8 Reasons why I don't buy Off-Plan Townhouses or new Townhouses

hither are my 8 reasons why I don’t buy Off-Plan Townhouses.
I also don’t buy brand new townhouses from a developers [any more] for many of the same reasons.
1 Price
When buying off-plan it is easy to be overwhelmed by the offerings like no transfer fees (which means a saving of R 20 000) or l-l loose appliances like washing machines and fridges ( About R 5000 – R 10 000) , that you don’t notice the price you are actually paying.

Our associated Real Estate Company Targer Properties, regularly sells similar second mitt properties in this area between R 9000/m – R 10 000/m.
Now when you are paying half price, the R 20 000 transfer fees and loose fridge don’t really stack up do they? And your brand new townhouse will be second mitt as soon as your first off tenant moves in.
2 Unrealistic Levies
Any experienced investor will tell you how badly high levies erode ones earnings. It is important when you invest to see what portion of your rental will be lost in levies.
Developers effectively run the body corporate from the moment the first off townhouse is sold. They take hold maintenance teams available and a vested interest in making the levies as low as possible to make the properties attractive to buyers.

The Body Corporate has to budget for a management team, ongoing maintenance, security and they need to save up a maintenance reserve fund equal to a total years worth of levy collections.

3 Return on Investment
next on from the high price of new developments and artificially low levies mentioned above, the next thing to watch out for is the “Guaranteed % ROI” offered by some developers.
What is clear is that unscrupulous developers can can make the numbers look as attractive as you want to.
We take hold developed a Return on Investment factor that we use in our Litmus test, that measures a few things like rental/levies/rates/maintenance/estate agency management fees and leasing fees.
4 Size does matter!
I don’t recommend you buy off plan townhouses because it is impossible to tell the size of unit you are going to buy. The pretty drawings you are offered portray a different picture to reality. The plans of the townhouse will always show small purpose designed furnishings in place and make it look larger than it really is.
You need to be able to walk around inside a complete unit that has normal piece of furniture in it to be able to make a goodness conclusion.

5 Building Snags
It is impossible to develop a complex of 100 units and not take hold defects. We all know this!
Building defects are a reality that take hold to be dealt with and most developers will gladly set all the defects you report. However as an investor you are limited to the defects you see on handover and the defects your tenant reports. Some defects you will only regain much later when it is too late and you take hold to human foot the repair bill or sue the developer.

6 Location
Location is the most important factor in property investment.
It stands to reason then that developers will try to build in the best locations, but land prices and availability become a problem.
At the moment, finding land cheap plenty to do a evolution of townhouses at a price of around R 16000/m will require developing in very poor locations where distances to work, traffic flow, and security become major factors.

To buy new and off-plan townhouse developments, you will regain yourself paying a fortune for townhouses in goodness locations or reasonable prices in terrible locations.
7 Immature Body Corporate
Think about it, new townhouse developments are bought up by first off time place buyers and buy to let investors.
The investors often own multiple units and simply don’t take hold the time or the loose energy to acquire too involved in the running of the complex. They also often live far away from the complex.
The Body Corporate consists of all the unit owners, who then elect a few trustees to run the complex. The trustees will therefore consist of a few first off time place buyers with little or no experience in running anything, let alone a multi-million rand annual budget.

8 Corrupt and/or Incompetent Managing agents
In the time that I take hold been investing in Townhouses I take hold personally encountered at least two situations where the developer made a very poor choice in managing agent where the managing agent turned out to be corrupt.

Many others like Polofields in Morningside were very poorly run and after a few years were placed in some kind of administration rescue deal.

*Links*
Property Coaching http://organicgrowth.co.za/coach
Organic Growth Premium Investment Club http://organicgrowth.co.za/club
Books:
Property Investment 101 by Neil Vorster (loose) https://organicgrowth.co.za/

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