My Real Estate Mate summer reading series: Buying off the plan: the nitty gritty
Calculator ready! In our third instalment of Apartment Register’s Summer Reading Series we will identify key investor considerations.
You will often hear the term ‘vacancy rate’ which is a calculation based on tenanted dwelling within an area and is used as a tool to determine rental demand. A 3% vacancy rate is the point at which a market is set to be evenly balance between landlords and renters, that is equilibrium.
Calculating an off the plan property rental yield by taking your property's purchase price, and the yearly rent (weekly rent times by 52). Divide the yearly rent by the purchase price and times the result by 100 to get yourself a percentage. This percentage is your gross rental yield. For example:
- Purchase Price: $500,000
- Weekly Rent: $465
- Annual Rental Income: $24,180
- Calculation: $24,180 / $500,000 * 100
- Gross Rental Yield = 4.83%
In order to calculate the net rental return, you will need to subtract other associated expenses such as the annual body corporate fee.
The body corporate is an annual fee for the maintenance and insurance of all public areas of the building. This may be cleaning the public areas to maintaining the lifts and if the building has a swimming pool or gym, the cost to clean and manage these services.
New off the plan apartment developers will typically provide you with marketing collateral outlining the position and proximity to amenity, as well as independent research information including demographic and infrastructure data and analysis, that presents all the facts and figures to ensure a purchaser can make an informed decision.
Included in the information packet is a deprecation schedule. Inclusions in new off the plan apartments are able to be depreciated; indicative depreciation schedules are supplied by developers at the point of sale and a company such as BMT Quantity Surveyors can provide a depreciation schedule specifically for your apartment.
The Victorian Government offers a stamp duty concession when you purchase property off the plan. Effectively as a purchaser you pay duty on the improved value of the land, that is, the completed construction value including GST as at the contract date. As you are buying off the plan, in most cases construction will not yet have started at the date of contract, therefore the percentage saved by purchasing off the plan versus purchasing the same completed apartment is significant.
Inclusions, also referred to as fixtures and fittings, includes items such as the brand of kitchen oven to the type of benchtop, be it stone or stainless steel. There is no wrong or right appliance type or brand within an apartment, it will have been chosen by the interior decorator and architect to best reflect the apartment building brand and positioning.
When Purchasing a new off the plan apartment you will have to choose an internal colour preference - usually from two colour palates - and this will invriably come down to a choice of a light theme and a dark theme. The colour variations will often include the colour of the carpet or floorboards, kitchen bench and splash back to the bathroom wall tiling.
Ceiling heights will vary from some rooms: this is due to the air conditioning type, ventilation from kitchen and bathroom, all those pipes need to fit somewhere so it is just something to be aware of and is perfectly normal to see a variance in ceiling heights listed.
My Real Estate Mate always recommend you review the Contract of Sale and instruct your solicitor to do so also. Items we recommend to check include the inclusion list, and that the floor plan of the marketing material is the same as in the contract of sale. Also check the nomination clause, as you might purchase the apartment in your own name and when you settle may want to allocate the asset to your superannuation fund. You will need to sign three copies of the contract of sale: a copy will be for your record, the developer and solicitor. Make sure you keep it in a safe place for your records, your bank will also request a copy for settlement.
If you are an investor and searching for healthy rental yield and capital growth off the plan apartment opportunities, feel free to contact My Real Estate Mate through Apartment Register on Urban.com.au and we will be in contact with you straight away.
Cameron Clarke is licensed real estate agent and managing director of My Real Estate Mate and Apartment Register; a joint venture partner of Alamar AV Communications Pty Ltd, publisher of Urban.com.au. Each Saturday over summer Cameron will provide provide commentary and tips on all things apartments.
Cameron's published commentary is not designed to be taken as financial advice and should you wish to register with Apartment Register, Urban.com.au strongly recommends registrants consider their financial position and do their own research before entering into contracts for sale.
Lead image courtesy Pixabay.
