WCC 8: Is off the plan safe

Hi, good morning everyone, dialing in for a “Coffee and a Chat.” Just getting up to my office, show you guys a bit of a tour if you want while I’m getting myself ready for our “Coffee and a Chat” this morning. I don’t know, I don’t know if you can see in the background there, that’s my office. I live in my office about 100 meters from the house which is pretty cool, which is always awesome. Nice to have a bit of room. Hi, so thanks for joining us. If you guys jumping on now, which is cool. Before we get going, always do the intros for those who are joining me for the first time, joining us for the first time. Jason Whitton is my name been property investing, over 20 years and a coaching property investors across Australia and New Zealand with my business partner Sam and my partner and business partner Shay. For 18 years at Positive Real Estate. So, hey listen, good question from yesterday in the chat, someone said, “Hey, listen Jason, is this off the plan thing, safe?” Is off the plan safe? So I thought, I’d talk about that today. I thought I’d have a bit of a chat and say, you know answer that question. ‘Cause it’s a good question, is off the plan safe? I like off the plan as a strategy personally, it’s worked extremely well for me over the years and… Morning, Heidi, morning Raj , Dane’s there, Alison morning, I do walk to work Alison. Yep, I get my fitness every time I need something, I’m gonna walk back to the house, which is cool. But I live on a nice spot, live on an acre. I’ve been working from home for 15 years, which has been cool. So for me, working from home is pretty good. But listen, good question from yesterday, someone asked is off the plan safe? Now off the plan is absolutely perfectly safe. No, no safer, nor more dangerous than any other acquisition strategy. And let me talk you through the strategies that we talk about and we coach too as property investors at Positive and the strategies we’ve used ourselves. So there’s six strategies or types of deals you can do when it comes to buying some residential real estate. Number one, an easy type of strategy for an acquisition strategy is a discount or rebate strategy. So it’s pretty straightforward, the property is on the market for 500, you buy it for 450. That’s a way you can, as the purchaser acquire the property in a way that can help you create equity, create cash, get a discount, improve your rents and so on. So discount or rebate, we love that one positive. We’ve done literally thousands of those types of deals over the years, discount love it. The next one a lot of people talk about is a renovation type deal. So buy a property, house, apartment, townhouse, don’t care, add some value right? Renovate it, fix it up, small renovation, large renovation. If the renovation is large I would say it’s getting towards a development. And I wouldn’t call that, something simple. You know if you’re adding bedrooms, you’re knocking down half the house that’s a small development. So we’ve got discount, rebate, we’ve got renovation. The next two are ways to add value. And I’ve done a fair few of these myself over the years. And it’s almost like a progression of value adding or ways to do a deal in property investing like sort of one to six here. One is called the strata, okay, so you either buy an existing property. And this is often where there’s existing apartments or townhouses all in one title, you know, two, three, four, I’ve done a strata titling very successfully. Over the years, my largest strata was 15 apartments. I bought 15 apartments in Sydney, I renovated and strated them, they were all on one title so the gentleman who actually owned them or selling them built them himself actually 20 years before. And I purchased them all in one title. I renovated, I strated, chop them up and then onsell them for a very nice profit. So that strata titling. Subdivision is another way to add some value. So subdividing, you know, a big piece of land. It, complies with council measurements and you can chop it up. I’ve done a fair few of those, and they’re really good too. I quite like them, these deals like strata and subdivision require a significant amount, more capital and they require the council to be involved heavily in your deal. And I wouldn’t call them beginner deals. I wouldn’t call them you know, easy deals, but they are profitable if you buy the right one and you understand how to do it. But I would… If you’re within your first three to four properties in your investment portfolio these types of deals are not for you, okay. That’s my position anyway, you need a nice solid bind hold wealth based first. Morning Diane. And then you can get onto more interesting deals. The next type of deal is off the plan, okay. And I’ll leave off the plan to last. The next type of add value way to do a deal is a full-blown development from scratch. And you buy a piece of land and you can develop it into apartments, townhouses, or even a large subdivision. I do a couple of those a year. They cost way more money and they’ve got way more risk. And certainly not for the faint hearted. I’ll