G'day,
We are in a situation where we really like an apartment thats due to begin construction and completion in 2 yrs time. The catch ofcourse is a 10% deposit for the apartment which I suppose is fair but for investors its dead money given away.
The company itself suggested "Bank Guarantees" which being amateurs is a new concept for us. Could anyone help us with banks that give the best deals on this? Has anyone done this before? What is the catch?
We know what it involves – we pay the deposit amount to the bank, bank pays the developer of property, bank gives us interest on our deposited amount….. correct?
Anyone can help us out?
many thanks
Trance.So, you "like" this apartment, do you?
What about the investment aspect of it? Before you start to look at ways to finance it, make sure it is a good investment.
If it is in the CBD, are you aware of the probable level of neg cashflow from it? Are you aware that 20% of the rent will be swallowed up in holding costs? Can you service the shortfall?
What size is it; anything under 50 sq/m will be very hard to get finance for, or will need a very large deposit – 40% or more in most cases.
Are there Council plans for more similar developments in the area in the next few years, which may cause an over-supply (happened in Melb earlier this decade). This will make it hard to get a tenant, or you may have to drop the rent significantly to get one (as happened in Melb).
What are the comparable values of similar sold properties in the immediate area? Be careful that YOUR cap gain is not already built into the purchase price (as is often the case).
Have they offered a rental guarantee? This is usually built into the purchase price, and is often above market rates, so when it runs out, your rent return drops.
What are the rental yields like in the area for similar properties, what are the vacancy rates for similar properties in the area?
How many apartments will be in the complex, what are the body corp costs going to be, what are the costs for such things as lifts, rates. These could be expensive if it is multi-level.
Is there a dedicated car park for each apartment?
Why do you think the development company has suggested a Bank guarantee for the deposit? It's to entice newbies to make the purchase without using any money – all sounds attractive as you use very little money of your own, so it's easy to buy.
Off -the-plan apartments are very dangerous "investments" – especially in a climate of uncertainty like there is now, where interest rates are going up and buyer sentiment is dropping off. You may find that at settlement there has been no cap growth, even worse – the value may have gone backwards, and you'll be stuck with a property you can't get finance for.
Sorry if I'm telling you to suck eggs, but it sounds as if you are new to this, and I don't want you to make a very big mistake.
Take a step back, and do a LOT more research on the area first. Be sure of everything.
There is no hurry; there will be another deal of the century tomorrow.
Hi Trance
I wont comment on the type of investment as Marc has succinctly point out the pluses and minuses of such an investment.
With regards to the Deposit Bond Guarantee this will not be offered by a Bank but an insurance company who will issue a Bond Guarantee that in the event that you do not settle the Vendor will receive payment. You will not be requried to pay the 10% deposit but merely demonstrate that you have the capacity to settle for which the Insurance Company will charge you a one off premium.
There are a limited number of Insurance Companies that offer such Bonds so feel free to drop me an email with details of the property and the deposit amount you need to show and i can work out the premium for you.
Richard Taylor | Australia's leading private lender
Heya,
Thanks for your outlook on this matter. The reason I'm interested is of the rental guarantee for the 1st five years at 5.5% net guaranteed in your hand and then you can renew it every 5 years for upto 25 years.
Honestly, I didnt worry about the body corp etc even though i did look into it as they guarantee us 5.5% no matter what.
You are right about one thing; we shouldnt worry too much about one particular deal; there would be a deal of the century tmw…..
cheers
L.A Aussie wrote:So, you "like" this apartment, do you?What about the investment aspect of it? Before you start to look at ways to finance it, make sure it is a good investment.
If it is in the CBD, are you aware of the probable level of neg cashflow from it? Are you aware that 20% of the rent will be swallowed up in holding costs? Can you service the shortfall?
What size is it; anything under 50 sq/m will be very hard to get finance for, or will need a very large deposit – 40% or more in most cases.
Are there Council plans for more similar developments in the area in the next few years, which may cause an over-supply (happened in Melb earlier this decade). This will make it hard to get a tenant, or you may have to drop the rent significantly to get one (as happened in Melb).
What are the comparable values of similar sold properties in the immediate area? Be careful that YOUR cap gain is not already built into the purchase price (as is often the case).
Have they offered a rental guarantee? This is usually built into the purchase price, and is often above market rates, so when it runs out, your rent return drops.
What are the rental yields like in the area for similar properties, what are the vacancy rates for similar properties in the area?
How many apartments will be in the complex, what are the body corp costs going to be, what are the costs for such things as lifts, rates. These could be expensive if it is multi-level.
Is there a dedicated car park for each apartment?
Why do you think the development company has suggested a Bank guarantee for the deposit? It's to entice newbies to make the purchase without using any money – all sounds attractive as you use very little money of your own, so it's easy to buy.
Off -the-plan apartments are very dangerous "investments" – especially in a climate of uncertainty like there is now, where interest rates are going up and buyer sentiment is dropping off. You may find that at settlement there has been no cap growth, even worse – the value may have gone backwards, and you'll be stuck with a property you can't get finance for.
Sorry if I'm telling you to suck eggs, but it sounds as if you are new to this, and I don't want you to make a very big mistake.
Take a step back, and do a LOT more research on the area first. Be sure of everything.
There is no hurry; there will be another deal of the century tomorrow.
