Buy Now and Pay Later? What do I do?

Hi,
This is the method Henry Kay taught in his seminars. The idea is that you secure the apartment now off the plan with settlement due in a 18-24 months. Hopefully when the apartments are released they are worth more which means you can either sell with settlement on the same day as you are supposed to settle (like a flip) and you pocket the increase in value without having to pay for the apartment (arbitrage). Alternatively the apartment goes up in value enough that whatever deposit you have (if any) is enough to meet the required loan to value ratio of the bank so you can get a loan.

Does it work? It certainly can and many people do this to buy a place to live in when they don’t have a deposit. My friend signed a house/land package deal with a builder due in 1 year. By the time the house was all ready to settle (he used the fhog to secure the land) it’s value was such that the bank would loan him the money without LMI (insurance).

The problem: apartments in particular are a fickle thing to value. With very little land component to them they are largely at the mercy of whim and local favour. In general they go up, but most often not as readily as will a house and land. Also apartment builders often talk up the likely gains or include a portion of the likely gains in the “off the plan” sales figure. Make sure you value the apartment at today’s value and take account of the time value of money (as in an apartment that you buy today and rent out for the 2 years is worth more than an apartment you need to wait 2 years to use).

Anyway, that’s what I’d do personally, particularly if I was going to live in it (an apartment in 2 years to live in means 2 years more rent I’d have to pay).