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Everything you need to know about buying off the plan and securing finance

Everything you need to know about buying off the plan and securing finance

Aug 1, 2023 | Investment Property, Purchase, Self Menage Super Fund (SMSF)

There are many different ways to purchase property – and one of those ways actually involves committing to purchasing a property that doesn’t yet exist.

Buying real estate ‘off the plan’ means committing to purchasing a property that is still in the pre-construction or early construction phase, often long before a building or development project is completed. Many home owners and investors see buying off the plan as a good way to purchase a brand new property, however, just as with any investment, there are pros and cons to consider – so let’s have a look at them.

The benefits of purchasing property off the plan

  • Lower Purchase Price
    One of the main attractions of buying off the plan is the potential to secure the property at a lower price than it would be once construction is finished. Developers often offer discounts and incentives to early buyers which can result in significant savings.
  • Potential Capital Appreciation
    In a rising property marketing, purchasing off the plan can be a smart investment strategy. As property values will likely increase during the construction period, buyers may benefit from capital appreciation ever before they’ve settled on the property.
  • Customisation Opportunities
    This benefit particularly applies to home owners, but also provides investors with opportunities to boost their potential rental income. Purchasing off the plan often gives you the chance to customise certain aspects of the property, including selecting finishes, materials or layout preferences to suit their specific needs and tastes.
  • Delayed Payment
    When purchasing off the plan, buyers typically pay a deposit upfront and the rest of the purchase price upon completion. This extended settlement period provides you with extra time to save or secure finance.
  • Stamp Duty Savings
    As Stamp Duty is only payable on the land for off the plan purchases, you could be savings thousands of dollars on your purchase.
  • Deposit Options
    Whilst most buyers pay cash to secure their deposit, purchasing off the plan provides you with other more flexible deposit options to consider, including Bank Guarantees and Deposit Bonds. It’s always best to check with your property consultant as to what method of payment the develop is happy to accept.
  • Tax Advantages
    Being a new property, investors can claim depreciation which is a major tax incentive. This helps to reduce the ongoing costs of holding the property, allowing you to build a larger portfolio.

The disadvantages of purchasing property off the plan

  • Uncertainty
    One of the things that potentially buyers are often afraid of is the uncertainty of buying off the plan. As the property is yet to be constructed, buyers have to rely on floor plans, artist impressions and development promises as they’re not yet able to see the final product.
  • Construction Delays and Risks
    Construction projects can face unexpected delays due to various factors, such as weather, planning permits, development applications or financial issues. These delays may result in buyers having to wait longer for the property’s construction, impacting their plans.
  • Market Fluctuations
    Whilst a rising property market can bring capital appreciation, a declining market can have the opposite effect. If property values drop during the construction period, buyers may find themselves with a property worth less than they originally paid.
  • Changes in Financial Circumstances
    A buyer’s financial situation may change between time of purchase and completion, as well as general economic circumstances. This can make it harder to secure financing or meet the financial requirements during settlement.

How can you mitigate risk and increase your chances of securing finance for your off the plan purchase?

As mentioned above, economic or personal circumstances may change between the time of purchase and completion, however, below is what we always recommend our clients do to ensure they can reduce risk and have the best chance of securing finance for their property:

  • Increase your savings
    This will help to cover any unlikely shortfalls
  • Do not apply for any lines of credit during this time
    Don’t be tempted by credit card offers and avoid signing up for any additional lines of credit whilst waiting for your property to be completed. This could impact your borrowing capacity or credit rating.
  • Ensure all commitments are paid on time and up to date
    No lender likes to see late or outstanding payments, so make sure you’re paying all commitments on time.
  • Don’t change employment
    Some lenders can have issues with short term employment so it’s important that you chat to us should your employment change.
  • Maintain or reduce your living expenses
    Increasing your lifestyle costs may reduce your borrowing capacity so it’s important to keep an eye on your budget.

What should you consider when purchasing off the plan?

We’ve talked about the pros and cons, but what things do you need to consider when purchasing off the plan?

