Forum Replies Created
Hi Chris, I believe that you are getting Median Price mixed up with Average Price. The Median Price is the middle of a range of values and it is for this reason that the Median Price has been adopted due to its more realistic value.
Due to the number of Australian residents attempting to enter the housing market, I believe that the lower end valued properties will maintain their value greater than top end properties. At least they are in my area.
Jon
Some people see the glass as half full, some see it as half empty and some don't see the glass at all.
Statistically, I agree with both Jason Anderson and Matusik and I am happy to see them talk it up, however, untill public confidence is restored, I feel that the market will stay slow. If housing interest rates are indeed lifted again in May, i fear that it will be some time before we will see the investors back in the market place.
There is another side to the equation that I believe needs to be adressed and I wrote about it here http://jonchown.topproducerwebsite.com/real-news.asp under the title Why Rents Must Rise.
Jon
From my experience, student accommodation units usually provide higher than average income returns but lack capital growth.
Jon
Booms and Busts are just an integral part of investing (be it housing or shares). I can't help wondering how many investors will recognise a good deal when it stares them in the face or will they be the same people who wait too long and miss the boat.
I also find this part of the report particularly interesting. While house prices declined, the median price of units in Victoria remained static at $312,500 and the price of vacant land rose by 0.8 per cent. I suppose that this supports those who suggest that buying houses is better than units as an investment because "land appreciates and buildings depreciate"
The correct answer to this question is not as simple as it would seem. All of the variables need to be considered.
If you were comparing new houses 30k from the CBD to new units in the same area, I would place my money on the houses.
However if you were comparing New units within 10K CBD to old houses in the same area, then I would place my money in units.The adage that land appreciates and buildings depreciate is simply an urban myth. Show me a house that was built in 1900 that can be replaced for the same amount today is it was originally built for. Buildings can be depreciated for tax purposes, but they do not depreciate. On the other hand, i can show many examples of land that has depreciated in value due to the house that is built on it that is charachter listed and can no longer be removed.
Jon
I am also not sure about Vic, however I assume that most states will be the same as regards the deposit. If a deposit of more than 10% of the purchase price is accepted by the seller/agent, the contract becomes a term contract and would not realy be in the interest of the seller.
On the issue of an agent telling you what the other offer is – Think about it!!! I sure many of you would think it ok if he only tells you but not ok if he then tells the other buyer. In Qld we have a form that we ask the buyer to sign which states that the buyer has been informed that there is another offer on the property and that this offer is the best offer and the buyer may not have a opportunity to make another offer. This is fair to all parties. If an agent is intent on running a dutch auction, he would be best advised to run an open auction.
My opinions for what they are worth.
A very well thought out response Mr Chan, it makes me want to search out your book and read it. It would appear that Wealth4life is not big enough to apologise for her hearsay comments and all I can say to that is, beware when pointing the finger at other people as there are three fingers pointing back at you. She has lost credability at least in my mind.
Jon
Tracey, Thank you for taking my words with the spirit that they were intended. As I said previously while I don't agree with your feelings in relation to Auctions, I do respect your right to have them.
It's funny that in life – we don't know what we don't know and sometimes we think that we know, but we don't. It's the nature of the beast I guess.
I have never heard of anyone being knocked back for finance based on valuation by a Bank post Auction.
I agree with you ethical stand on Building Inspections. In days gone by a Purchaser could only use the Building Inspection as an out clause for structural defects – now days they are being abused and some people will use any issue to renegotiate.
Thanks for the great discussion.
Jon
As I intimated in my earlier post, there are many options, however it appears to me that you have already made up your own mind with your comments:-
.Just to clarify, I am a qualified professional in the financial services industry so understand about depreciation, tax etc. I am leaning towards land with an average house on it I can rent out. Most of you mention units about 350k, but say in the bentleigh area, most blocks with run down houses go for 700k plus, new 2 – 3 bedroom units are 600k plus. Its fine to diversify, but this is entry level in the bentleigh area.
As you are a qualified professional, I probably don't have to tell you that you should only purchase the investment that you can afford to maintain and to that end, I strongly suggest that you invest in Jan Sommers PIA program and work out your own short falls.
