on how to use real estate as a vehicle for wealth creation. Register now if you want to learn how to make your money work smarter for you. 

By Sam Saggers