What exactly is OTP?
When an investor buys a property off-the-plan (OTP), they’re buying properties directly from an architect or developer’s blueprint, ones that are partially or just about to be built. This is a strategy that allows them to potentially save some money and capitalise on the investment in about a year’s time.
OTP properties are usually offered at a discounted market rate to investors. If you snag one of these properties below its market value, you’ll gain instant capital as soon as construction has been completed. Many first-time investors like to go for this strategy because it’s a great way to enter the property investment game at a lower cost.
Investors also gain a certain amount of flexibility for these sorts of properties. As the property hasn’t been built yet, there is still time to talk with the architects and designers. Most of the time, you will be given the opportunity to choose some of the home design, such as the carpets, light fixtures, bathroom layouts and floor plans.You can have control over how the property will look and feel to potential renters and they are able to choose the quality of materials, which is a great added bonus.
How does this affect my wallet?
Usually rental returns are a very small percentage calculated per annum of your property’s value, but this rate can also be affected byfactors outside of economic boundaries. The biggest factor that will affect your rental returns is the demand for rental properties in your area. Renters often want homes that are close to cities, near transportation and schools, and are on spacious, well-designed properties. There is always a need for housing, but if your property is in a desired school district or right near a train station, the price of rent will go up, which will play to your advantage.
The other great benefit of OTP properties is that they are brand new with no repairs needed. If you were to purchase an older home, you might not be able to find problems with it until the deed was signed. You are also given time to come up with a deposit. Until the property is finished, you won’t have to put down any money on the deposit, and once it is finished, you can claim certain tax benefits.
So how do I go about getting an OTP property?
Many investors find that OTP apartments are easiest to find in high-demand areas because so little land is needed. While OTP houses are not impossible, they can be more difficult to find. Always be sure that the organisation is reputable. Do some solid research before signing with any organisation. Try to talk to other investors who have worked with them to see what they thought of the organisation.
What else should you know? Follow these tips before you purchase:
- Get a good developer: As stated earlier, you don’t want to purchase from just anybody.
- Know your product details: The developer should give you a clear description of all materials used, from the brand of toilets to the light fixtures in the hallway. You want to ensure they’re good quality.
- Complete fine print: Don’t sign anything until you’ve gone over the contract with a solicitor. You should have a clear understanding of your responsibilities and the developer’s responsibilities.
- Clear completion date: Make sure your contract states the exact date the property will be completed by and whether you can get your deposit back if the construction has not been finished. Also check for any clauses that discuss ‘acquisition’ or ‘commencement.’ Double check for the clause about the right to re-sell the property
- Know your Return on Investment (ROI): You should complete a property investment analysis report, which will tally up your holding costs, rental yields and capital appreciation so you can see how your investment will grow and whether or not you’re getting a good deal on the property.
Anything else I should know?
Your job as an investor is not done as soon as the paperwork is signed. You should be visiting the construction site often and inspecting the location. If the apartment is in a tall building, check for other buildings that might be built in the area as they may affect your renter’s view.
Always do a thorough investigation for the materials being used in the home. Go to the display home and see whether it is up to your standards.
Above all, you should maintain a mutually respectful relationship with your developer. You must be able to trust this organisation to use the best materials and be fair in their negotiations. Take the time and go over every clause in the contract. Be sure you know what you’re getting in your final price so that you aren’t surprised by any additional costs.
The OTP strategy is a great opportunity for a profitable investment, as long as you are a savvy investor. The most important part is to be actively involved, so be sure to understand the process, and keep an eye on how everything works, and how the build is progressing.
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