Investing in an off-the-plan development that is 12-18 months away from completion can be a daunting task for many newbie investors but there is money to be made if done well.
Common objections to purchasing so far away from completion are often around worrying about the developer going under, construction delays, and so on. These risks are mitigated in a variety of ways and will be covered in other articles.
However, in this article, we will focus solely on the benefits investors get from investing in early-stage releases.
A presently built property attracts a premium for the convenience and instant gratification the investors receive from being able to settle the property quickly.
For investors that undertake the process of buying early-stage releases, there is a "build premium" which is an addition to their investment return.
"Build premium" refers to the margin you can make between the time you buy the property and the valuation of that property at settlement.
Why would a property value be higher come settlement time?
Often, developers will need to hit pre-sale targets before they can unlock their finance for the project which means the early-stage pricing is more aggressive so they can sell some units faster.
Bigger developments (20+ Units) will often have staged releases and make price rises as the latter stages get released so getting in on the early deals means getting the best pricing.
With so many units within a development, the developers can afford to break-even on a number of units and make more margin on the latter units when they sell.
Developments that are near completion or completed will still attract a premium because people are inherently more fond of projects that are ready soon.
This preference is often to reduce construction risk, but the payoff is paying higher prices for the investment. As we know, higher prices lead to lower yields and higher cost-to-own.
In extreme cases, the price difference between identical units that were released early-stage versus new completion has been up to $200,000.
This is a hugely significant difference in price and even on a much smaller scale, this can be the difference between a good investment and a poor investment.
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