OK guys, here’s one for all you negative gearing proponents. Positive gearers are also welcome to add their thoughts. I have made my choice, but would like to get some thoughts from others.
My friend owns a terrace house in Paddington – valued at $800K. Rental will be no higher than $550 pw. I have the opportunity to purchase 75% of the property as tenants-in-common (all legalities, partnership thoughts etc. would definitely be taken into consideration, so no need to point out those issues). The security I could use to fund my entire ‘purchase’ amount is the property itself. So I could get a foothold in Sydney for none of my money down. I would only have to come up with the excess interest costs (which are not small). An option to get around this which I would seriously consider is to borrow and prepay the interest for at least the first year. If purchased, this would be purely as an equity growth vehicle, not hoping for it to become cash positive. the shortfall would not be an issue.
Any thoughts? Especially from people who know the Sydney market.
Cheers
Melhi melbear,
i live in a house in Paddington much like you’re describing except freestanding. We rent it.
well, you know what they say, buy low, sell high. If you buy now….even with this tricky tenants in common thing – which sounds fascinating – and like you say could be a great way to get into the market – and i don’t quite get it, but the question I asked is,
is the vendor, your friend, (oooh, alert: is that a good idea?) is your friend maybe trying to hedge the fact that the property might go down in value – some time – with all this interest rate thing, all the media screaming ‘bust’ to us to make the general population wary of property – all these things that like it or not might cause a price correction *especially* at the higher medium end of the market and beyond, where this paddo house might very well be,
– I dunno. I mean, you are doing it for capital gain, right?I just don’t know if you can guarantee that right now.
you might. you might not. It might go down. might take a while. I’d be careful with that amount of money.My gut reaction says be very careful. but what do i know? Just an opinion really.
cheers-
miniPaddington, quality, in high demand.
What is important however is your reason for buying this particular property ?
I have just been reading some of your posts and am sure you would have to be one of the last persons on this site who would be in need of advice.
Perhaps you are looking for a reason to justify not to go ahead ?
It also appears strange to me why you wouldn’t buy such a property outright if you harbour any thoughts of using it for yourself at some stage in your life.
Yes, I am well aware that this opportunity allows you to not put any deposit into the deal.
BTW, have you thought about including a clause in your agreement which allows you to sell your part of the property if ever you want out of the partnership ?
Having such a clause in writing beforehand would go a long way towards avoiding the possibility of any bitterness arising between yourself and your proposed partner in the event one of you wants out.
Pisces
Mini, I sort of hoped you’d comment as I knew you rented in Paddington.
Pisces, thanks also for your comments.
Tenants in Common (there’s a REALLY good article in this month’s API that opened my eyes to the financial side of it) just means that you can buy the property in unequal shares. The property is also then able to be sold by either partner to somebody else at any time. It’s also captured in your estate, so in your will you can leave it to somebody. Joint Tenants means the property automatically passes to the surviving owner(s).
Our agreement will be very well structured (we’ve both learnt a lot from – dare I say it – Henry Kaye in regard to Joint Ventures etc.). It will be a minimum of a 10 year time frame, or less if it’s a unanimous decision.
I should perhaps have outlined why the opportunity has arisen. My friend now has 3 kids. The terrace is a ‘little’ small for all of them now, so they have purchased a place in Botany, which also has quite a decent sized backyard. They would like to keep hold of the Paddington place, but don’t want that much funds tied up in one IP – plus they would have to borrow to fund their new home, which of course would be non deductible. They want to be able to keep some ownership in Paddington as they beleive (backed up by research etc.) that it’s in a good area, and will not crash – may take a few years (as everything will) to grow at a good rate again, but that’s where the 10 years comes in.
Pisces, the reason I cannot (or don’t want to) buy this myself outright is that I don’t have the borrowing power to ‘harvest’ the other equity I have – and it would be a massive amount of capital tied up in one property. I’m now looking at Lo Doc and No Doc loans, so if I can keep as much spare as possible, it also keeps me good for future needs.
I think I was probably hoping more for confirmation of the deal – as I am going to go ahead – rather than any justification for not. I probably wouldn’t get into the Sydney market in any other way (prices way too high for me), and I need to diversify the cities I invest in.
Cheers
MelHi Mel, well you seem to have everything worked out, finances etc.
I think it is a great opportunity for you to get into the Sydney market since you really like to anyway- this may be your best chance.As long as you will be able to finance it and service the amount (also after the 1st year), then why not?
May be you’ll have the opportunity in the future to purchase the other 25% as well, you’ll never know what will happen.
You sound as if you would really like to go ahead and I almost feel excited for you!
You have probably worked out all the ‘what ifs’ already.The worst that could happen is, but not very likely, that prices in Paddington would go down a little for a while but all you loose then is some time- it’s as you say, a very populair area and quite unique. So in the long term it should perform well, I should say.
Why not go ahead and follow your heart.If you want something badly you can make it work.
Hhmmm I know this is not very professional advice just I feel that you really really want to do this but are not 100% sure if you should. It’s a real big amount and this is scary I can imagine!
But it would be a shame if you pass this opportunity only to very much regret it later. Such a great feeling to own a Sydney property in a really good area, I can imagine.
You just have to decide what would be worse/easier for you, personally:
Not go ahead with it and very much regret it later,[8] or
Go ahead and when it doesn’t work out regret the purchase. You may have to sell.[8]
What would be easier for you to cope with?Of course, it is very much likely to work out like this:
Go ahead and never regret it.[^]Good luck with your decision, I’m sure after all this thought you will make the right one.[
]Paddington still has quite a bit of room for growth in the near future in my opinion. I don’t know what your financial situation is like, but if I was going to buy another property in Sydney it’d definitely be in REDFERN.. this area is going to BOOM and it’s still VERY affordable.