  • Research the developer
    You want to make sure that you thoroughly research the developer’s reputation, track record and completed projects prior to committing to an off-the-plan purchase as this will give you an idea of their creditability and their quality of work.
  • Understand the Contract
    Ensure you carefully review the purchase contract with the help of a legal professional. Pay close attention to clauses regarding potential changes in the property’s design, timeline and provisions for compensation in case of construction delays.
  • Finances
    It’s important that you know what you assess your financial situation and consider the risks associated with the investment before committing. When working with Sanford Finance, we’ll sit down to work out your goals, discuss potential risks and action plans and discuss contingency plans in case of unforeseen circumstances to ensure you’re not jumping into anything you’re not prepared for.
  • Location and Market Analysis
    Think about the location of the development and its potential for future growth. Consider things like the demand for similar properties in the area and evaluate the long term investment potential for the property.

What finance options are available during the construction phase?

Purchasing a property off the plan can be quite stressful and challenge even the best laid plans, however, our construction loans take a lot of stress out of the equation.

A construction loan most commonly has a progressive drawdown where you receive instalments of the loan at various stages of construction, rather than receive it all at once at the start.

This means that you generally only pay interest on the amount that is drawn down, as opposed to the entire loan amount.

A number of lenders also offer construction loans that are interest-only during the construction period, later reverting to a standard principal and interest loan once the build is complete.

Construction Loan Case Study:

Craig and Belinda are purchasing land for $300,000 in Adelaide and building a new home for $400,000 for a total value of $700,000. They are borrowing 95% or $665,000. Assuming an interest rate of 5.95%, the repayments required by Craig and Belinda during the build phase will look like this:

Current Loan Current Loan Current Loan Min. Monthly Repayment Required
Land Loan Nil $265,000 $1,314 IO
Deposit 5% $20,000 $285,000 $1,413 IO
Base 15% $60,000 $345,000 $1,710 IO
Frame 20% $80,000 $425,000 $2,107 IO
Enclosed 25% $100,000 $525,000 $2,603 IO
Fixing 20% $80,000 $605,000 $2,999 IO
Practical Completion 15% $60,000 $665,000 $3,966 P&I
Totals $400,000 $665,000  
IO = Interest Only P&I = Principal and Interest

In the above table we can see that the repayments steadily increase over time and are interest-only during the build phase. Once the final payment is made, a construction loan will generally convert to Principal and Interest repayments.

How do you get started?

Buying off the plan can be exciting and nerve wracking all at the same time, but we’re here to help. We’ve helped many clients secure their dream property or investment property off the plan and know what you should be looking for, what lenders are looking for and are here to help you navigate the off-the-plan market more confidently.

Ready to get started? Contact us today!

Evaluating the property market in Australia: Is now the time to buy or sell?

Evaluating the property market in Australia: Is now the time to buy or sell?

Jun 1, 2023 | Property Market

The decision to buy or sell property is always a tricky one, as it’s a significant financial step that involves careful consideration of various factors – including market conditions.

Whilst it’s important to know that real estate markets can be unpredictable, understanding the key indicators can help you to make an informed decision. So, let’s look at the factors influencing the Australian property market.

  • Low Listing Numbers = Increased Competition for Buyers

With decade-low listing numbers, there’s not a lot of competition in the market for vendors – but competition is fierce for buyers as they battle it out to secure a property. This is one of the reasons that selling conditions have strengthened, as evidenced by above average clearance rates, faster selling time and less negotiation.

The total number of homes listed for sale across Australia is currently 28% below usual (as reported by CoreLogic). When these volumes are low, selling conditions strengthen, meaning that potential vendors thinking about selling may jump in now rather than waiting until the traditional spring period where activity surges and there’s a spike in competition.

  • Rising Prices

Home values for Sydney, Melbourne, Brisbane and Perth all recorded an increase in housing values from the lows recorded in February. A mid-month update based on CoreLogic Australia’s daily Home Value Index showed the upswing gathering momentum, especially in cities such as Brisbane where the index is up 1.0% over the past four weeks whilst the Sydney property market still remains the strongest.. Considering housing affordability measures remain stretched such a strong rate of growth is surprising, with many experts predicting that this price rise will not be sustainable in the long term.

  • Low Supply vs High Demand

As mentioned above, decade-low listing numbers and high demand has lead to fierce competition between buyers – as seen in auction clearance rates that have been holding at 70% or higher in recent weeks.

