Brisbane Inner North Apartment for First Investment

Hi all,

My partner and I are looking to buy our first property in 2-3 months? time. As a bit of background, we?re both graduate engineers, combined income of ~118k and a deposit amount of ~40k. We are looking to purchase somewhere with the intention of it being our PPOR for 18-24 months whilst we save for a second property and converting property #1 into an investment. Hoping to maximise the loan (95% LVR) on an IO mortgage with offset account. We?ve budgeted to put approximately $1000pw into the loan to cover the interest, with the remainder going to the offset account.

Our investment strategy is primarily long term cash flow, with reasonable CG. Whilst a parent is willing to go guarantor, we understand this would mean the interest on the portion of the loan they are guaranteeing would not be tax deductible when the property becomes an investment. As such we are considering capitalising the LMI to maximise our future tax deductions.

With this being our PPOR for up to 24 months, we want to find a property that balance investment potential with somewhere we would want to live. We have decided on an area in the northern suburbs of Brisbane that we would be happy to purchase in. The area is outlined by Hamilton/Ascot to the east, Lutwytche/Grange/Alderley to the north and Taringa/Bardon to the west.

We are hoping to start off as cheap as reasonably possible in order to quickly build up cash in the offset. We are trying to weigh up whether it would be more beneficial to buy an older 2bdrm 1/2bthrm apartment in the 300-330k mark to renovate on a budget, or a new/OTP 1bdrm/1bthrm apartment at 350-370k to make the most of the $15000 FHOG and maximise depreciation. We have spent quite a bit of time researching properties in our desired area and attending inspections, but cannot decide between the two strategies.

Any opinions/experiences/thoughts on the best strategy for us going forward would be genuinely appreciated.
 
Hi all,

My partner and I are looking to buy our first property in 2-3 months? time. As a bit of background, we?re both graduate engineers, combined income of ~118k and a deposit amount of ~40k. We are looking to purchase somewhere with the intention of it being our PPOR for 18-24 months whilst we save for a second property and converting property #1 into an investment. Hoping to maximise the loan (95% LVR) on an IO mortgage with offset account. We?ve budgeted to put approximately $1000pw into the loan to cover the interest, with the remainder going to the offset account.

Our investment strategy is primarily long term cash flow, with reasonable CG. Whilst a parent is willing to go guarantor, we understand this would mean the interest on the portion of the loan they are guaranteeing would not be tax deductible when the property becomes an investment. As such we are considering capitalising the LMI to maximise our future tax deductions.

With this being our PPOR for up to 24 months, we want to find a property that balance investment potential with somewhere we would want to live. We have decided on an area in the northern suburbs of Brisbane that we would be happy to purchase in. The area is outlined by Hamilton/Ascot to the east, Lutwytche/Grange/Alderley to the north and Taringa/Bardon to the west.

We are hoping to start off as cheap as reasonably possible in order to quickly build up cash in the offset. We are trying to weigh up whether it would be more beneficial to buy an older 2bdrm 1/2bthrm apartment in the 300-330k mark to renovate on a budget, or a new/OTP 1bdrm/1bthrm apartment at 350-370k to make the most of the $15000 FHOG and maximise depreciation. We have spent quite a bit of time researching properties in our desired area and attending inspections, but cannot decide between the two strategies.

Any opinions/experiences/thoughts on the best strategy for us going forward would be genuinely appreciated.


Howdy

Your Story is Exactly the same as ours about 3 years ago.
We got lucky, bought for a good deal and invested in Taringa, this allowed us to increase the loan and use equity to purchase more properties.
Western Suburbs Taringa/Indooroopilly/Toowong is moving fast and I think the boat may have sailed as there is alot of competition for units, however there are still a few deals around, revamp of Indooroopilly shopping centre has created a bit of a buzz.
Just be very very careful when choosing a property as its easy to fall in love with bad investments if you are going to live in it.
Make a list of property must have's and stick to it, no matter what your heart wants, your head should always win.
Our other properties have been north of the city where hype wasn't so extreme.
Also make sure you have a good broker and solicitor ready to go.

Cheers
 
We have spent quite a bit of time researching properties in our desired area and attending inspections, but cannot decide between the two strategies.
I would favour the older style unit for a few reasons.
- You pay a premium for otp brand new, which in my opinion is more than the FHOG.
- Depreciation can be great for cashflow, but it's a double edge sword. When it comes time to sell it gets reduced from your cost base and greatly increases your cgt.
- Strata fees can be horrendous for new apartment buildings.. They could also look attractive in the first few years, then when the builders warrantee expires and the render looks crap, the building needs a repaint etc. the strata fees can spike.
- You could check with local agents but I believe a 2bed unit (even in an older building) will be more rentable than a 1bedder.

Make sure you're not buying into an area where it's likely more units can be built. Hint, check BCC zoning maps for LMR (and higher density) areas. If a few more unit blocks pop up it may kill the supply/demand, and in turn your capital growth.
 
vbplease is right on the money there... second that opinion.

