Buying a home unit or townhouse off the plan has many financial advantages:
- Generous Payment Terms: pay 10% deposit when signing the Contract; pay the remaining 90% of the price up to 2 years later, when it is built.
- Borrow 80% to pay the remaining price at settlement.
- Buy a brand-new property, often with your choice of colour scheme.
- Full depreciation: investors can write off the value of fittings and fixtures as a tax deduction.
- A fixed price: receive all the capital growth.
But buying off the plan is not set and forget.
The big uncertainty is the loan approval, because it cannot be finalised until the building is built. You might be expecting to borrow 80% of the price and might have a pre-approval when you sign the Contract. But when it comes to pay the price, the value of the property may have changed and be less than the Contract price. If so, you will face a shortfall in funds available for settlement.
You need a fall-back plan, which could be a savings plan or having another property available with equity which can be used as collateral for the loan.
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