In a time where the market traditionally tends to cool off, the stats suggest that, if anything, the market is gathering momentum instead of slowing down. Strong clearance rates as well as faster selling times and reduced discounting rates indicate that it’s definitely a vendor’s market.

Recent data from the National Housing Finance and Investment Corporation shows a 115,000 dwelling undersupply for 2028.

  • Interest Rates Continue to Rise

The biggest challenge for potential and current property owners? Interest rates. With interest rates continuing to rise, demonstrating an ability to service a loan remains one of the biggest challenges for prospective buyers to face.

Interest rates are high, but assessment levels are three percentage points higher again – making it even harder for buyers to enter the market or secure their dream property.

  • Economic Uncertainty

In addition to rising interest rates, we’re also in the midst of a cost of living crisis where consumer confidence is low.

Should RBA cut interest rates, there’s a good change we would see a pick-up in both buyer and seller activity. It’s also highly likely that lower interest rates would be the catalyst for a further uptick in housing values, however, we’re not expecting a rate cut anytime soon and there’s speculation that rates may continue to rise this year.

Economists are split on their forecasts with predictions for further rate hikes, stability and some cuts later this year – all contributing to uncertainty and low consumer confidence levels.

  • A Helping Hand

Government policies and regulations play a crucial role in shaping the property market. Policies related to taxation, lending practices, and housing affordability can have both direct and indirect effects on the market.

At the moment, first home buyers in particular have a wide variety of grants, concessions and schemes available to them (outlined in our First Home Buyer Update here) that could make purchasing a property easier and more affordable.

  • Migration Predicted to Recover

With net overseas migration set to fully recover to pre-pandemic levels there will be more pressure on the housing market than we’ve seen in recent years.

With the return of international students and the surge in migration, it is estimated that an extra half a million people will be looking for somewhere to live in Australia in the next two years.

  • Low vacancy rates bringing investors into the market

We are experiencing a rental crisis across the country, with historically low vacancy rates encouraging more investors into the market. Unfortunately for investors, rising interest rates and property prices have made this challenging – as well as rising building costs making it harder for investors and developers to buy and renovate or rebuild.

Is now the right time to buy or sell?

In short? Maybe. Unfortunately it’s not a one size fits all answer.

Ultimately, making an informed choice that aligns with your own circumstances and long term goals is key when navigating the property market.

Luckily, we’re here to help. We’ll sit down to work out what your goals are, what your property budget may be and how we can help you secure a property. Contact us today to get started!

Purchasing Property Through a Self Managed Super Fund

Purchasing Property Through a Self Managed Super Fund

Apr 13, 2023 | Investment Property, Self Menage Super Fund (SMSF)

Are you considering purchasing property through a Self-Managed Super Fund?

Purchasing property through a self-managed super fund (SMSF) can be a smart investment strategy for Australians looking to secure their retirement future – but it’s important to know what you’re doing.  

With the Australian property market experiencing consistent growth over the years, buying property through an SMSF can provide a range of financial benefits.

Source: https://www.realcrowd.com/post/reasons-to-invest

What are the benefits of purchasing property through a self-managed super fund?

One of the main advantages of purchasing property through an SMSF is the potential tax benefits. Income from rental properties held by an SMSF is generally taxed at a rate of only 15%, compared to the marginal tax rate that applies to individuals. This means that the rental income earned from an SMSF-owned property is taxed at a much lower rate, leaving more funds available for reinvestment or retirement income.


Other benefits of investing in property through a self managed super fund include:

  • Leveraging your investment by borrowing through limited recourse borrowing arrangements (LRBA)
    When investing in property through an SMSF, investors can leveraging their investment by borrowing money through limited recourse borrowing arrangements (LRBAs). This allows investors to purchase property with a smaller initial investment and to benefit from any capital growth over time.
  • Increased control over investments
    SMSF trustees can also benefit from increased control over their investments. Unlike traditional superannuation funds, SMSF trustees have direct control over the investment strategy and can make investment decisions in line with their specific goals and risk appetite. This level of control and flexibility can be particularly attractive to investors who want to take a more active role in managing their retirement savings.

What are the downsides of purchasing property through a self-managed super fund?

