7 things you must do when buying off-the-plan

Know what you’re buying

This may sound silly, but because you’re unable to view the ‘bricks and mortar’ of the property, you need detailed information on what you’re getting to make a solid judgement if the property is appropriate for your needs. Many off-the-plan disputes arise from a gap between expectations and reality of the quality of the fixtures and fittings, so make sure you know exactly what you’re getting, including brand and model. Don’t be afraid to ask lots of questions.

Don’t skimp on legal advice

Everything hinges on the strength of the contract, and a good lawyer will ensure everything is documented properly so you get what you paid for. Ambiguity of contract terms is a huge factor in disputes arising from off-the-plan agreements, and it’s imperative to have a comprehensive contract that sets out exactly what you’re buying – from the features, fixtures and fittings, to insurance, time frames and dispute-resolution processes.

Be aware of sunset clauses

Be careful that the sunset clause (the date the contract expires and ceases to be valid) gives sufficient time for the developer to complete the project. If it’s too short, it may be possible for the developer to sell your property to someone else before completion.

Know who you’re buying from. Make sure you’re buying from a reputable developer. Do your research and check they have a history of successfully developing projects similar to what you’re looking to purchase.

Take advantage of early selection

One of the main benefits of buying off-the-plan is getting first dibs on the unit of your choice in a development. This can often be at a competitive price too, as developers typically put prices up closer to completion. Make sure you do your research or get professional property advice to be confident you are in fact getting one of the better units in a development at the right price.

Keep your deposit safe

Make sure your deposit is held in a trust account and never let a developer take your money. The developer should have the funds required to complete the project, so if they ask prior to exchange if you could release the deposit to them rather than having it sit on trust, walk away. This usually means that they don’t actually have enough money to complete the build and could leave you exposed to potential losses.

Understand your borrowing capacity

While you can’t get formal unconditional finance approval, it’s a good idea to sit down with your mortgage broker and see if you qualify for a loan in the current environment. Check to see how tight it is, because if you’re on the borderline today, you may have challenges come settlement.

 

source: nestegg

What is the “cooling off period”? Investment terms explained

If you are buying a residential property, then you must understand the cooling off period – something that is usually included as a standard in the contract of sale.

In essence, this is a clause that allows you to rescind on the contract to an extent and not lose your deposit. You may, however, be required to foot 0.25% of the purchase price as a result (often taken from your deposit). You must provide the written notice before 5pm of the date the cooling off period ends.

To invoke your right to exercise this part of the contract, you must provide written confirmation that you are rescinding based on the cooling off period.

The cooling off period is the time in which you can rescind under this clause.  Usually, all purchasers are protected by this rule, and off the plan purchasers may be protected. It is worth double checking the contract through with your solicitor prior to signing.

The cooling off period is normally about five business days, however this can be extended or shortened when the contract is being written up. It can be altered later, by an addition to the contract, if done in writing. In each state and territory the rules are different, so you must seek advice prior to this stage. For instance, Tasmania requires a two day cooling off period minimum, according to the Real Estate Institute of Tasmania.

In Queensland, the form that must be filled out by the solicitor or lawyer in order to alter the cooling off period.

WHEN ISN’T THERE A COOLING OFF PERIOD?

Properties sold at a public auction do not have a cooling off period attached – therefore rescinding on a contract will see you losing your deposit.

Properties transacted close to an auction date may also not come with cooling off rights. In Victoria, this is three days either side of an auction, in Tasmania it is two.

Similarly, you can waive your right to a cooling off period via a 66W certificate that can be written up by a solicitor on your behalf. You may wish to do this to help convince a seller into giving you preference – however, it does mean that there is little turning back. The cooling off period is a safety guard that you should think carefully about losing – particularly if what you are buying is done so hastily or with high pressure sales tactics.

“Personally we think you are unwise to use cooling-off as a strategy in negotiation. We as an organisation do not use it as a negotiating strategy. Our strong recommendation is that you do all your due diligence prior to signing,” he explains.

