Have you got a nest egg?
Find out how investing in a nest egg now, can pay some handsome dividends in the future!
What the heck is Nest Eggquity?
Oh i'm glad you asked! This is a term we have devised over the years to better explain putting away a nest egg for your future - only in the property market it builds equity not cash!
Nest Eggquity is where we look at putting some money away on an investment in the property market forecasting to make some strong equity over a period of time. This is normally done by investing in a property Off-The-Plan. Whereby, you would simply put a small deposit on a property that won't be ready until a much later date and forget about it.
Sounds crazy right? wrong! Because what you are doing is essentially locking in a price now, on a property that should be worth much more in the future.
For example, let's say an apartment in Flemington is worth $800k - you put a $80k (10%) deposit on it and hold it until completion. Now completion isn't due until 2 years away. The market in Flemington is going great and is predicted to do even better over the next 2 years. Let's say it moves at 8% per year for the next 2 years. Now, once the building is complete and you are ready to settle on your apartment. You get a valuation and it has gone up by 16% over the 2 years since you paid the deposit. Your apartment is now worth $928,000k BUT you still only pay $800k. Thus your nest egg has made you $128k in equity before you even finalise your purchase!
Boom - Nest Eggquity!
Now i know there are a lot of "if's" and "but's" in this scenario and the whole Off-The-Plan strategy so hold your horses and let me get into it, because it's not as easy as it seems!
The risks include;
Finance issues on completion - if your finance is no longer approved for the purchase, maybe you lost your job, maybe you are getting above the 55 age bracket and lending is tighter, many scenarios can change your serviceability. However, this can sometimes be overcome by doing a nomination and on selling it to another investor.
Developer crashing - if the builder who is developing the project folds or does something completely dodgy you could end up losing your deposit. Rare but it has happened. This can be overcome by doing your investigating into the developer and sticking to big name, very reputable companies. We often look for developers who have the financial resources to construct with minimal input from sales. Meaning they have the cash to do it anyway.
Local market dives - if the local market crashes, the value of your investment could potentially be less than the purchase price you locked in. This can be combated by lots and lots of research. If you are investing in a hotspot region that takes a dive then you didn't do the right research and you didn't get an opinion from an expert like us. There is a lot of extra checks that need to be done before looking at an investment into an apartment - ask us for more info.
Why would we do it?
Pretty simple really, if you have the financial capability to put some money away for a rainy day and you want the benefit of tax deductions on the deposit of an investment, then consider an OTP nest egg. We have seen in some cases, clients have made in excess of $500,000 in equity, on a fast moving market.
It doesn't necessarily need to be done on apartments either! Over the years we have seen some extremely fast moving land estates where the supply can't keep up with the demand. If you speak to the land agents they will tell you there is a waiting list or you will need to wait a year until you can get a registered lot. In this case you will need a 5-10% deposit and sign the contracts on the land and watch the prices around you go up whilst you wait. When we see estates that cant keep up with demand we often see prices rising monthly. Thus, you lock in a price with your deposit now and it will be worth more on registration.
If there is anything else you wish to know about Nest Eggquity or OTP investments, then please feel free to contact us.
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