It’s important to note that investing in property through a self-managed super fund Is not without risks, including:

  • Fluctuating property values
  • The time and money involved in managing a property
  • The stress of dealing with leasing your property/choosing the right tenants/potential damage to property

With this in mind, it’s crucial that investors undertake thorough research and seek professional advice before making any investment decisions.

Is purchasing property through a SMSF right for me?

Overall, purchasing property through a self-managed super fund can be a sound investment strategy for those looking to diversify their portfolio, enjoy tax benefits and take greater control over their retirement savings. With the Australian property market showing consistent growth, SMSF trustees may find that investing in property is a smart move for their financial future.

If you’re interested in exploring your options and finding out more, get in touch! Sanford Finance has helped many clients secure property through their Self-Managed Super Funds as well as helped numerous clients with their general investment portfolios. We’ll work through the different options with you and find out which is best suited to your financial goals.

Get in touch with our team at www.sanfordfinance.com.au/contact or call us on 9095 6888

How your daily spending is impacting your borrowing power

How your daily spending is impacting your borrowing power

Oct 4, 2022 | Borrowing Power

Your morning coffee, a quick lunch with your colleagues, ingredients for dinner, your Netflix subscription… ordinary day-to-day expenses, but did you know that these can considerably reduce the amount you are eligible to borrow, even if you are a high income earner?

If you’re planning to buy a home, now might be the time to Spring clean your expenses and set yourself a weekly budget and here’s why:

Why do lenders care about living expenses?

Mortgage brokers and lenders are required to meet ‘responsible lending’ guidelines under the National Consumer Credit Protection Act (NCCP). These guidelines are designed to ensure that a borrower can afford to make the repayments on their loan without suffering ‘substantial hardship’.

This means, by law, all mortgage brokers and lenders must ensure that you have plenty of money left over from your income to repay your loan after you have covered your regular financial commitments.

What are living expenses?

A living expense is defined as anything that you spend your money on. Your morning coffee, Netflix subscription, monthly dinner out with friends and gym membership all count – even if you don’t see them as essential or could easily live without them.

When applying for a loan, we have to perform a thorough living expense and income assessment which determines your true financial position – and all of these expenses are included.

According to a 2018 survey by UBank, 86% of Australians don’t know how much money they spend every month on their living expenses – and those small expenses can quickly add up.

Without tracking your purchases, it’s easy to spend more than you earn without even realising – especially if you use a credit card.

But what if I plan to change my spending habits?

You might think “once I buy a property I’ll….”, but to most lenders, all that matters is how you’re spending money now.

Tips for controlling your living expenses

In order to control your living expenses, you first need to know where your money is going.

ASIC have a free MoneySmart Budget Planner that is a great place to start and it can be downloaded here. Another great tool from ASIC is the MoneySmart TrackMySpend app which helps you to record your weekly household budget, nominate spending limits, separate ‘needs’ from ‘wants’ and kickstart your savings goals.

How do we perform a living expenses assessment?

As mentioned, as part of the borrowing process, we need to conduct a thorough living expenses assessment. To do this, we’ll provide you with a Needs Analysis Questionnaire to help you work out your living expenses.

These expenses are divided into simple categories, including:

  • Childcare
    Including formal day care, nannies and occasional babysitters or childminding services.
  • Personal Care
    Clothing, footwear, cosmetics, personal hygiene products, hairdressing, manicures, massages etc.
  • Education
    All educational costs/fees for the borrower and any dependents, including books, uniforms, equipment and excursions.
  • Groceries
    This includes meat, fruit, vegetables and anything you might buy from a supermarket, including cleaning products.
  • Insurance
    This includes health, home, car, life, pet and all other insurances you may have.
  • Medical
    Doctors visits, dental care, pharmaceutical prescriptions, optical etc.
  • Utilities and Home Expenses
    Gas, water, electricity, rates, taxes, levies and any other costs for running your own home.
  • Entertainment
    Movie tickets, take away food, club memberships, gifts, holidays, hobbies and all recreational expenses.
  • Connections
    Includes expenses such as mobile phone plans, internet, home phones, magazine subscriptions, streaming services etc.
  • Transport
    Including personal vehicle expenses like petrol, tolls, insurance and car registration as well as public transport, car parking, car servicing and maintenance.
  • Rent
    This is for rent on a property that you live, board (if you are living with your parents or renting a room) or similar housing costs.
    Note: If you are buying a home you intend to occupy, rental expenses are not included as part of your living expenses assessment.
  • Investment Property Expenses
    Including any costs you are responsible for paying, such as council rates, insurance, property management fees, taxes and levies, body corporate and strata fees, maintenance etc.
  • Other
    All other expenses that do not fit into the above categories.