tell you guys a few stories about that maybe in the coming weeks, I’ll chuck a couple of stories in my morning, coffee chats about a few of those disasters that I’ve experienced in my life. Learn some lessons, very good quality, high value lessons, high cost lessons. But the question was is off the plan safe? And the answer is absolutely, what’s not safe often are people. Let me just put it that way, all right. The deal is fine, but let me talk through off the plan, the positives and the negatives, okay. Off the plan, if anyone listening in doesn’t really understand what it means, it is purchasing a property and 95% of the off the plan purchasing comes from apartments or townhouses where you put a deposit down today, a 10% deposit, you agree on a price today. You have a set of plans and some drawings and some photos. And the developer says “I’m gonna build something like that.” And you’re like “Good, I like the spot, I like the drawings and the design that you’ve done, here’s my deposit. When you finish it Mr. Developer, Mrs. Developer, I’ll pay the rest.” Okay so off the plan, I like off the plan because of those things. Now the upside is, for 10% let’s say $60,000 as a deposit you can control awesome, amazing pieces of real estate. And there’s no more to pay for, let’s say two years or three years off the plan. Your piece of real estate can be in a location. Let’s say right now, I’ve got a piece of off the plan property coming up, that our investors will be taking a look at in Brisbane . It’s coming up very soon, we’re launching it to our, all of our members, all of our mentoring members very soon. And I’ll talk you through it, like why I think that deal will be absolutely bomber right? So it’s very close to the CBD, two and a half kilometers from the CBD. It’s perched up on a cliff, It looks at the city with views, never to be built out. It looks down that way to the river, It looks down that way to the river in Brisbane. Absolutely spot on location and spot on suburb. The developer, so the location is good. The developer is extremely safe, the developer has one development of the year, building of the year, the design of the year, six out of the seven years in the last seven years in Queensland, okay. And then has gone on to win other awards nationally as well. So big tick boom, the developer.. Morning Simone, The developer is fully funded and has some significant resources to complete the deal and does not need secondary or third level finance or funding from untrusted finance and funding sources, okay. So you know, how do we check in on is an off the plan safe? That type of off the plan is awesome, I would expect that my deposit will work hard in the off the plan process. If I put my deposit down $60,000 for two years my deposit and the value of that property will either stay at the same price or potentially go up, okay. I think that mine will go up. I did one in Melbourne just recently in Collingwood. It’s settled late last year. And the value went up, you know, $40,000 in the timeframe. And another one I did in Canberra, they both went up in value in the after plan, after plan timeframe. Okay, I put my deposit down and the values in the area rose in the meantime. How can off the plan be unsafe? Okay, well here’s how often plan can be unsafe but really it’s not the off the plan that’s unsafe. It’s you as the person that are unsafe to do the deal. Okay, so let me say what that means. Number one, you buy an off the plan property and you choose a poor one or something happens in the market place and it goes down 10% in value. Or the valuer, valuing the property, doesn’t want to value it at what you paid for it, or you agreed to pay for it. You’ve either paid too much, or the value is a wanka. It’s probably nine out of ten, the value is being a wanka. Sometimes you’ll just pay too much because you didn’t know, you didn’t get any help, you didn’t get any assistance and so on, okay. So you arrive at the time, you have to settle that property for an off the plan and you think, oh I’ve already put my 10% in, I’ve got a 90% loan, I’m fine. Hang on now the value it says it’s worth 50 grand less and you have to put another $50,000 into the deal to settle it and you don’t have the 50,000. So that’s what can happen with off the plan. You can arrive when you think you need to settle it and you can’t because the lending and the valuation doesn’t agree with what you thought it was going to be. So that’s where it can be a problem or an issue but what you make… What you gotta make sure you do is make sure you understand who the developers are. You check out their previous projects, you make sure they’re fully funded, they’re gonna deliver the project on time, et cetera, et cetera, okay. So that can be an external evaluation issue for you. The other one, you lose your job, something happens in your life. Two years is a fairly long time, you might lose your job. You might separate from a partner and let’s say, you know, you both agreed you were gonna buy it together, ’cause that’s how you could afford it. And then you’re now single, your life circumstances change. So