Hi All
As a firstime investor, can anyone tell if its ok to invest in these OTP one bedroom apartments at http://sq1southquay.com.au/ ??
The incentive is the builder will give investor/ first home buyers a $5k off the sale price and another $5k IKEA gift card!!!!
Appreciate your feedback on the pros and cons is this is a good investment.
Thank you :)
OTP is rubbish – especially for investors. You’ll end up with a high strata low CG property due to the ever growing supply and limited demand.
Anything which has rebates generally shows the overpriced nature – which valuers can take off the purchase price, affecting LVR’s and deposit requirements.
The other fun side of it all is if values are lower when it’s finally complete you can be left in a position where you have insufficient deposit, lose your initial deposit and get sued for the rest.
Plenty of A grade investment opportunities out there, you have to ask why take the risk with something as plagued as OTP.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Awsome, thanks heaps Corey, looks like its back to the drawing board for me, cos as a beginner I have heaps to learn about this property investing area but love this forum and learning heaps from other peoples experience.
Appreciate and thanks once again :)
Hi Zen,
A great answer from Corey – to expand a little more, it is land that rises in value while buildings depreciate. So when we read of Houses appreciating by 10%, it is usually houses depreciating by 5% and the land gaining 15%.Project that thought into units, and you have the bulk of your value in a depreciating asset, and VERY little in the APPRECIATING asset (land).
And re buying new – accountants love to “do you a favour” by coming up with a huge Tax Refund cheque for you. So a new build will have a LOT of depreciation in years 1 and 2 and a larger Refund cheque.
Or they might be getting a kick-back from a developer or builder….. In reality, you will usually do WAY better by buying secondhand where you already KNOW the infrastructure is working, the neighbourhood is welcoming, shops are handy, schools, etc. And you might be able to buy a place needing a reno, where YOU can add the value and pocket the difference. When buying new, you are also paying the 20% profit of the builder/developer.
Buy larger land that may be subdivided into the future (a lot of older homes are on 800m2 or more).
I see this is Canberra – so do you get to own any part of the land anyway? Much of Canberra is leasehold (I believe).
Benny
Great information Benny, appreciate your comment. It’s always good to get a second opinion, 3rd and so forth. Yes I think Canberra is leasehold (99yr). I may need to get a financial/property planner to strategise varies options based on my current financial position to invest in my first property.
Cheers :)
For a bit of balance here – opposite to what Corey said OTP can be a very profitable strategy in the right circumstances. Example, Citi1 apartments in Wollongong. They were sold off the plan in 2011/12, have since appreciated by about 30 to 40% in value, have low strata fees and are in a good part of town. They were built without delay and have a good finish. Multiple other blocks in Wollongong that have had similar results. Depends on the market and timing. Wollongong has a lot of construction underway now so isn’t the opportunity it once was but I’m sure there’d be other markets that offer better value.
For a bit of balance here – opposite to what Corey said OTP can be a very profitable strategy in the right circumstances. Example, Citi1 apartments in Wollongong. They were sold off the plan in 2011/12, have since appreciated by about 30 to 40% in value, have low strata fees and are in a good part of town. They were built without delay and have a good finish. Multiple other blocks in Wollongong that have had similar results. Depends on the market and timing. Wollongong has a lot of construction underway now so isn’t the opportunity it once was but I’m sure there’d be other markets that offer better value.
Indeed that is possible – but the same could be said just by buying a normal standard purchase in the same areas. The kicker for a lot of OTP deals however where there is strong growth is that most contracts have clauses wherein the developer can cancel the contract – which has regularly happened in the Sydney boom. Developers cancelled contracts on the buyers and resold them for 30%+ more, whilst the original purchasers found out they were no longer going to be buying their new home/investment – sad stuff.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Thanks jimchap131 and Corey, interesting stories from both sides, appreciate. Will do more research and check if this area in canberra is a growth region.
Hi there.
Be careful of OTP…there have been many instances when on completion the valuations have not come up to par.
Do your Due Diligence well…..
My personal opinion is to buy low set small unit complexes…avoid highrise towers at all costs.
I note that this is for Canberra…the oversupply over there is still quite large.
Thanks sash, appreciate your comment and importantly will do my due diligence as u suggested.
