​​As property buyers’ agents, we need to be able to outline to our clients that there’s more than one way to create wealth through property. While buying established properties and then renting them to reliable renters is the primary method, there are other ways in which property investors can create wealth through property.

Two main alternatives: 

  1.   Buying off the plan

What is an off-the-plan property purchase?

When someone buys ‘off the plan’, they’re buying an unfinished property or one where construction hasn’t started. Your buyer chooses to buy a property based on the plans and sometimes, interior design and finishes. As I’ve been quoted as saying before, most people don’t understand that buying off the plan is one of the highest-risk strategies for property investment. That noted, buying off the plan has its benefits, and you need to fully understand the pros and cons.

Why buy ‘off the plan’?

Buying off the plan comes with both risks and rewards. 

Rewards

Discount

Generally buyers pay a fixed price and, if you buy early enough, buyers get a discount on what the developer believes will be the true value of the property once the building is complete (although as a rule this does not apply to apartments). For first home buyers and young people, buying off the plan makes it easier to get on the famed ‘property ladder’.

Longer settlement time

Generally, off-the-plan developers require a smaller deposit up front but don’t require the balance until construction is complete and the properties  are ready for habitation. This allows buyers a longer settlement time with more time to save.

Interior design input

Many off-the-plan developers allow owners to choose the design and finishes themselves. Be aware that design choices might add to the end cost. Most developments have a set budget for interior finishes like benchtops, splashbacks and tapware and these can be generic brands. You need to make your buyer aware that if they opt for the fancy marble backsplash, they should be prepared to shell out more.

Exemptions/concessions 

Depending on the cost of the off-the-plan property, and your buyer’s situation, your buyer could be eligible for either a land transfer exemption or a land transfer concession. Exemptions and concessions apply to first home buyers or owner-occupiers for properties under $7,500,000. There is a value scale that you can find here.

However, unless you’re a registered financial adviser, suggest your buyer checks in with their accountant.

Risks

Non-completion

A developer has a contract with a builder; your buyer, however, has a contract with the developer only. Building firms can collapse without warning or run into difficulties sourcing materials, leaving your buyer and the developer out of pocket. When you’re advising your clients to buy off the plan, it’s worth getting a hard completion date from the developer and checking sunset clauses.

Vision versus reality in the finished product

As your buyer can only imagine the end product based on plans and artist renditions, there is a risk that the finished product won’t meet expectations. Floor plans can change, finishes can be replaced with inferior products,

How a buyer’s agent can help

You as a buyer’s agent can offer unbiased, independent advice to your client, which is vital in helping them choose or reject this property investment strategy.

  1.   Flipping

Unless you’ve been living under a rock, you’ve heard of house flipping. With millions of us tuning in to shows like The Block, we see how upgrading a property can lead to profit. As an investment strategy, flipping has its devotees and is risky. However, this process of buying a cheap property, making some cosmetic upgrades and doing some landscaping is just the same as for any good property investment strategy, but without the imperative of timing the market perfectly. It requires some serious planning and excellent market knowledge.

As a buyer’s agent, you need to have the market knowledge and experience to a) choose a suitable property for flipping; and b) ensure the buyer has reasonable expectations of profit on renovations versus profit on a ‘hold and wait for capital growth’ strategy. You need to have a firm grasp of the figures, renovation costs and potential profit margins so you can protect your client’s interests.

Rewards

As long as you can steer your client to buying a suitable property at the right price in a growth market, your client will likely make a profit. Bear in mind, however, that the profit margins on flipping are relatively low compared with other property investment strategies, and achieving a profit can suck up a lot of time. 

Flipping can be a fun activity

For many people, renovating homes is an ideal way to express their creativity.

It’s a cheaper alternative to buying a better property for rent or sale

The primary idea behind flipping is to buy a cheap property, fix it up and then sell it at a profit. Buying cheaply and then selling is a more cost-effective way to start a property journey (as long as your client has all the facts).

Risks

Structural issues

Unless buyers have done their due diligence on the property, they could be buying a property with structural problems that will cost more to fix than they’ll make in profit.

Location 

Not all locations are poised for growth. Usually a good chunk of profit comes from capital growth. If ‘flippers’ buy property in areas of low or negative growth, they won’t achieve the return on investment they need. 

How a buyer’s agent helps

As a buyer’s agent, you should have a good understanding of growth areas and demographics and other fundamentals so you can help your clients to buy wisely.

Join the conversation at Property Mavens

In our group, wealth creation is just one of the topics we discuss so we all learn from each other. Want to up your game as a buyer’s agent? We have more buyers wanting help than our team can handle. Get in touch to find out more.