A couple of suggestions I will make.
1. Don't buy 3 bedroom units for investment
2. Visit your local Real Estate Offices and ask what rents are being achieved on a $700k house and on a $350K unit
3. Find out the difference between Council rates for a House and a Unit.
4. Find out insurance for a $700K house (Insurance is covered in the Body Corp for the Unit)
5. Be honest with your self and work out how much it will cost to maintain the house per year (even if it is new there is still garden and painting maintenance.Put all of the information in the PIA program and find out which one shows the best rate of return on your investment. If it turns out to be the House – buy it. If it turns out to be the Unit – buy it. Or don't
Jon
Trakka, there are many people on this site who I respect for their thoughts and sense of fair play and you are one of them. I don't wish to create an arguement here and respect your position on Auctions, however I would like to clarify my thoughts as to this method of sale.
There are times when it is a Sellers market and times when it is a Buyers market, There are properties that will be in demand and properties that won't and there are properties that it is relatively easy to place a value on and properties that you can't, and as an agent we must decide which of these types of situations are best suited to the Auction method of sale. As an example of these comments, I personally dislike Auctioning the cheaper end as I am of the opinion that many younger people are unable to purchase under these conditions so you limit the potential bidders, on the other hand it is often difficult to place an exact value on properties over 2 million dollars for instance, and this type of property is best Auctioned so that the person who wants it the most will pay the most for it.
Your comments :-
The only reasons that I'd ever participate in an auction would be:
1) as a buyer – if I had so much free cash and equity that I can buy with cash and can afford to make some mistakes, in the hope of picking up some bargains,
My answer to this is that the only bargins most people see are the ones that they missed out on buying. No offence meant here but as I am working for, and being paid by the Seller, I have a legal obligation to make sure that I obtain the best possible price for them – so no bargins here. On the other hand, when a Buyer decides to pay my commission, then I am working for them and I will do everything that I can to find them the best possible deal that I can.
and
2) as a seller – if I have something wrong with my property that I don't wish prospective purchasers to discover before being locked in.
That's what building inspections are for. I have personally sold many properties by private treaty with a Building Inspection clause only to have them fall over due to some defect. So the cost is still there no matter if you buy by Auction or not. In the Auction case you have the benefit of knowing what the property is like and can bid accordingly on the private treaty situation you bid and then attempt to go for the cut after the Inspection.It is my considered opinion that this practice should be legislated against and the Seller should be directed to pay for the Inspection and show it to prospective purchasers prior to their offer in order that they can take into consideration any issues arising from the inspection.
On the issue of Valuation – A purchaser at an Auction will have spoken to their bank prior to the Auction and been approved to a ceiling. As far as any bank is concerned the fact that the property sold under the hammer dictates that that is market value and the valuation will be accepted. (bid over your ceiling and don't expect the bank to necessarily honour your commitment.
In fairness I have to accept that you saying that you will pay more under private treaty than Auction is truthfull but to me it only proves my previous point as you contradict yourself when you say – I don't believe that auctions achieve the best price for the vendor therefore in fact they must be a bargain and yet you would rather – .always pay more for the same property in a sale situation than at an auction. Perhaps it's just me, but I fail to see the logic here.
In summary, I believe that not all properties should be Auctioned, but on the other hand there are still benefits for them. It is my belief that Buyers generally don't like Auctions because, to some degree, they feel that they loose control of the negotiation phase of the purchase, and yet for all of this, and, as this thread implies, Buyers don't like being pitted against each other in a Dutch Auction situation either. So where is the answer? First buyer to offer has the rights to negotiate unimpeded? hardley fair to the Seller is it – but then the Buyer doesn't care do they. If only we could learn to trust each other.
Jon
Firstly, Carlin, my sympathy for the treatment you received during this transaction. Disappointment is always a hard pill to swallow.
It is interesting from my point of view as an agent to read all of the different suggestions that people have offered, so I tend this reply in order to cover some of them.
