$2000 deposit

[beetle]

Hi. I'm almost a 24 year old with another year of study left at uni. So that's how long it will be until I will work full time and earn full time wages. That's when I'll be able to put to practice whatever I can learn about IP between now and then. In the mean time, aside from earning modest paid work experience wages soon, I thought I would see what people think about this opportunity that I found in this months API magazine. Below one of the articles is an ad from Wilton Real Estate in Sydney who said that I could put down a $2000 deposit on an apartment that is located in an apartment complex which is under development. The remainder of the sum would be due in up to 3 years. Conditions apply to the $2000 deposit but I don't know what they are yet. I received more information from the REA and found that the least expensive apartment in the Homebush Bay development atm is around $430,000. Some buildings have been completed and others are yet to be constructed.

I thought about putting down the $2000 deposit to resell the apartment in 2-3 years before having to pay the full purchase price which I prob. wouldn't be able to afford. This would potentially help me to get some cash to put down on a house for buy and hold to rent. Has anyone here tried that before? What am I risking? What do you think? What would you do?

Any advice appreciated,
beetle

 

[RichardC]

I've gotta admire your cojones but this would only need to go a little bit wrong (and a slower employment market than you expect) and combined with HEX you could be in deep doo doo.

What's wrong with waiting a bit? Students wave an uncanny knack of enjoying themselves while their pockets are empty. Grasp the opportunity. Later you'll be expected to pay your way LOL.

If you are serious about investing and expect to make a decent wage later the odd year won't matter. That is, if you have chosen a career which you will enjoy. "Early" retirement is a false God.

 

[Todd]

Hi Beetle,

I am in a fairly similar situation to yourself, given that i am 23, not earning enough to get a decent sized loan as yet (but will be soon) and i had also considered these "off the plan" options so im not the best person to be giving advice on the situation, but as you asked for it, hear goes.

There are quite a few things to be aware of, for example what happens if when the property is completed, it isn't worth what you where expecting, or what the selling agents made you think it would be worth, and you then have to get finance for a property at a price $X that is now worth $X-20% ? That people aren't really interested in buying. You will probably struggle to get the finance for that property and wouldn't be able to sell it.

I think the things that we have in our favour are, that we are young and have a huge investment lifetime awaiting us once we are able to finance it. So dont rush out and buy something like this, there are many other things you could do better with the money, eg; find a cheaper cashflow positive property somewhere that you can afford to get finance for, or if this isnt possible due to your limited income, perhaps put the money to use on the stock market, either buy direct shares or invest it in a managed fund perhaps.

One thing i will suggest is learn, a few good books i can recommend are,
More Wealth from Residential Property by Jan Somers,
0-130 property's in 3 years and $1000000 in property in 1 year, Steve McKnight.

also check out this HERE

These are just my ideas, and im sure there will be many more suggestions to come from the more experienced members of the forum.

Cheers and goodluck,

Todd

 

[Jamie]

Below one of the articles is an ad from Wilton Real Estate in Sydney who said that I could put down a $2000 deposit on an apartment that is located in an apartment complex which is under development. The remainder of the sum would be due in up to 3 years. Conditions apply to the $2000 deposit but I don't know what they are yet.

Without having read the advertisement, I'd say the $2000 "secures" the apartment for you - you'll still have to come up with a deposit bond or bank guarantee, which you would not be able to do with no real income or equity in another property. This is one of the hooks marketers use to suck you in

I thought about putting down the $2000 deposit to resell the apartment in 2-3 years before having to pay the full purchase price which I prob. wouldn't be able to afford. This would potentially help me to get some cash to put down on a house for buy and hold to rent. Has anyone here tried that before? What am I risking? What do you think? What would you do?

This is not investing - it's speculating. Do some research into what can happen when you can't sell the property and you have to settle on it yourself - it can be disastrous.

Jamie.

 

[Rixter]

Without having read the advertisement, I'd say the $2000 "secures" the apartment for you - you'll still have to come up with a deposit bond or bank guarantee, which you would not be able to do with no real income or equity in another property. This is one of the hooks marketers use to suck you in



This is not investing - it's speculating. Do some research into what can happen when you can't sell the property and you have to settle on it yourself - it can be disastrous.

Jamie.

I agree with Jamie. Its not investing and is High Risk.

You have already identified & stated that you cant afford for it to go to settlement should you not be able to "Flip" it prior to this. That is your alarm bell.

 

[skater]

I, too, would steer clear of this. Why not save as much as possible so that you have a deposit when you are ready & use your time wisely to educate yourself in the mean time. Best of luck.

 

[bent]

Different approach

Hi beetle,

You are motivated and keen to learn and you have the time to make things happen. These are huge assets for you.

There is more to investing than just buying assets - you need to have a goal, a plan and a way to get from point A to B.

When I was 23 I spoke to the 3 wealthiest people I knew and asked them what steps I should take, what I should learn, what habits I needed to develop etc. I found their advice invaluable in many ways - not all of them fiduciary. It's important to read all the books but it is also important to find older, experienced friends to touch base with occassionaly too.

Maybe this is something you could do?

Cheers,
Ben

 

[beetle]

Cheers

All of your responses are helpful. Thanks a lot.

beetle.

 

[knightm]

all good responses, so I wont repeat them.

just a note on being young and eager to get started. Its great that you are impatient - use that drive to educate yourself as mucha s possible until you do have some cash.