that’s how often plan can be a little bit dodgy into the future. If your life circumstances are uncertain, okay so you have to be certain that you know, pretty well from where you are today. It’s either going to be the same or improve by the time you get to the off the plan settlement. Which is, important, so that’s for you. The other one is the quality of the developer. It’s called the render to reality, okay. Now it happens in every, every state of Australia. There are good quality developers, we call them brand developers. They have a brand, they have a reputation in the market, which is important to them. And then there are developers that have no brand, no name. You don’t even know who the person is building that property. You’ve never met them, you can’t find them in LinkedIn. You can’t… They don’t have a company, there’s no website. That is a no brand developer. And hear me when I say this you guys, there is no, there is zero reason ever to purchase from a no brand developer off the plan, okay. That is when you will get in trouble. That is when that person has nothing, nothing, nothing to lose by delaying, by not paying, by not delivering on what they said was in the brochure because the prices went up, et cetera. And that is where the danger is, It is when you think off the plan that one’s 50 grand cheaper. Why would I buy the one that Jason’s talking about? When this one over the roads, 50 grand cheaper. Oh my God, It looks exactly the same in the brochure. And that’s when you get caught because most people shop on price and not on value, on true value. Price is irrelevant, If it doesn’t deliver when it comes down to it, okay. So just make sure you understand what that means. That’s why I believe if you ever want to do off the plan, off the plan in a group like we do, we call it co-op buying. We are a co-op and we purchase in bulk in a group 5 or 10 or 15 or 20 from a developer as a group of people that developer must behave, there’s 20 of us. And if they don’t deliver we will band together and give them a hard time. You by yourself, isolated alone, and that developer doesn’t deliver you have got nothing to stand on unfortunately. So can can off the plan be unsafe? Absolutely, 100% It can. It’s certainly not for people who don’t understand real estate. That’s why like buying a property today and… Like seeing a property today and buying it tomorrow is quite simple in comparison to off the plan. But off the plan can be super powerful, massively powerful. I love it, as a strategy, It is certainly a key strategy in good quality real estate around Australia, okay. Ashton just said here about rescinding contracts. Yup, and which is good so Ashton once you’re in a contract that off the plan contract, and you’ve gone unconditional so you as the buyer, you cannot rescind the contract. You can’t choose, “Listen, I don’t want to do it anymore gang, thanks but no thanks.” You’re contractually bound to settle a property like you have to do it and you know irrelevant of your circumstances. You can apply, you know, on compassionate grounds let’s say something went… Didn’t go to plan, you know, you had some circumstances in your life. And I do know a number of really nice quality, good people developers who have let people out of contracts from time to time for genuine issues. But 99% of the time, it’s like, well hang on. You know, you said you could pay for it two years ago. I trusted you, I went ahead and build this property. Now I’ve incurred all the costs, you need to settle it. So you can’t get out, if you just change your mind Ashton. That’s not how off the plan works. So you have to be certain, to go the distance guys. On the flip side, which is a little bit annoying which is kind of hypocritical when you think about it. But you know, the developer is in the driver’s seat not you, they can via a mechanism in an off the plan contract called the sunset clause. The sunset clause rescind the contract, if it goes on too long. So the developer can rescind the contract. Yep, there you go I’ve seen you asked it there and depending on how the contract’s written Ashton you could cancel it or the developer could cancel it, so check in on that one mate, as you go. Certainly once the sunset clause is passed kind of the gloves are off, which is fair enough. You know, maybe something goes wrong, maybe COVID hits you know, in Melbourne it’s gonna cost more for that developer to build that property now. And they kind of like… It’s gotta make a loss, so they can’t go ahead and build it. So there are genuine issues in that process as you go. Melinda asks, what about off the plane in Melbourne gentrifying areas right now? Absolutely Melinda, and we love this. At positive and Sam my business partner has written books about it. He talks about it at universities, the gentrifying areas. And we use the off the plan strategy in the gentrifying areas, right now we all know, we all know that Melbourne is having a bit of a tough time when it comes to COVID right now but it’s not gonna be that way forever. And, you know, Melbourne will come strong. It’s an amazing city, It’s a beautiful