Off the plan purchases occur when you choose to buy a property that has not yet been built. Since all that exists at the time is vacant land, you are required to rely on building plans and diagrams in order to determine whether or not the property is worth buying.
If you choose to do so, you will often be able to buy the property for a much lower price than you would otherwise. The value of the property may also increase quite a bit from the time that you make the purchase to the time that the property is in use.
How Do They Differ From Other Purchases?
Besides the obvious difference that the home isn’t built yet, the primary difference between an off the plan purchase and a normal buy is the risk involved. For starters, there is the possibility that the home will not be built in the first place.
The quality of the building can’t always be foreseen. What looked to be prime property may ultimately end up failing to attract tenants. Perhaps a townhouse will be built across the street that will reduce the value of the vacant land.
Investors need to communicate with the developer on a regular basis in order to hold them to the plans. Reading and fully understanding the contract before signing it is even more important with an off the plan purchase than a standard one. Anything that appears vague should be rewritten until it is completely transparent.
If you understand the differences and issues involved (see below) and are looking for the right lender, Mortgage Broker Australia can help. Enquire online today!
What Issues May Be Involved?
The lender. One of the biggest risks comes not from the developer, but from your lender. The %LVR (loan amount relative to property value) that you can qualify for on a loan is often based on the market value instead of the purchase price.
This is because the property can sometimes lose significant value after it has been purchased. During the period when the vacant plot is transformed into an actual building, it may not be as valuable.
The pre-approval process. When a lender performs the pre-approval process, not all of your financial information is reviewed with complete scrutiny. This means that you run the risk of buying a property that has not yet been built, paying a deposit on it, and then discovering that the bank will not actually approve your loan.
The bank cannot complete the valuation process until the property is actually built. If the valuation is lower than the purchase price, your loan may not be large enough to pay for the property. If this is the case, you could end up losing your deposit.
Changes in your financial situation. Since it takes months, sometimes years, for property to be developed, it is possible that your financial situation will change between the time that you first get pre-approved, and you actually purchase the property. If it changes for the worse it may be difficult to make repayments.
If you are an investor in a very good financial situation and you are well aware of the risks, an off the plan purchase can be a good way to make a high yield investment.
However, for most people the risks may be too high if you are looking for a more stable investment or simply a place to live.
The Contract And The Steps Involved
As a borrower, you will want to have several professionals on your side. You will need a solicitor or conveyancer to review your contract. And an accountant is highly recommended.
A mortgage broker is an important and recommended option in Australia. Their services are usually free and they usually work with many different lenders. Mortgage Broker Australia for example works with over 40 Australian Banks and lenders.
Be very conservative when valuing the property, because this is how the banks will approach it as well. You will want to compare the smallest possible valuation with the purchase price, and make sure that you will be able to pay the difference.
If there is any doubt that you can, you will at least need to be comfortable with the possibility of losing your deposit.
Who Can You Contact For More Information?
There are some mortgage brokers who specialize in this type of purchase. Mortgage brokers in Australia are usually paid by the lenders, so in most situations you can speak with them for free advice.
Apply Today for An Off The Plan Mortgage!
Mortgage Broker Australia has brokers that specialise in many different loans for foreign investors. If you a looking for property in Australia, enquire online for personalised service relevant to your situation.
