This Strategy invests in large commercial developments and building projects such as the two high rise projects of Q1 in Surfers Paradise on the Gold Coast; Eureka Tower in Southbank, Melbourne; and the World Tower in Sydney.
Keys to make it work:
- Purchase at early stages of the development
- Different phases of the project offer different pricing schemes
- Developer reputation
- Developer with good funding
- Diversified marketing channels and recognition
Financial Requirements:
The price range in this category usually start at around $300k depending on State, location floor level views, etc.
Time frame and exit strategies:
This strategy has short, medium and long term investment potential, usually 1 to 10 years depending on the nature of the development or market cycle. The aim is to sell at the peak performance stage, refinance to cash out for another investment or paying down the Primary Place of Residence (PPR).
The return perspective:
If purchased in the early stages of development and while utilising the full potential of the developer's advertising campaigns, investments can earn 15% to 30% of the growth or higher during the developing phase. Good investments are capable of doubling in value within 3--5 years if bought at a good price on the rising market cycle.
The advantages:
If investors buy well at an early stage of a large development, they can resell the property at a later stage of the development. Significant capital gain can be mad if the market cycle is in favour of the buyer.
Many of these properties often come with bonus offers such as leaseback for certain years at certain percentages of the purchase price, free furniture package, stamp duty paid by the developer and early settlement discounts which investors might find attractive.
The potential risks/difficulties:
The true price of these types of properties can be hard to quantify by Do It Yourself (DIY) investors. The advertised price can be misleading. You might hear that you are getting the stock at a 15%-20% discount off the market price, thinking you are getting a bargan, thus commiting a deposit right away as the offr will not last. However, you may find out later that your deposit price is actually slightly higher than the real market price due to the lack of local market knowledge.
There could be a price rollercoaster which DIY investors might not be able to foresee. As settled before, timing to resell and refinance is crucial to the profit realisation.
The rental returns are not always promised if not managed properly. The property might be brought into a negative cash flow situation from positive cash flow properties due to the contingent facts such as interest rate changes, tourist season and vacancy ratios, etc.
Receiving a competitive price for buying this type of strategy can be challenging for the DIY investor. Buying directly from developers is a good beginning if you understand the game. Knowing how to bargain with the developers requires industrial knowledge and skills. Good stock is often sold within a weekend or a week from the moment they go on the market. Too often the public misses the window of opportunity since the developers often prefer to wholesale the opportunities instead of retailing them. Good connections with the major developers are critical for getting involved with this type of strategy.