Thank you.
I don’t think it is correct to say that OTP properties are rubbish, though certainly a lot of them are. What people considering these types of properties have to recognize is that they are playing a leverage game, if you can contract a property at today’s prices but settle in 2 years and prices are higher then you will have made a very good ROI. Where the problem lies is where either the market goes backwards and/or the contract price includes a premium for the expectant higher price. Anyone buying off the plan should not pay $1 more than what the price would be on the day of signing the contract and probably should expect a discount given that they are assisting the developer to lock in their revenue on completion and probably also to comply with their construction loan contract.
Regards
Thank you Alistair, appreciate your comment. I normally wonder how can an investor know the market value in 2years for their property? Will do research in this area.
Thank you :)
You can’t know the future, you can only predict. Taking any sort of leveraged position is always somewhat of a gamble on the price going up, sometimes you will be correct and sometimes not. The problem with OTP properties as compared to existing properties is that a reduction in value can create an issue with settling, whereas there are no margin calls on real estate so once purchased, if a property reduces in value over the short term it doesn’t matter unless you need to sell.
Regards
I live in canberra and I would not be buying an apartment here at all let alone off the plan. To be honest, for the same price you could get a house in Brisbane. I’d go with something like that.
Zen check out the allhomes website as they have reasonable research data for the ACT. From memory capital gain for apartments was horrible and mostly in the civic / gungahlin area. Houses were ok, but again in established gungahlin areas (palmerston, ngunnawal etc). So for OTP apartment in tuggers… no way. No chance. Never.
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This reply was modified 8 years, 9 months ago by
TheNewGuy.
Hi @zen007
Glad you found the forums so we can keep you out of strife. Can’t say this “opportunity” is particularly appealing.
Take a step back and try not to focus on a particular property but rather work out what financial goal you are working towards and how much capital (money) you have saved to get you started. That should keep you focused on facts and figures rather than distracting glossy brochures :)
Can you tell us a bit about your circumstances… age, married/not kids/not, how much you’ve saved etc. That should helps us make more useful comments.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
I just read this article on off the plan and it is by Ivan from the forum:
TIPS AND TRAPS OF OFF THE PLAN APARTMENTS FOR SMSF’S
https://www.linkedin.com/pulse/tips-traps-off-plan-apartments-smsfs-ivan-filipovic?trk=eml-b2_content_ecosystem_digest-network_publishes-25-null&midToken=AQGf54pfDNSddQ&fromEmail=fromEmail&ut=2Jr4FaSvugG781Its on linkedin, so not sure if you can access without membership.
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
Thanks for your reply ‘TheNewGuy’, Jacqui, Terryw, appreciate heaps.
TheNewGuy – its pretty tempting when LJ Hooker and developer (Empire Global) advertise a $5k off the room price ($274k) and another $5k IKEA gift card (or I can use this towards deducting the room price as well) – I will step back and do more research as the OTP are http://sq1southquay.com.au/ and http://www.northpointwright.com.au/ – very tempting to invest, as agent and developer agreed that I can deposit a $1k so the room is not taken, then pay a further 5% deposit next week and settle the rest in August 2016 with my pre-approved loan from a lender.
Jacqui – yes will take a step back and breath haha….tempting very! My circumstances is that I am single, age 41, I do have two kids 19 and 12 they both live with their mothers, I have no debt, and will have a $22k coming in the next four weeks from my ex who we both signed a ‘binding financial agreement’ from our first property. I have about $2k in my savings and will have about $20k by August 2016. So by August 2016 I should have about $42k to buy my first property investment. My goal is to have about 10 properties when I turn 50. I’ve been thinking of SMSF and Hybrid Trusts for me and my kids, but still researching on the pros and cons on these structures if its relevant for me and my kids financial wealth and pass onto them and importantly teach them so they know the investing game. I’m in the process of seeing a property financial/accountant adviser to create my ‘property portfolio plan’ so I know my plan and not to get side-tracked.
Terryw – great article, appreciate. Tip 4 ‘Bare Trust’ looks important to remember so we don’t get double whammy of stamp duty in the future, thanks mate, cheers :)
Zen
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This reply was modified 8 years, 9 months ago by
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