The reality of your situation is that you found yourself believing that you were submitting an offer with no competition while in fact there was competition. To this end I believe that the Agent acted unethically at best, If not illegally, by not advising that there was another offer. When this happens in Queensland (and I'm not sure which State you live in) a good agent will cover themself by advising the Buyers that they are in competition and that this offer is their best and final offer. We have a form that the Buyer must sign to acknowledge that they have agreed to this.
If this step is not taken the Buyer may well feel that they are being submitted to a 'Dutch Auction' and this always leaves a sour taste in the mouth of the underbidder. In situations like this most purchasers would preferr to be in an open Auction and see exactly where the competition is coming from.
Linar is correct in advising you to recind the offer (by fax to the agent is sufficient – keep a copy of the transmission). I am not sure in which state gazumping is illegal though and would love to hear if anyone knows. You could pull out using the statutory cooling off clause, however this would cost you .25% of the purchase price.
Terryw says:- First of all, do not beleive anything an agent says. Should we add Finance Brokers to this list Terry? What a stupid statement.
Keira says:- the agent REFUSED to submit any offers to the vendor unless it came in the form of a signed contract accompanied by a 10% deposit. Yes, this is definately illegal practice. If the Vendor has instructed that all offers must be in writing and be accompanied with a 10% deposit then NO this is not illegal practice. It is after all the Vendors property and they can accept or refuse any offer they like.
TheBish says:- Anyway, what irritates me a little about the whole real estate purchase thing is the cost incurred before you even know whether you have secured the property, especially if attending auctions – building inspections, legals, etc. All adds up especially if you miss out on a couple of properties. I agree that this can be very frustrating, however have you ever considered that the reason for this really lies in the 'Games that People Play' when it comes to purchasing or selling property. The fact is that no one wants to feel that they have been ripped off (The Seller always feels that they gave it away while the Buyer feels that they paid too much) This is the physology of the beast. As an interesting aside, The question most often asked after an auction by people who refuse to go to auctions is. How much did it sell for? to which, once they have been told the selling price, they usually reply. Is that all, I would have paid more. We all know that this is an outright lie and if it isn't, then they just missed out on an excellent deal due to their decisions.
If only we could learn to trust each other, life would be less of a hassle. We all know that this will not happen so I guess we are stuck with what we have and we must learn to deal with it.
Jon
Yep, there are a million ways to skin a cat or spend your money.
I believe that Michaels advice above is sound provided that you want to give yourself another job or pay someone with experience to assist with the many pitfalls associated with attempting a development project – no matter how small. The reality is that there are real benefits with this form of investing.
I am also sure that some will advise on Houses over Units (because houses have land and units are built in thin air)
Othere will suggest that you buy a renovator (again more work if you want it).As my title implies, I preferr units over houses as close to CBD as I can get. However in saying that, I would never buy a $700K unit but would suggest two $350K units. The problem that I face when I attempt to explain this to Investor clients is the age old problem that every person has to contend with and that is – People buy on emotion and then justify with logic. That is, the $700K unit is sure going to be a nicer place than the $350K units and you may well say 'Hey! I could live here' but that's not the point. The fact is that almost everywhere in Australia the young buyers are trying to purchase around that $350K mark, therefore the market is more secure in this price range should you ever have to sell. I would also suggest that capital gains is higher by percentage on a cheaper property than an expensive property. (10% on two x $350K properties equals $70K while 8% on $700k equals $56K)
My 2 cents worth, but as I said previously, there are many options and you have to hoose the one that best fits your lifestyle, experience, desire and beliefs. Good Luck
Jon
Caden, Think of it this way. Let's say the block of land is 1000m2 and GFA is 50% then that means that you can allow 500m2for living space. On the other hand if the site cover is 35% then you can only fit those 5002m of building on 350 m2 of land which would mean that you will have to build two stories of 250meters each, or 1 at 350 meters and the second at 150meters.
Does that clarify the question?