Thought I'd answer your questions one by one so that i can pick your thoughts again…
What about the investment aspect of it? Before you start to look at ways to finance it, make sure it is a good investment. Yes in the heart of Melb; very close to everything and everywhere
If it is in the CBD, are you aware of the probable level of neg cashflow from it? Are you aware that 20% of the rent will be swallowed up in holding costs? Can you service the shortfall? I dont quite understand this taken that we are amateurs but its a free hold strata title; we can sell this off at any time. Also there is a guaranteed 5.5% nett in our hands.. for 5 yrs and upto 25 yrs if need be.
What size is it; anything under 50 sq/m will be very hard to get finance for, or will need a very large deposit – 40% or more in most cases. we are looking at studio apartment, 21sqm, but looking at putting this on our existing equity in 2 yrs time when this building would be completed.
Are there Council plans for more similar developments in the area in the next few years, which may cause an over-supply (happened in Melb earlier this decade). This will make it hard to get a tenant, or you may have to drop the rent significantly to get one (as happened in Melb). Poss, Melb is ever expanding and most prob yes but this is quest.. could you answer what the weather would be like in 2 weeks time? Investment is a gamble in itself, is it not? Aslso, rent guarantee…
What are the comparable values of similar sold properties in the immediate area? Be careful that YOUR cap gain is not already built into the purchase price (as is often the case).
Have they offered a rental guarantee? This is usually built into the purchase price, and is often above market rates, so when it runs out, your rent return drops. Yes 5+ upto 25 years
What are the rental yields like in the area for similar properties, what are the vacancy rates for similar properties in the area? Rent guarantee again
How many apartments will be in the complex, what are the body corp costs going to be, what are the costs for such things as lifts, rates. These could be expensive if it is multi-level. About 30-40 floors, body corp close to $1500.
Is there a dedicated car park for each apartment? not for studio apartment. in the city is there a need for carparK?
Why do you think the development company has suggested a Bank guarantee for the deposit? It's to entice newbies to make the purchase without using any money – all sounds attractive as you use very little money of your own, so it's easy to buy. Only suggested as i asked them about "dead money" as in my deposit
Off -the-plan apartments are very dangerous "investments" – especially in a climate of uncertainty like there is now, where interest rates are going up and buyer sentiment is dropping off. You may find that at settlement there has been no cap growth, even worse – the value may have gone backwards, and you'll be stuck with a property you can't get finance for. or it could be the other way around…
Sorry if I'm telling you to suck eggs, but it sounds as if you are new to this, and I don't want you to make a very big mistake. thats ok.. feedback is always good;
Take a step back, and do a LOT more research on the area first. Be sure of everything. what other research do i need to do apart from all that you have mentioned?
There is no hurry; there will be another deal of the century tomorrow. YES but at this price or at tmws price??!!
<br /:)” title=”>:)” class=”bbcode_smiley” />HI there
Marc is putting you on notice that there are better deals out there – 21sq is a tiny apartment and with 30-40 floors – I believe the body corporate quoted may be unrealistic.Even in a city having an apartment with a carpark is a good idea. There is the possibility of renting the carpark separate to the unit to improve your yield.
Anything with a rental guarantee should looked at very carefully, it rings warning bells in my mind!
thanksAlso worth remembering that a rental gaurantee is only as good as the financial stability of the company providing them. Unless you would be prepared to invest money with said company fo 5 years, best to think of the gaurantee as something other than a…you know…gaurantee.
Hi Trance, sounds like you are trying to talk yourself into this deal. Sounds like a nightmare. It may be difficult to add value to a small unit and they have limited tax benefits. I would certainly want a car-park, absolutely and I'm sure many people would. Forget about the rental guarantee, your paying for it.
All the investors I know started with a house in the burbs. They will always rent (when looked after) Land appreciates, not the building.
You have shown maturity and patience by asking 'grey people' on this forum, good for you. I wouldnt buy it in your position, never. Forget the hype. Good luck.ok thanks for all your advice… house is defn our choice but at this stage we had the deposit for an apartment and not so much a house. Plus having an apartment in the city would be a dream come true but then again we have to remind ourselves that this is for investment and not for us to live in.
many thanks once again. back to the basics to do more research i suppose
keep your thoughts coming if you anymore helpful hints and opinions on the subject.
T
At 21sqm it would be very hard to get finance for. This may not matter if you are paying cash from existing equity, but when you sell it will limit the number of potential buyers and hence the price!
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terryw wrote:At 21sqm it would be very hard to get finance for. This may not matter if you are paying cash from existing equity, but when you sell it will limit the number of potential buyers and hence the price!what would be ideal place or should i say the least measurements in sqm that you get finance without any problems?
thanks
21 Sq Metres you would get financed but i think what Terry means is that the available options are less.
If you ever come to sell the property you dont want to find that the market has changed and that now there is even less choice for any prospective purchaser.
Richard Taylor | Australia's leading private lender
Hi Trance,
Richard is correct – It is possible to get finance for that type of unit for yourself through using mostly equity or cash, but imagine who will be buying the unit from you down the track – low end of the market, quite likely it will be a young couple wanting to get their first 'cheapish' property with minimal deposit, and they will be turned away by lenders if they're looking for an 80% lend.
This will obviously reduce the units saleability. Looking at LVR schedules right now – most lenders require a risk assessor before they'll even consider lending AT ALL for this type of unit.
And you would definately want a carpark as many have stated above.
Cheers & Good luck!
Sam Sandford
Sandford Finance Pty LtdSt George lends for units over 25sqm at up to 80%. I think most other lenders and the mortgage insurers restrict lending above 80% LVR at around 45sqm.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
:)” title=”>:)” class=”bbcode_smiley” />
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