Are off-the-plan properties worth investing in?

According to Smart Property Investment’s Phil Tarrant, like all property purchases, the decision to buy off-the-plan must be rooted in the fundamentals of property investment.

Phil told MJ: “I'm not going to beat up off-plan apartments because it all comes down to the fundamentals of buying well… It sounds to me that you probably didn't understand the fundamentals well enough to buy well.”

MJ shares his experience buying off-the-plan and the reason why he regards it as one of his best learning experiences in the business of creating wealth through property:

Describe the property you bought.

MJ Anthony: Two bedroom, two bath, one car. It's a boutique but that's a really, really loaded term. It's 29 floors… Still a big block, lots of spare [and] lots of capacity in there.

Did the value of the property eventually increase?

MJ Anthony: We just basically found a lender who would accept a valuation because the first [one] we went with… the val[ue] was $310,000, and I'm like, "I don't really want to have to tip in more money for this, so can we find another lender?" We went with ANZ [Bank] and that valued up at $336,000.

But this is on Mary Street right in the middle of town… Today, it would be worth probably $490,000—the growth is not what you would call spectacular [after] 13 years.

Have you made another off-the-plan purchase after this?

MJ Anthony: No, no. Once bitten, twice shy... It was a good learning experience. Moved out of there in 2005 and rented [it] to the building manager, who put it in the apartment pool. He put his own furniture in.

Essentially, it was cash flow negative at the start. The strata fees are actually what killed the cash flow—about four and a half grand of strata fees a year. Today, it's about $570 a week. It's slightly cash flow positive, to the tune of $76 a week, excluding tax.

Do you still keep the property?

MJ Anthony: It's not great, but I keep the property as a reminder. Sometimes, if you make a mistake, you think, "Oh well, I can sell that and just move, opportunity costs and all that." But I look at it and go, "No, I'm going to keep it." Not that it's going to be worth a million dollars one day—it [could] in 2070—but it's just a reminder, for me, personally, [to not] buy off-the-plan apartments in the middle of the city.

You don't have regrets, you've just got to have learning opportunities.

What are the things you would do differently today should you decide to dabble with off-the-plan properties again?

MJ Anthony: [Don’t] buy it. Do your education first. I didn't do any seminars at all. I did a little bit of reading, but I'm talking about a couple of hours’ worth of reading, researching Realestate.com… There wasn't lot of resources, either, it was basically just [reading] books. There wasn't a lot of online stuff and the forums were very, very new.

[Then, I will] look outside the city, close to the city. I mean, I could have bought house somewhere around Brisbane.

Tune in to MJ Anthony’s episode on The Smart Property Investment Show to know more about the investment strategy he hopes will grow his portfolio from 12 to 100 properties and secure him half a million in income each year.

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