Pre-buying properties is a means of purchasing a house, which hasn’t been built or finished yet. If you choose to buy a presale home, you enter into an agreement with a seller or a developer, which is usually cemented by paying a deposit. Pre-buying property in Australia can offer excellent opportunities for new and experienced investors, but there are risks. If you’re looking to invest in real estate, you should be aware of the advantages and disadvantages of buying properties that are available off-plan or before construction is complete. It is beneficial to consider the pros and cons before you buy real estate.
In this informative guide, we’ll discuss the risks of pre-buying property. We will also highlight some pros and cons to help you decide whether or not it’s the right move for you and ensure you find a smart investment property.
WHAT ARE THE RISKS OF PRE-BUYING PROPERTY?
Every investor should be aware of the risks of buying specific types of properties. From beginner real estate investing to expanding an established real estate portfolio, all investors should take steps to protect their investments. There are advantages of presale homes. There are also risks to consider if you choose to buy an investment property that hasn’t been built or completed yet. Buying a presale property can offer early access to sought-after locations, offer opportunities to increase the value of the investment and enable investors to save money before they have to start paying a mortgage.
There are cons as well as pros. These include:
Market value fluctuations
If you’re buying an investment property in Australia, you should be aware that the property market fluctuates. Movements in the market and increased and decreased demand for real estate can cause prices to rise and fall. If you pre-buy property in Australia, you may find that the market value changes from the time you enter into the agreement to the completion date. If prices fall, the buyer has to absorb the losses.
Rising interest rates
It can be difficult to predict whether interest rates will rise or fall, especially if you’re thinking about buying a property that may not be ready for at least a year. If rates rocket, and you’ve taken out an investment property mortgage that isn’t fixed for a long period, you may find that your mortgage ends up costing you a lot more money than you anticipated when you signed the contract. In March 2023, for example, the Reserve Bank of Australia increased interest rates for the tenth consecutive time. Rates reached the highest levels since 2012 (source).
Financing your property purchase
One of the most significant concerns for investors, particularly beginners, is finding suitable ways of financing investment property purchases. Pre-buying properties can be risky if an investor qualifies for a mortgage that would then not be viable when the property is complete. This may be the case if the interest rate has increased significantly, the investor’s financial circumstances have changed, or the value of the property has decreased.
Delays
Have you ever watched TV shows that document major construction projects or home renovations? If so, you’ll know that it is common for building work to run overtime and over budget. If you pre-buy an investment property, the projected completion date may get later and later due to delays. Examples of setbacks include adverse weather conditions, supply chain issues and difficulties sourcing materials or skilled labourers.
Alterations
Always check the details of the legal agreement for information about changes and alterations to the property before you sign. The contract may allow developers to make adjustments, for example, changing the layout. As the buyer, you should be aware of any changes that are legally allowed.
TIPS TO PROTECT YOUR INVESTMENT
Buying presale properties can be advantageous but there are always risks involved, especially when considering investing in property for beginners. It’s beneficial to follow these steps to protect your investment:
Appoint an independent real estate agent to represent you: when negotiating with a developer or vendor, choose your own real estate agent rather than an agent appointed by the seller.
Read the terms of the agreement carefully and seek legal advice: it’s vital to ensure that you read the terms of the agreement carefully and you understand the ins and outs of the contract before you proceed. Seek legal advice. Don’t be afraid to ask questions or raise concerns if you’re not 100% sure.
Monitor the market: keep an eye on the property market and try to avoid being impulsive or spontaneous. Getting your timing right is key when investing in real estate. Buying and selling at the right time will maximise your chances of generating profits.
CONCLUSION
Buying an investment property in Australia can be lucrative, but there are always risks if you buy and sell real estate. Pre-buying property offers advantages, but it can be risky, particularly for beginners. You should always be aware of the
- Make sure you understand your legal rights and obligations: before you sign an agreement, make sure you understand your legal rights and your obligations as a buyer.
Conclusion
Buying an investment property in Australia can be lucrative, but there are always risks if you buy and sell real estate. Pre-buying property offers advantages, but it can be risky, particularly for beginners. You should always be aware of the
risks. Weigh up the pros and cons before signing an agreement and take steps to protect your investment.