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New Build Strategy

Mark Honeybone explains how to buy new builds or off-the-plan builds at discounted prices.

By: Mark Honeybone

1 December 2019

If you’re not sure how to get discounts on new builds or whom to trust, read this article. I know what to do and what not to do when it comes to buying new property – more than most people. I have experienced both sides and I can comfortably say it is much better to be on the “what to do” end of a deal.

Some sellers will offer up benefits, such as “you will make money during the build because of the time factor” or “the property’s value doubles every ten years”.

They may be correct in saying that, however many of them sell properties at market value and not discounted prices.

Of course, there is plenty of discussion around these benefits. For example, what happens if the market goes down during the build? Would you make money then? Probably not.

What if a property’s value doesn’t double during a cycle like in the past, but only grows by 50%? Whatever the situation is, it still needs to work for you. You should also understand how experienced the developer is before buying from them. Of course, key fundamentals of property investing must also be considered like the location of the property.

Would it suit a renter or a home buyer? Is it near public transport, schools, shops, motorways and so on?

How Do You Buy Discounted New Builds?

The first thing to understand about most new build developers is that they require a certain percentage of sales before the bank or finance company will approve the overall finance for the development.

‘If you are in early, this gives an investor or home buyer fantastic equity when buying new’

This usually means that the developer will offer the first lot of properties at discounted prices (sometimes as much as 10%). For the last eight years of selling new properties, the usual price breakdown has been as follows:
$640,000 Registered Valuation
$580,000 First five sold
$599,000 Next five sold
$619,000 Next five sold
$639,000 Last five sold

If you are in early, this gives an investor or home buyer fantastic equity when buying a new build (that should have no maintenance issues).

A tip here is pay as much as possible against the principle in the first years to safeguard your asset forever.

I have experienced many variations of the above price breakdown, but the key is that each developer has a threshold of what they want to sell for, which equals a
discount for the buyer.

Where Do You Find Discounted New Builds?

First, you need to know good developers, as not all are equally good. From personal experience, 14 years ago I found that when you aren’t that experienced in this matter, you can get it wrong and lose hundreds of thousands of dollars.

Do your research without annoying every developer out there.

If you decide to buy discounted new builds with one developer though, build a great long-standing relationship them. It’s important to build a great relationship with an expert of new builds and off-the-plan builds and work with them.

This should not cost you any money to do so.

Some new build sellers don’t care and will happily sell you a new build at valuation. If that suits you, that is fine, but I suggest finding a company that has many property projects and contacts around the country that will find you the discount you need to satisfy your risk. Let them take some of the risks out of it. For example, we often get our solicitor to check the developer’s sale and purchase contracts out before our buyer, and their solicitor even look at it.

Of course, you should also investigate things yourself. Understand what the seller’s motivation is.

Do they care about discounting and/or doing the best deal for you?

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