There is a suburb called Bank’s Meadow which is also very close to Sydney which I wouldn’t be surprised about if that is going to be the next Paddington.
Pisces
Originally posted by NEWGEN:Paddington still has quite a bit of room for growth in the near future in my opinion.
Originally posted by Celivia:
The worst that could happen is, but not very likely, that prices in Paddington would go down a little for a whileThanks NEWGEN and Celivia. I love your work[:p]
I guess my fear/concern is that it is such a big purchase (double my highest previous purchase price). I told my friend about 4 months ago that I would go ahead, so no matter what, I must stick to my word. He is relying on the $$ to fund his new PPOR.
I guess I was just after a little reassurance from people that know Sydney a little better than me that Paddington is a good area, and if my timeframe is greater than 5 years, that I will still come out in front. From year 2 onwards I definitely have other investments that will throw off the cashflow to fund the shortfall, so that will be fine.
Thanks again all for your words of wisdom![8D]
Cheers
Melmelbear,
Paddington is definitely a good area, and they are not making any more terraces.
As long as you can sustain the negative cash flow, the capital growth should more than compensate for the negative cash flow.
I don’t expect much capital growth in Sydney in the next two years though.
CarLover.
‘There is a suburb called Bank’s Meadow which is also very close to Sydney which I wouldn’t be surprised about if that is going to be the next Paddington.’
Um, I don’t think so.
Where is it? Because I have seriously never heard of this joint. that tells me it’s probably not ‘close’.
but then again I don’t even think St Leonards is ‘close’ to the city.Now Redfern, newtown, balmain could be the new paddington – paddington is becoming the new woollahra IMHO. Stanmore is the new Leichardt…
oooh and I like Sans Souci. Although I think the bad-taste bridage may have got in first and semi-ruined it, i think there is a lot of scope for cathyjayne.com.au style goings on.
cheers-
Minimel,
out of curiousity how much are u intending to finance on this purchase? what are the likely repayments going to be?
as for me, i think the next paddo will be redfern and darlinghurst with good growth still left in surry hills. having said that i wouldnt knock back a good opportunity at paddo if one came along and i could afford it
julie
>>Where is it? Because I have seriously never heard of this joint. that tells me it’s probably not ‘close’.<<
Next time you are in Sydney have a look at a street directory Mini.
Do not however confuse it with Meadowbank.
Pisces
Pisces, Mini lives in Sydney!! In Paddington actually.
Julie, I’m intending to finance ‘my’ entire purch price of $600K. I’m expecting the repayments to be anywhere from $42-48K (ouch! [:9])depending on how I get the finance! I can easily cover the extra $20K I will need to fund though, so that ‘shouldn’t’ be a huge problem.
I love what you guys are saying about Paddington though! [
][][:p][8D]Cheers
MelMelbear, may be you can make friends with Paddington bear and shout him a jar of marmelade.
Celivia, I should do that. I’ve got lots and lots of teddy bears, so one more wouldn’t go astray! [
]Cheers
MelOriginally posted by Pisces:There is a suburb called Bank’s Meadow which is also very close to Sydney which I wouldn’t be surprised about if that is going to be the next Paddington.
In a word – NO!
Paddington – 2 mins from CBD. Terraced housing. Trendy cafe strips. Leafy. Surrounded by expensive desirable suburbs. Blue chip.
Banksmeadow – d) none of the above.
15 mins from CBD. Surrounded by docks and heavy industry. Not known for terraced housing. Close to crap suburbs like matraville, Chifley, and HMP Long Bay. No cafe strips close buy. Airport noise. Working class.
Let me guess – someone recommended you buy off the plan apartments there? I’m not saying it won’t grow, but you do need to know there are almost no comparisons between these two suburbs.
hi whoever said check the street directory, well I have one of course, but I’ve never heard of the place in 7 years here. Never knew any business or person that lived there or anything. I’ve only ever heard of Matraville out of the suburbs James mentioned. My radar just isn’t picking up those places.
cheers-
mini>>Surrounded by docks and heavy industry. Not known for terraced housing. Close to crap suburbs like matraville, Chifley, and HMP Long Bay. No cafe strips close buy. Airport noise. Working class.<<
James,you would have said similar things about Paddington and Balmain not so many years ago.
>>you do need to know there are almost no comparisons between these two suburbs.<<
Yeh, just as there are almost no comparisons between the Paddingtons, Glebes and Balmains of today compared with these very same suburbs say 30 or 40 years ago.
And I notice that you call suburbs like Matraville, Chifley, and Long Bay crap.
James, when is the last time you looked at the prices houses in those areas are selling for ?
Pisces
Ok.. when I said that Redfern would boom I didn’t mean BOOM as in cocktail bombs etc.. hahaha. I hope they clean up the area soon
Originally posted by Pisces:>>Surrounded by docks and heavy industry. Not known for terraced housing. Close to crap suburbs like matraville, Chifley, and HMP Long Bay. No cafe strips close buy. Airport noise. Working class.<<
James,you would have said similar things about Paddington and Balmain not so many years ago.
>>you do need to know there are almost no comparisons between these two suburbs.<<
Yeh, just as there are almost no comparisons between the Paddingtons, Glebes and Balmains of today compared with these very same suburbs say 30 or 40 years ago.
And I notice that you call suburbs like Matraville, Chifley, and Long Bay crap.
James, when is the last time you looked at the prices houses in those areas are selling for ?
Pisces
good luck.
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