Auction vs off-the-plan - who comes out on top?
So you've got enough cash in the bank to start looking at places. Maybe you've been to a few auctions. You're optimistic because the asking prices are in your ballpark and then BOOM. Two passionate buyers enter a bid-off and push the price into another universe.
You schlep back to your rental and hatch a new plan. An off-the-plan plan, to be exact. But is that the answer? Buyers' advocate Kate Vines has some advice.
Read the off-the-plan fine print
It shouldn't come as a surprise that property developers aren't looking out for your best interests. Kate's first warning: 'What may be spruiked as stamp duty savings or other benefits will be factored into the price elsewhere. As if a developer is going to take a lesser price to help you out!'
Secondly, they'll sometimes try and hook you with 'guaranteed rental returns'. Sounds too good to be true because it is. She says they'll even pay this themselves for the duration of the guarantee (often about five years) if they have to. 'After that it's your responsibility to rent it on the open market, by which time the property will be showing signs of wear and tear, and market rental rates are much lower than the inflated prices provided by the developer,' she says.
Plus, 'off-the-plan properties are a dime a dozen,' Kate adds. By the time your investment has turned five, a stack of new buildings could have gone up around it. 'They will have greater appeal to tenants and yours will sit vacant or at a significantly reduced rent,' she says.
Bracing for bidding
An out-of-control auction bidding war doesn't always happen, much to the disappointment of a vendor. That's why Kate says you shouldn't rule out auctions all together. Especially because in the right place, at the right time, you could score yourself a little gem.
If the property passes in to you at auction because the vendor didn't get the price they wanted, you could be in a position to negotiate. The vendor will have a reserve, Kate says, and it's up to you to do your homework beforehand so you do a fair deal. 'Make sure you are familiar with the market so you can call on recent comparable sales to support a figure you are willing to pay. The vendor’s reserve may be inflated and unrealistic.'
And it's better to let it go if that's the case. Kate's tip: 'There may be someone with deep pockets who will pay them the price the vendor wants. Let them have it if it’s out of your budget.'