5 Common Discounts given by Developers and What They Really Mean

Now, why would a builder want to offer you an incentive? Well it just could be that they need to offload some properties they've got pressure from banks or financiers or they just need to hit their targets. Either way, it's a good deal for you if you can get it.

Share on facebook
Share on google
Share on twitter
Share on linkedin

Now, why would a builder want to offer you an incentive? Well it just could be that they need to offload some properties they’ve got pressure from banks or financiers or they just need to hit their targets. Either way, it’s a good deal for you if you can get it.

#1 Deposit Paid Schemes

So, the most common one that I see is the “Deposit Paid Scheme”. This is where they advertise that “we’ll pay your deposit”. Sounds a bit crazy really because they just pay the deposit and get the money back.

So how does a 5% deposit Paid Scheme work?

Well, in reality no money changes hands. Well, I’ve never seen a deal where they’ve actually physically put the cash in the transaction and then got it back afterwards. All this means is that your deposit is going to come down by 5%.

For example… If you can get a 95% mortgage or LTV of 95% then your deposit is going to be effectively zero.

If you can get to 85% mortgage then rather than paying 15% deposit, you’re paying 10%.

How does this actually work?

It changes around the world because there’s different rules and regulations but usually a solicitor or a lawyer will take care of the details and make sure that that deal happens correctly.

Obviously, the bank needs to be okay with it and the valuer will need to be okay with it as well.

The value or the surveyor’s job is to make sure the property is worth what you’re paying for it. Let’s say the property is being sold at $100,000, With a 5% deposit paid scheme, the purchase price is still a $100,000.

It’s just that they’re only accepting $95,000 for a property that’s worth a $100,000.

Now please if you see this, make sure you push the developer. Ask for 5% or 10% or 15% or more. Push them for as much as you can because they have a lot of money usually to give away to people who buy houses from them.

I call developers and builders “Professional Sellers” because that’s what they do it’s their job to sell property and it’s my job to buy property and make money from it.

#2 Landscaping and Gardening.

It’s pretty common that you see builders offer this (and if you don’t see them offering it ask for it anyway) because it usually costs them very little to put grass down and do some sort of landscaping or whatever it is in the garden (if there’s one on the property).

#3 Internal Landscaping

What I mean is white goods, carpeting, furnishings stuff like that.

Again, they can probably get those things or source them a lot cheaper than you could so hey why not ask them to do that and see if they oblige.

#4 Free Car?

One of the things that I’ve seen quite common in Dubai is giving a free car with a property and usually it’s higher price property.

So are you going to buy a property let’s say for $400,000 and they’re throwing in a $40,000 car with the property it makes you wonder “are you buying a property and a car or you’re buying a property with a free car?”.

Well the builder is doing this because they can probably source the car a lot cheaper than you could so it’s actually not costing them the same amount as the car to give you that discount.

The “perceived value” for you is obviously a lot higher so kind like makes a good deal (if you need to buy a car and a house at the same time).

Again, all these things come out in the wash on the completion and one of the things you have to be asking yourself all the time is “what is the real value of what I’m buying?”.

You know it’s very important that you understand the value of what you’re getting without the incentives. In fact, sometimes it’s good to come work that out and go right to the bare minimum and say “hey knock off all these incentives give me a cash price instead”.

Now there is some reasons why builders and developers don’t want to do that. Typically, they like to keep their prices stable and so they won’t want to actually reduce the price and that’s why they offer incentives.

#5 Guaranteed ROI

Now another one of the common ones that we see especially for commercial properties or investment properties or developers where they’re targeting investors is offering guaranteed ROI or will guarantee (for example) a 7% yield on this property over the next five years.

It’s very important for you to understand what’s really being put on offer here. It’s just a way of the builder inflating (that’s maybe the wrong word) or keeping the price of the value high so that you can borrow more money.

Now if we take an example of let’s say $100,000 property with a 5% deposit paid scheme that’s a $95,000 purchase price. If you have to go and finance that then you can have the put down 5% of the $95,000 (If you can get a 95% mortgage). So you’re borrowing 95% of 95,000 and putting the balance in yourself. Whereas if you can get this 5% deposit paid scheme you’re just borrowing 95% of the $100,000 so your deposit comes to zero.

It’s a great way for Builders to help you actually reduce your deposit cost by using incentives and all I’ve done (and all I love to do) is push that to its absolute maximum possible. Find different ways and different incentives to keep the price the same as the value, and borrow against that. We’re using incentives to borrow money on the property value rather than the purchase price so that it means less money from my pocket and of course that means a higher ROI.

So, always push the developer for the maximum amount of incentives that you can get.

Share on facebook
Share on twitter
Share on whatsapp
Share on linkedin

Leave a Comment

Your email address will not be published. Required fields are marked *