Cooling off periods are not limited to property, and are often also discussed in relation to other purchases and contractual agreements. For instance, the ACCC reminds you that if you buy something through telemarketing or door-to-door sales, a cooling off period applies.

Property ownership structure

5 things you need to know before investing with someone else

Joint ventures, where two or more parties combine their finances to purchase a property together are becoming increasingly popular amongst buyers, but are they truly a good idea?

 

  1. Consider your joint and several liability

When you sign a mortgage agreement with another party, you become jointly and severally liable for the full amount of the loan and any fees and charges. That means if your investment partner is unable to fund their part of the mortgage, the full repayment amount falls on your shoulders.

You need to fully understand your legal responsibilities and the implications if circumstances change, by speaking to a lawyer and a good mortgage broker before you sign anything on paper.

  1. A joint venture may impact your chances of borrowing later on

Acquiring a property in joint names is easier because the bank will use the combined income of the applicants when assessing the loan.

However, when you look at borrowing later in your own name, to mitigate their own risk, banks will assess your servicing based on the full amount of the loan against your name, even if you’re in a partnership — that’s because the debt becomes all yours if your partner(s) can’t service their portion of the loan. That could prevent you from qualifying for your own independent loan in years to come.

  1. You get along today, but what about tomorrow?

Unfortunately, money issues can divide even the strongest of relationships and while it’s obviously not wise to enter a joint venture with a total stranger, it pays to be wary about partnering with friends and family too. Having to remind your property-partner sister that it’s her job to pay the bills when she continually forgets can create a long and unhappy rift between family members.

The best way to prevent discord is to carefully consider the temperament and financial history of your investment partner, and lay out all the expectations, roles and responsibilities of each party to clear up confusion and curtail future disputes.

  1. You must have an exit strategy in place in case someone wants to sell

It’s all well and good to buy a joint venture property with the aim of capital growth. But what if one of the parties decides to sell earlier than anticipated?

The sudden departure of a partner raises all sorts of questions. Do you buy out your partner? What if you can’t afford to? What if their desire to sell means you’ll need to sell, too? You might be forced into a position where you have to sell, but the market may not be working in your favour at that point, leaving you with a financial loss.

Before buying the property, agree on the timeframe you both expect to hold it for. You might also consider implementing a minimum ownership time, such as five years, before either party can decide to sell — along with an outline of what the process would be if one party wants out.

  1. Check your partner’s financial standing

If you’re going to go into debt with someone for hundreds of thousands of dollars, make sure you know their true financial situation.

Have an open-door policy on each other’s income, savings and other investments. Being honest means a smoother loan approval process, fewer financial issues down the track and a better chance that you won’t be left holding the bill.

Above all else, the key with any partnership is to write everything down, so you have clear guidelines and something to fall back on when needs be. With family, it’s easy to dismiss the need for legal documentation because ‘blood is thicker than water’. But having a written, signed document that specifies the agreements of the partnership can actually save relationships, if circumstances change down the track.

Like all investment strategies, it’s up to you to decide whether a partnership in property is a good fit — and to make sure all parties are on the same page before you sign it.

 

source: smart investment property

Why winter is a good time to buy property?

Winter might seem like the time of year when everything starts to grind to a halt, but could it be just the right moment to speak to us about your finances? If you play your cards right, you may find that winter is the ideal time to enter the property market, providing of course you’ve got all your finances in order.

If you’re confident that you’ll be approved for a mortgage and secure the best home loan interest rates, these are just some of the reasons why this could be the ideal season to strike.

Home loan rates are favourable

The Reserve Bank of Australia (RBA) lowered the official cash rate earlier this month, meaning buyers can access low interest loans and potentially get themselves a good deal on their new home.

The majority of lenders passed on some form of rate cut to customers, so if you act fast, there’s an opportunity to find yourself an affordable product. The RBA meets every month and there’s no guarantee the rate will continue to stay down, so making your move this winter could be wise.

More new homes are emerging

Construction work doesn’t stop just because it’s winter – in fact, builders up and down the country are putting up homes as we speak! The Australian Bureau of Statistics revealed that during the three months to March, the value of new residential buildings increased 10.3 per cent from a year earlier – and experts believe the sector will continue to thrive.

