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Purchase off the plan / based on income projections The capital gains on the sale of the Management Rights is main driver for purchasing an off the plan management rights in the first place. Setting up an off the plan management rights takes 12 month of hard work. Cash reserves are also important as the income isn't going to be there from day one.
Call us on 0404331310 for off the plan opportunities.
Banks do prefer to lend to people who have experience in the industry if they are purchasing off the plan however it is not compulsory in order to have finance approved. Regardless of your experience it is important to discuss this proposal with experienced management rights specialists as purchasing off the plan can be a challenging and complex process.
Some common questions a financier may ask
· are there claw forward / claw back conditions,
· when is the adjustment date,
· how much is the adjustment amount per lot,
· how is the adjustment amount calculated,
· will the developer accept payment as a guarantee or
· will they expect monies to be deposited to there account upfront,
· how was the projected income calculated and
· what research has been completed to justify this projected net,
· is the multiplier within market range for that area and
· are there any rental guarantees.
If a financier is not asking these type of questions you could be talking to the wrong person and this could cost you time, money and stress.
Purchasers will do their own research. How?
Compared to an established Management Rights there is no history when purchasing off the plan. Aurora Tower sold for 5.4 Net income 500K + in Brisbane city, off the plan generally be 1 multiple less than an established one.
Maybe there are similar complexes within the area where you can compare rental income and occupancy levels etc. Remember, you make your money when you buy not when you sell.
There have been a few proposals that I have been involved with in the last six months where the vendor insisted
· the sale price of the business was to be calculated on the number of lots sold to
investors, regardless if these lots ended up in the letting pool at settlement.
· the settlement proceeds were to be paid direct to the their bank account. Eg 30 lots
sold to investors, even if 25 were only in the pool at settlement then 30 still had to be
· There was an agreed adjustment date and adjustment amount in the contract within 6
months after settlement if a certain number of units were not in the pool then the
developer would “refund” this money to the purchaser.
The obvious risk here is due to paying the vendor upfront into their bank account you are hoping the vendor is still around in six months time.
This is where bank guarantees can reduce this risk OR alternatively paying the monies into a solicitors trust account.
Banks will be more comfortable with paying based on
· lots in the pool at settlement
· then a claw forward / claw back can be negotiated on that date or an agreed
Additionally, some financiers insist that if the developer guarantees say 100 in the pool at settlement then 100 PAMDA 20’s must be signed prior to settlement or at least written evidence from the investors confirming they will offer their lot to the on site manager.
Other financiers will be satisfied just with the purchaser’s written confirmation of how many units have been sold to investors compared to owner occupiers. The risk to the bank and the purchaser is the investor’s may suddenly become owner occupiers or decide to sell the lot therefore the risk is selling to an owner occupier. Once again the banks will advise the necessary steps to reduce this risk.
How the project will be marketed?
· In majority of cases the developers will employ a sales agent who markets the lost to
investors either local, interstate or overseas.
· The sales agent must sign the investors up with 20a to appointment onsite manager as
the letting agent at the time signing the sales contract. This is the best protection for
developer to protect the value of the off the plan management rights.
When the construction start and when is the estimated completion date?
When buying off the plan sometimes you have to sign an unconditional contract 2 or 3 yrs ahead of completion. No bank will give unconditional approval this far out so it is of utmost importance that you get sound advice from an experienced management rights lender and your lawyer (also has to be experienced) who has covered the legal contingencies.
Your Accountant will advise if GST is applicable on the business price when purchasing off the plan. Most financiers will provide short term funding for GST however in some cases this needs to be funded by the purchaser. Remember the GST can be claimed back when you complete your next BAS return.
It pays to shop around when purchasing off the plan as some financiers lending value ratios, interest rates and loan conditions can vary significantly compared to purchasing an established business.
Contact us on 0404331310 or email us for off the plan opportunities.