When should I cut back on expenses?

If you’re planning on purchasing a property, the best time to start is now. Regardless of whether you’re purchasing a home for yourself or an investment, it’s important to know how much you’re spending and where.

Remember that a lender will only give you a loan for an amount you can afford to repay, so cutting back on your everyday spending could give you increased borrowing power and will maximise the chances of your loan getting approved the first time.

Where do I start?

We are happy to run through your living expenses and help you find ways to budget and increase your borrowing power. Just contact our team via the website here, or give us a call on (02) 9095 6888.

Apartments vs Houses: What should you invest in?

Apartments vs Houses: What should you invest in?

Mar 3, 2022 | Investment Property, Purchase

You’ve decided you’re ready to invest – but the decision process doesn’t stop there.

Houses, units, apartments, townhouses, new builds, existing builds – where should you put your money?

Purchasing any property is a highly considered process. In previous years, houses were considered the best purchase, with apartments and units only really an option for those on a lower budget.

Today, however, this is a thing of the past as the Australian property market continues to thrive, attracting overseas investors, infrastructure evolution and changing living situations.

So what should you invest in?

Deciding whether an apartment or house is the right purchase for you all depends on your budget, strategic goals and the current market.

With any major financial purchase, it’s important to look beyond your personal preference to the overall environment. You need to set your feelings aside and look at the property purchase as a rational financial transaction to ensure you’re spending your money wisely.

By focusing on economic indicators such as auction clearance rates, interest rates and median purchase prices, you can develop a solid strategic plan.

But you shouldn’t do it alone. Seeking professional assistance from real estate agents, mortgage brokers and financial planners is critical as it allows you to properly evaluate this information and apply it to your goals.

What is the best type of property to invest in?

When considering investment opportunities, it’s important to look at the facts. There are three important indicators that need to be considered before purchasing an apartment or house:

  • Economic Factors – understanding key economic drivers such as cash and interest rates, clearance and vacancy rates, demographics and employment figures will help illustrate how the market is currently performing, as well as give you an idea of what may happen in the future.
  • Supply and Demand – how many apartments are on the market currently compared to the number of houses? Which are leasing faster? Are house prices increasing faster than apartments or vice versa? By understanding these factors, as well as any developments in the area, you are able to determine whether there is an oversupply or undersupply in a particular location.
  • Affordability – understanding the affordability of a property will ensure you are not over or under-capitalising on your purchase. Rental yield is also an important factor to consider for the affordability of prospective tenants.

What are the advantages of investing in an apartment?

  • Generally a cheaper purchase price
  • Often located in highly sought-after inner city or beachside locations
  • Strata maintenance assists in the upkeep and maintenance of your property
  • Higher levels of rent relative to the purchase price provides investors with a better yield
  • When investing in apartments, you’re often able to hold more property over the long term due to lower purchase and maintenance costs

What are the advantages of purchasing a house as an investment property?

  • More privacy for tenants – often attracting higher rental prices
  • More scope for renovations when looking to add value quickly, without the need for signoff from strata or body corporate
  • Ownership of appreciating land
  • Can be more resilient to market changes

What are the disadvantages of purchasing an apartment as an investment property?

  • Restrictions on pet ownership can turn away tenants
  • Upgrades and renovations can be restricted
  • Less privacy for tenants
  • Fewer facilities including pools, backyards and outdoor areas

What are the disadvantages of investing in a home?

  • Higher purchase prices
  • Maintenance of grounds including gardens and pools
  • No strata or body corporate to assist with building maintenance or compliance

What type of property is the best to invest in?

Ultimately, there is no clear winner when deciding between houses or apartments. Instead, the key is to assess each opportunity on a case-by-case basis, determining which is the right purchase for you.

Need help deciding? That’s where we come in. To find out more about whether an apartment or home is the right investment for you, contact our team on (02) 9095 6888 or [email protected]