amazing place to live. It’s got huge amounts going for economically beautiful city. So, you know, if you’re concerned about buying a property physical property today in Melbourne, then off the plan is a fantastic strategy. I’m doing off the plan in Melbourne right now. And my property is going to land in 2023, fantastic, right Right in the middle of when you know, the peak level of property shortage, the peak level of everyone back at work and jobs, the peak level of migration going to start and come in the peak level of vacancy rates being low. So I’m using off the plan as a bit of an opportunity to put my foot on a spot, being in control of a piece of real estate to land it at a time where I believe there will be little to no challenges or issues in the rental market. So, but if there is, you have to be prepared for getting that wrong and you have to be prepared to own that property for the long term into the future. And I am, and you know, Melinda, if you’re thinking about that now 2022 is gonna be very good. I think it’s perfect, but just make sure you grab a little, bit of extra maybe cash, buffer another five or 10 grand up your sleeve, just in case there’s a little bit of wobbles, but you know, if the property’s good and you’re happy to own it for 15 or 20 years then the short-term stuff is just short term off. Off the plan is good, It’s a good strategy. If it suits where you are, suits your financial, suits your emotional capacity and your mental capacity as a property investor. But certainly you’ve gotta check in those no brand, no name, nobody developers, silliest thing you could ever do, just because it’s cheap. Cheap does not mean value when it comes to off the plan you guys. If you wanna get a deal, if you wanna get a good price deal, wait till it’s complete. Wait till the whole thing’s built and at Positive we do that all the time, our crew do it all the time. The last 5 or the last 10 the developer hasn’t been able to sell off the plan, well we go in and bash them up and get a big discount. So wait till it’s completely finalized. You can get a valuation today, you can get a discount today and you can settle a property tomorrow. And sometimes, sometimes those no name, no brand developers actually deliver a pretty good property. They built it so you can see it, they’ve built it so you can investigate it. And if they delivered on what they said they were going to do then perfectly fine. But I wouldn’t put my money in the off the plan hope and pray strategy for the no brand, no name developer ever, ever that would be madness. Anyway, that was a good chat today gang. That’s a good question, thanks for asking that one. I can’t remember who asked it but I’ll give them a shout out in the chat. So if you guys got any questions, chuck it in the chat, guys always happy to answer, have a conversation about these things, as we go the morning coffee and a chat, I quite enjoy sharing these experiences and ideas with you guys. So thanks for joining me a few online today which is awesome, but that’s it for me, gang “Coffee and a Chat” and done and dusted. If, anyone wants to find out about our mentoring or our co-op group buying, or buying off the plan and you need some help or some assistance with that, give us a shout out. Track us down in our web page, track us down in our Facebook events. We do training events every week, or hit me up with a chat or a message. We can have a bit of a yard. Alison, we’ve got some amazing deals in Canberra. 7% yield, 360 K, they’re pretty good actually. Only Canberra is our little winter, but give us a shout out, if you need some help you guys Alison, I can help you with that one buddy depending on where you wanna buy that’s for sure, but hope you guys are good. Have an awesome day, it’s Friyay. Tonight, Andy Fenton and myself are doing “Wine and Wisdom.” We’re gonna debrief the week, the whole week. What’s in the news, the budget. It’s a big one, it’s an amazing one. We’re gonna that tonight at 5:00 PM New South Wales time, 4:00 PM Queensland time. I think that’s what we’re doing anyway, as you go. So join us for that this morning gang, as you go… Ashton there you go, mate, yep the developer got a discount 5% off good work mate. My only thing Ashton with those sorts of things is be careful, if that developer is a no name, no brand, unidentified developer. You know even if you’ve got the discount, you know, maybe they’ve under priced it but mate just check in on it. Just letting you know what you’ve gotta check in mate, but a 5% discount awesome mate good job. That’s more money in your pocket and that’s the way to roll. So, all right gang if you’re gonna join us tonight, join us at 4:00 PM Queensland time, 5:00 PM New South Wales and Victoria time. And for the other States I can never bloody remember. Alright guys, have a good one. Friyay, bye bye.


About the Author
From a small town boy growing up in the remote outback of rural Queensland, to becoming the founder of Australasia’s most powerful property wealth creation engine – Positive Real Estate Group CEO Jason Whitton is on a mission to change the way we look at wealth.