Jon
Cadan,
While I am not totally familia with Melbourne Council requirements, there are usually two issues with respect to cover. One part referrs to site cover (which is as you mention, the amount of land that can be built upon – in residential, it is usually 35%. The other half of the equation is GFA (gross floor area), this can be anywhere from 50% to Plot ratio1, 1.5, 2, 2.5, 3 and so on. Usually on Res blocks this is restricted to 50% and on High Density blocks it goes up from there.Hope that helps
JonSorry to hear that you missed out Kris as you obviously liked this property. The question is, in hindsight, was it worth $215K? would you have been prepared to pay that amount? If the truthfull answer to both questions is yes, then learn from the experience. Perhaps not all agents are full of s!!t and you have to learn to trust your instinct.
Before someone chimes in and says, don't worry, there will always be another one, let me suggest that if it takes another couple of months to find it, and property is rising at 10%, then it has just cost you around $3,500.
I hope you have better luck with the next one.
Jon
Hi SNM,
Funnily enough, I was thinking of you when I wrote the post script.
Jon
Hi Tam,
I have put the information that you supplied into a Property Investment Analysis program and it appears to show a $9 a week posative gear result. On the face of it this looks good, however from my experiences the capital growth on this style of property will be poor and I would want to see examples of past sales (second hand properties) in order to measure what my investment was going to produce over the long term. I would strongly doubt that this property will experience the same growth that you have achieved with your PPOR on the Gold Coast.
Jon
A Real Estate Agent will tell you what you house would be likely to sell for now taking into current market activity (that is Supply over Demand). This figure is highly likely to be more than a Valuers opinion which will be solely based on past sales records.
Jon
PS. Not meaning to place any doubt on the exacting job done by Valuers whose job goes deeper than I have intimated above. They do however, have to cover their but as they can be sued for incorrect valuation and so would naturally err on the side of caution. (may be wrong, but my experiences)
Hi Thomas,
Obviously the $450k would give an agent a much better commision than would a $150k unit. That point's not in doubt.
Where did that come from? Commission is not an issue here. I think that you missed my point which was, at the same time as Investors were being convinced about the good deals in Shafston Mansions (2001) for $160K to $190K, I was selling two bedroom units in the same general area for $200K – these units are now worth $450K and returning the same rent ($18,000 a year) as your units now selling for $135,000. For those investore who purchased for $200K and now receive an $18K annual return is not bad, in fact they are now posatively geared so absolutely no cost to the Owners. The next 7 years looks good for them.
As an investor what I am seeking are properties that don't cost me alot to hold on to but will achieve a fair or good capital gain over the long term. I also happen to love properties with great views. So for me it's all about having a great locality and also cost containment.
I respect your right to purchase what ever floats your boat, but I also believe people on this site should be made aware of the pitfalls and other options.
Also the culture is changing very rapidly. Small apartments in inner city locations are becoming much more the norm and are really very sort after to rent. Personally I think they are the way of the future, not just in Brisbane but in the major cities around the world. Check out Sydney, London New York etc.
With this I agree. I have seen the demographic changes my self for one bedroom stock, I am yet to see a major shift towards Studios. People should also be aware that Banks don't like lending on Units under 50 m2. (unless you have massive equity elseware)
Thomas, it has been interesting hearing your thoughts on this subject and I wish you all the best with your investments. You are quite correct in saying – it's horses for corses, you just have to read the differing approaches to investment on this forum alone to realise that there are many ways to skin a cat. Thank goodness there are so many options or else the good ones would not remain good, as everyone would want them and prices would rise and they wouldn't be so good anymore
Jon
Kris07.
If I put a two bedroom unit up for sale 7klm from Brisbane CBD with a list price of $200K, I would literally be killed in the rush. There is no such animal up here. I recently sold a two bedroom unit in Toowong for $260,000 and had over 400 enquiries of the internet.
All that doesn't help you, but it sure blows me away. Now as to your situation. You say that this unit is only one of a handful that you have short listed, however the fact that you have placed an offer on this one tells me that this is the one that you like for one reason or another. My question to you is. How much better than the next best is this one? How much more are you prepared to pay for it? Unlike many on this site, I don't believe that the profit is necessarily made in the purchase but more in the sale after the purchase. The fact is if you are still looking for a property in 6 months and property is going up at 10% year, you have just lost $10,000 – is $5,000 too much now, too much then?
Good luck
Jon
