3 Considerations in Buying an Off Plan Property

Video Transcription:

Hey guys. So I thought I'd just talk to you about the three biggest things or considerations in buying an off plan property. Because I think a lot of people they don't understand off plan and they don't really understand what the style of investment it is, and I think the problem is when people get into property, they think property is property and therefore they're buying just property. But in actual fact there's thousands of different ways you can buy a property, there's thousands of different risks and ways you can do things that create risk or mitigate risk. So let's take a look at the three biggest considerations that I think in buying an off plan property, and actually the first one is realistically I think by far the biggest if you're looking for capital growth. If you're looking for income, this probably isn't so much or so important.

The first one is fundamentals. You've got to buy somewhere with fundamentals in it. It's particularly important with off plan property. And the reason, and I'll explain very soon what the reason is, but bottom line is fundamentals. Shops, schools, transport links, major employers, major investment. Probably heard me say many times if you've been watching the channel. It is by far the most important aspect of property investment for me, and for what I do. And from my perspective for the long term holding of a property, now some people just go after income. They'll say, "No, no income is by far the most important thing." And you know what on that specific strategy, if you're just looking for income maximisation then yeah, it probably isn't as fundamental. Because you'll get higher income in the crappy areas and that's generally what ends up happening.

But so I'm into the good areas which will have the best fundamentals, and when you do that, I tend to find out I have too many problems. That's the first thing. So fundamentals, fundamentals, fundamentals, that's where you start pretty much everything, and in particular I say shops, schools, transport links, major employers, major investment. But I work it backwards, I start with the investment because for me that is by far the most important aspect. The change in fundamentals through huge investment in an area, and that's why I love regeneration. So that's one of the keys, the least important is shops, schools is the next least important to me, transport links, employers, investment, so it's in that reverse order. So that really for me, fundamentals go after the fundamentals.

And the reason you need to do that is because one of the risks in off plan property is that if the cycle changes and if house prices started drop, what you're going to find very quickly is potentially your property goes down in value. And that's all properties will go down in value pretty much. Now the places that are best insulated against drops are the places with the best fundamentals. The places that we'll see the quickest increase in prices are places with the best fundamentals. So if your off-plan is there it's likely even if it goes down, it's likely to come up quick and hopefully you don't get caught in that period where it drops. Because that's the risk in off plan property, is you're buying it, you're locking in that price, but you're locking in that price. So therefore if the price drops, you still have to pay the price you locked in at.

And that's one of the concerns. So by buying in the best areas, buying the best fundamentals, you mitigate that to a large degree, so that's the first thing. So the second thing is all about looking at the volume of units coming to the market. If you're in the suburbs, okay now I generally start off in the city centers and then I work my way out into the suburbs, and then eventually I work my way back into the city center. That's generally how my ripple effect Pentagon works. Check a different video if you want to learn more about that, I don't want to discuss it here, but basically we follow the ripple out and then we jump back in and get ahead of the ripple. So the idea is to stay ahead of that ripple and own the property when that hit comes through.

So that means we're going out with the ripple, but then we're jumping back to where the ripple is going to start again, and that's where the best fundamentals are. The second element is to look and make sure we don't get caught with thousands of properties coming to the market, and it's not so much how many are being sold, it's how many have been completed because the other side of it isn't. And the third aspect with off plan property is you've got to watch the completion dates in your building and in your area. So good developers will stagger the completion date. Poor developers will chuck them all in the same time, and so you might have 40, 50, a hundred units, completing all at the same time. Now these days, most developers know that that's a recipe for disaster. So they're not doing that.

The larger developments know what they're doing, but you've just got to know this stuff upfront, and you've got to be considerate of that. That if at various stages, if there's lots completing all at once you really want to look at that because what you may find is the rents may be steadily rising and then all of a sudden yours comes to market and you're going to drop the rent to get it rented, because there's 20 other, 50 other, exactly the same apartments. So part of the thing is, and what I do is I use feature walls. And what do I mean by that? I'll do a feature wall which will make mine stand out a little bit different. So literally it's just painting one of the main walls, a different colour, it just gives that something different.

Now I'm not talking about purple polka dots and all that sort of crap. No, I'm talking about really conservative colours that you know are the correct thing, so it may be you your greys, probably the most outlandish I've ever done is an orange wall. So I consider all these sort of things. So that sort of thing, watch when the completion dates are, and when know what the completion date is, then you can make it so actually it's there or thereabouts. But what you also do is you get in and get it let first. So you don't screw around holding out for by far the best rent possible when realistically, it may not be that you're going to get the best rent possible. It may be that what you're going to get is the closest to getting it rented really quickly because at the end of day, get it let is the principle that I talk about, because if you don't get it let, well then you're going to have problems.

Because then it's going to sit there, and every week if it's a £2000 a month rent, that £2000 a month is 500 bucks a week. So if you define that over a year, which there may be a tenant, that can start to add up and really take a toll on your return. So we really want to look at those three things and make sure we get them right. And look, choosing quality developers, if you're working with professionals, then they're not going to go after the deal because a lamb in wolf's clothing, no a wolf in lamb's clothing. Yeah that's the one, I can dress a deal up to make it look fantastic, I'll find the best angles, the best things, and most real estate agents are trained in that.

In actual fact, that's real estate 101. You're going to find the way I do things is very different. I put everything out there, the good, the bad, the ugly, yeah, and then we can talk about how that affects our investment. And that's really where you want to get to. If you're buying, doesn't matter who you're buying from, you want to find the good, the bad, the ugly, but then look at it with a numbers investor, a professional investor eyes. And when you do that, actually you'll find that there's heaps of reasons why it's not as bad as I might think. All right guys, hopefully that gives you some points on the three biggest considerations when you're buying an off plan property. All right, have a great day, live with passion, and remember like my page, subscribe and ask any questions. Challenge me, if you don't agree with me, put it down there, happy to discuss any of that sort of stuff. All right guys, see you later, bye.

Brett Alegre-Wood
December 13, 2019

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