One of my colleagues mentioned how his brother queued up to sign for a newbuild property. He put down a small deposit and by the time it came to paying for the lot he sold the property on for a hefty profit. Apart from queuing very early in the morning to get one of these houses, this sounds too easy to be true. The guy supposedly made 10 grand!
How is this achieved - no bridging loan or mortgage or anything?
Any comments, constructive advice etc. would be very welcome.
There is still a lot of risk that you could get *less* than you purchased for. I would say a better bet would be to wait to see if there are any "slow to sell" units when a new scheme is almost fully sold. Quite often the developer will sell off the final unit at a bargain price so they can "close their books" and have the development fully sold.
This is very closely related to the negative priced gas thread.
Your colleague bought a future commitment to buy a house at a fixed price in the future. The builder committed to delivering the house at the fixed price.
When the date actually came around your collegue sold it on the "spot" market. Because at the time it happened the spot price was greater than the future price your collegue pocketed the difference.
Your colleague would have lost out if the spot price had been lower than the price he had committed to.
The builder was happy because he wasn't exposed to the vaguarities of the housing market, he knew how much money he was getting and exactly when he was going to get it and your friend was happy because, in return for reducing the builders risk he pocketed a profit (which will mostly be tax free provided he doesn't have any other chargable gains)
It's a gamble, whether you buy futures in gas, oil, gold or houses. Generally with houses your potential losses are limited, ditto gold. But as we have seen, with commodities like gas a commitment to buy might actually require you to pay someone to take the gas off your hands when you finally have to take delivery.
There is no guaranteed way to make money. Futures allow you to control a large asset with a small stake but your potential losses (and gains) can be orders of magnitude higher than your stake.
The gamble is you are relying on the builder's valuation. This is the 'hurdle' value you hope will be exceeded. Of course the builder will factor in the expected growth. So to win you need the market not just to rise, but to outperform current expectations.
It is very difficult to place value on off-plan property as nobody knows what they are worth now never mind in the future - until they are finished and sold on the open market. The earlier in the development phase the bigger risk/reward potential.
I know someone who bought off plan in docklands during the last boom. The property wasn't completed before the (most recent) crash. I think he walked away and lost his deposit.
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here.
All logos and trade names are the property of their respective owners.