I was at uni, felt the same as you, and I read probably 1 financial book every 1-2 months for my whole degree - once I came out and worked I had a deposit saved in about 9 months at age 24 (for a cheap renovators delight in brisbane - I live in sydney too and its all too expensive) and I hit the ground running, because of the time spent reading and waiting I bought well first time, renovated cheaply and sold this year almost doubling the property value,(tripling my own capital) after 2 1/2 yrs in that property. I now have several others and am still learning. I have made mistakes etc but saving that first cash deposit wasnt one of them - it was a vital part of the process.


in summary, read read read, use this forum etc, learn to save and when you have some cash you will explode!

 

[Kiwi Investor]

Guys excuse this silly question, but what are cojones ??

Be very careful buying off the plan, the contracts can be very extensive and seem to favour the developers.

K

 

[geoffw]

Guys excuse this silly question, but what are cojones ??

A Spanish word, pronounced co HONN ess. A male part of the anatomy. Used in the same way the English word is used.

 

[michaelg]

Hi,

Just a thought, read up on "vendor finance". Instead of the seller getting the full amount for the property in a lump sum at settlement (your deposit + loan amount from bank). You could discuss the possibility of them accepting a portion of the sale price as a loan back to them.

eg: Property Price $200,000

Option 1: Traditonal you pay 10% deposit ($20,000), borrow 90% ($180,000) + 5% in purchase costs $10,000 (legal fees, stamp duty etc).

Option 2: Vendor finances deposit. You pay 5% purchase costs $10,000, borrow 90% from bank ($180,000) and have a 2nd loan with the vendor for the deposit ($20,000) - to be paid according to the terms to work out (maybe balloon payment after 2 years, discount for early repayment etc).

Option 3: Vendor finances deposit and agrees to pay stamp duty. You pay 2.5% purchase costs ($5,000), borrow 90% from the bank ($180,000), vendor finance loan of $20,000 with vendor and at settlement vendor pays the 2.5% stamp duty from sale proceeds because no agent was involved and the 2.5% they would've paid anyway goes to the government rather than an agent.

While you're saving for a deposit you could crunch numbers in a spreadsheet to work out "what ifs" remember the bottom line will be...

Expenses:
- mortgage repayments (bank and vendor)
- maintenance

Income:
- rent
- storage rent (if applicable)

Offset by:
- tax deductions

In regards to vendor finance, you may negotiate lower interest in return for a higher balloon payment.

Note: balloon payments require you have the means to payout the full balance when due, either in cash, or convert equity to cash. If the market swings down - you will need to have the cash to pay out - or negotiate new terms. Or refinance.

Just a thought
Michael G

 

[Kiwi Investor]

Thanks Geoff, I believe it's spelt Kahuna's (or similar), I thought it was two Jones's joined at the hip, ie cojones !

As in 'the big kahuna' !

Me having Spanish connections and all !

 

[knightm]

courtesyof wikpedia

Cojón IPA: /ko'xon/ (plural: cojones) along with huevos (literally "eggs") is one of the commonest ways of referring to the testicles in Spanish. It contains the augmentative suffix -ón (which implies largeness), and derives from Vulgar Latin coleonem, the accusative form of coleo "testicle", an augmentative form of cōleus (variants: cūleus and culleus), which meant "bag", particularly "leather bag for holding liquids".

 

[nat r]

If you have a $2000 deposit you will have $1500 more than I had when I bought my first home.

There are many 100% and >100% lenders out there.....go for it !!!

 

[knightm]

col nat r - gutsy (some might say reckless but not me I only had 5% deposit for my first)

would you be interested in posting your story of how you bought with a 100% lend ie interest rates, fees, was it ppor or ip etc...

I would like to hear it.

 

[juzz]

My 2c's worth,

If you gain a minimum of 10 and up to 20% Discount on your own Bank
Val off the deal & you have adequate servicability & back up plans to
settle in the wost case, then it may be feasible.

Do some reasearch and find out some of the horror stories of people
buying OTP. Then see your own solicitor as well.
You may need extra equity to plug in at the last minute & finding equity
money or increaseing your leverage may be difficult.

On these sorts of leverages your relying in mortgage insurance or someone
elses capital/equity.

Juzz

 

[beetle]

Hey thanks alot guys for your suggestions. I think I'll just wait until I save up enough of a deposit to put down on an IP. I don't want to rush things and make a life long regrettable mistake. Thanks for all of your ideas.

beetle

 

[nat r]

col nat r - gutsy (some might say reckless but not me I only had 5% deposit for my first)

would you be interested in posting your story of how you bought with a 100% lend ie interest rates, fees, was it ppor or ip etc...

I would like to hear it.

It was 1992, interest rates were about 9-10% IIRC, the bank I worked for would lend 100% of purchase price plus certain transactional costs.....all up I borrowed about 103% from the bank and another 4% from my parents....I spent the $500 on a big night out to celebrate

It was a ppor but I transferred OS not long after I bought it so I rented it out.

I moved back into after 3 years, did a cheapish reno on it and sold it for 2.5x what I paid for it after a total of 5 years.

I don't really understand why people are worried about borrowing 100% ...when I bought a car a couple of years back the finace company lent me 120% of the purchase price of the car.....does that mean I will automatcially default the next day and my life will turn to poo ?????

My only regret was that I didn't buy more houses and more expensive houses along the way.

My next move is to gear up in a major way to upgrade my ppor and get my geared equity portfolio back up to speed.....IMHO interest rates are low, the economy is strong and certain assets are cheap.

 

[knightm]

good point natr not everyone who leverages highly will fall over. I guess its a matter of having your eyes open, confidence and committment. I you want to make a deal happen badly enough you will find a way!