Buying a property before it's constructed can be a risky move, as there's no guarantee what the finished product will end up looking like. Your Investment Property presents the following guidelines to help you minimise the risks and boost your profits.
There are several qualities that make a potential property attractive to both investors and tenants. A central location close to amenities and transport is usually at the top of the wish list, with additional features such as proximity to schools, a decent view, lock-up car spaces and a courtyard or garden being bonus features.
When buying property off-the-plan, there are additional factors you need to consider, warned Rich Harvey, director of Sydney-based buyer's agent consultancy Property Buyers.
"Don't fall for the glossy marketing brochures promising a great lifestyle and high returns from an apartment block stuck way out in the suburbs," cautioned Harvey.
"Since units don't have as much land content included in the value as compared to a freestanding house, you need to make sure the unit is located in an area with strong capital growth prospects. Choosing the right property is critical to your long-term wealth creation strategy."
Harvey recommended that investors should choose areas that have the fundamental drivers of growth either in the suburb, or about to come on line.
"These include universities, hospitals, retail strips, great transport links to the CBD, and the right demographic profile for renters," he said.
For investors thinking about buying a property off-the-plan, Harvey offered the following tips and suggestions:
1. Project type
The property should be located in a small, low-rise, boutique-style apartment or townhouse project. Ideally there should be less than 50 units in the complex.
The property should be located within 15km of the CBD or on the coastal fringe, and should be near amenities with easy access to public transport.
3. Owner-occupied stock
Does the suburb have more than 70% owner-occupiers? If not, strong competition from surrounding investor stock will reduce the potential rental yield of your investment property. Aim for an area with a balanced mix of owners and renters.
Ensure that the project will be constructed by a reputable builder. You can do this by checking that the builder has a strong history of completed projects with quality finishes.
Ensure that the project has development and construction certificate approval, and that the builder and developer have taken out all relevant levels of insurance.
6. Finishes and fixtures
Make sure that finishes and fixtures are guaranteed in the contract of sale; the last thing you want is to be left with a half-finished property.
Seek out projects that have a superior level of finishes.
Properties that have an abundance of high quality finishes and extra features generally attract the highest levels of depreciation, which will help you maximise your tax deductions and increase your cash flow.
If the rental yield is below 5%, you need to be confident that future capital growth will far outweigh the negative cash flow.
The internal size of the property should be above average to maintain a point of difference in a competitive market and increase rent potential.
· Two-bedroom apartment: above 80m2
· Three-bedroom apartment: above 100m2
For the complete article and latest investment tips, check out the latest issue of Your Investment Property magazine, on sale now.