So, if you can imagine yourself living in a new-build property that you can really make your mark on from day one, winter is as good a time as any to start looking.

Property listings are rising

Speaking of homes coming onto the market, SQM Research has revealed that national property listings have improved slightly over the past year. June data shows that compared to the same month of 2015, listings increased 2.5 per cent. If you want your pick from quality properties, then what are you waiting for? Some people might think that nobody moves in winter, but this simply isn’t the case. Once we help get your loan the green light then it’s the ideal moment to see exactly what the market has to offer.

Should I rent or buy my own home

Should your first property be an investment property or an owner occupied?

 

Rent-vesting

This trend, described as “rent-vesting”, suits the lifestyle of many millennials, allowing them flexibility in where they live, giving them the opportunity to travel and at the same time allowing them to grow their wealth.

Interestingly, this shift could mean the official statistics that show record low first home buyer activity probably understate the real buying activity of young Australians, because rent-vestors purchasing investment properties wouldn’t be documented as a first home buyer in the data.

Buying an investment property first may have some benefits for you:

1. Flexibility

Maybe you’re not ready to settle down in the suburbs or maybe you don’t have the job security you desire to purchase in more affluent areas. Renting could offer you the flexibility to easily move, upgrade or downgrade without all the costs of buying a property such as stamp duty and legal costs.

2. Lifestyle

You can live the lifestyle you desire today, in or near the areas you love is without having to make the long term commitment to buying a property there. All while still growing your property portfolio in another, more affordable area.

3. Someone else pays the mortgage

Imagine you find a property you’d like to call home, but can’t quite afford to buy it right now. One solution could be to initially rent it out so the tenant helps pay off your mortgage until such a time as your finances improve and you can move in yourself. You’re likely to find tax benefits, including depreciation and negative gearing, may help you manage your loan for those first few difficult years.

By using the rent coming in, plus any regular savings, your loan could be paid down much quicker than if you moved in straight away. Before you adopt this strategy, make sure you get tax advice as your investment property could attract capital gains tax in the future, even if it becomes your main residence.

4. The benefits of capital growth

“This is because wealth from real estate is achieved through long-term capital appreciation and the ability to refinance to buy more properties. Therefore, you should consider buying in a suburb that offers high capital growth potential, and this may not be where you’d like to live in the short term.”

Isn’t paying rent “dead money”?

Imagine you and I live in the same street, next to each other in similar homes each worth $500,000. We both pay our home mortgages, rates, insurance, maintenance bills and so forth out of our after tax dollars.

Then one day I have a brilliant idea!

I suggest that we swap homes and rent off each other. I propose you pay me $500 a week rent and I’ll pay you the same, so we’re cash flow neutral (the rental income I receive covers my expense of renting).

Sure I still have to pay my rates, insurance, maintenance and mortgage, but now these expenses are tax deductible because I own an investment property. Plus I’ll get the bonus of a further tax deduction on the depreciation of property and the fixtures and fittings inside.

Of course I’ll have to declare the rental I receive from you as income, even though I won’t pay tax on this, as my property outgoings are likely to be more than my income. But the point I’m trying to make is that the sums are nowhere near as bad as most people imagine.”

Some other important issues to consider 

Before you adopt rent-vesting, or any other investment strategy, you should:

– Prepare a budget and get independent tax and accounting advice to ensure your approach is financially achievable.

– Understand the risks as well as the rewards of property investing, such as the responsibilities of being a landlord as well as the illiquid nature of property investment.

– Recognise that property prices can go down as well as up, so there may be some risk to this strategy.

– Understand your eligibility for your state or territory’s first homeowner grants or stamp duty concessions if you buy an investment property first. In general you won’t lose access to the First Home Owners Grant as long as you rent out your property and don’t live in it.

– Always keep a close eye on how your investment property is tracking in terms of cash flow and capital growth, but remember that property investment is a long-term wealth creation strategy.

So, there you have it – maybe ‘rent-vesting’ is the way to go after all.