I've been helping my other half who is on a similar budget. If you guys can work your way into a 2br older style, you're putting your 'end product' into a much larger pool of potential buyers. If you're willing to do a smart renovation and don't over capitalise, not only are you going to get a better gain but learn a few tricks for what you can do for your next IP. Have fun!
 
Balmoral, Bulimba, Hawthorne is an area I'd prefer to buy a unit vs house. Buy in price for a house is probably $750k vs $375k for a 70's, 80's style two bed brick unit.
Gross yield for the house 3% vs 5.5% for the unit. Then considering rates, insurance, maintenance, and land tax if req'd vs a modest strata fee and rates and the net yield would be looking even worse for a house..
With the zoning in this area I don't see it being saturated with units at the rate of Chermside, Upper Mt Gravatt.. so supply/demand should be ok.
Buying and even renting a house is out of reach of most gen y's and it looks like they're trending to compromise with units.
http://www.rpmonline.com.au/news/12215-apartment-popularity-grows
 
Thanks for all for the replies.
Since my initial post, we?ve actually put a holding deposit down on an OTP apartment and are expecting the contract through tomorrow. We?ve taken all the comments on board; many of which reinforced our own thoughts, but the numbers stacked up for us with this apartment. It?s $359k which is at the lower end of comparable properties, is 10-15% bigger than comparable properties and will be of a good quality finish. They?re a privately owned developer/contractor that have done two other complexes in the immediate vicinity and have already started construction of this complex. Body corporate is ~3k which seems reasonable considering the facilities (green walls, pool, gym, 2 lifts) and they?ve offered to pay our first years BC fee. The complex is ~3km to the CBD and has several public transport options within 500m, shops including a Woolworths/cafes/medical facilities within 300m, major employment hubs close by, and is one of the last remaining developable blocks within the immediate area. The developer?s rental appraisal was $440/450pw, but given comparable properties I?d say $410/430 is more accurate.

Completion is around April next year, by which time we should have 20+% saved, plus the $15,000 great start grant. If we do decide to go ahead, we?ll be using a deposit bond in lieu of a cash deposit as we have money tied up elsewhere.

Here's hoping the contract is all above board!
 
Congrats on taking the jump.

The Contract will be greatly slanted towards the developer, as it should be because they are taking the risk. It will have a huge disclosure document as well. Less risk because construction is already underway.
 
RPI, why is it less risk if construction is already underway? Does that mean that developers can start excavating the site if they only have DA approval for the excavation but not DA approval for the {multi-unit dwelling, centre activity, centre activity within centre, shops, restaurant office}?

My cousin was going to put a deposit down for an OTP apartment based on the marketing brochures and its proximity to Brisbane City near the river. I casually checked the flood map and found to my horror that the entire site flooded in 1974 AND 2011 as it is in an overland flow path.
I checked the site address on the Planning and Development website and again to my shock, the application for the multi-unit dwellings etc was made end Feb 2014, acknowledgement notice sent end March 2014. No DA approval given yet.

Decision for Activity: Centre Activity Within Centre, Multi-Unit Dwelling, Shop, Restaurant, Office
No decision made for this activity.


But 'Filling and Excavation' and 'Erosion sediment controls' were given approval end Feb. So can developers excavate the site without getting the number of apartments, design response signed off?

I asked my cousin to make a formal enquiry to the marketing agents about the flooding and flood zone the site was in. Their official written reply was this:

Brisbane City Council require the building design (habitable floors and access to carparking) to conform with the flood immunity freeboard requirements as documented in BCC?s Subdivision and Development Guidelines and or Temporary Local Planning Instrument 01/11 - Brisbane Interim Floor Response.

Translated to the development, the lowest habitable floor (retail and reception) is raised off street level and well above the highest known flood data level in the area.

The carpark driveway also contains a hump / island which acts as a barrier to potential flood water penetration into the basement. :eek:

This design response is deemed acceptable by BCC and forms part of the Development Approval.


The glossy brochures on Internet show the development has shops, retail on street level. Very misleading if the retail and reception is going to be raised off street level.

I also have an image of cars floating in the basement because of flood waters.

The term 'Development Approval' is very confusing, it doesn't necessarily mean the DA has been approved, does it?

In Victoria, it's called 'planning permit'. "Has the 'planning permit' been granted?"
Or "is the 'planning permit application' still in Council?"

So basically, my question is, in Brisbane, can developers start digging holes in the ground (construction underway) even if they haven't got the design response approved or signed off by Council yet?
 
The one comment I would make is about the tax deductibility of the interest if you used a parent guarantee, it should not affect what you can claim. The guarantee is a security guarantee which a lender uses the security value of your parents property to support the value of the purchase, which means you can borrow up to 100% of the new property without having to incur LMI. it is your names on title, the loan is in your name.

If you are looking at having this as your PPOR for up to 2 years, then incurring LMI will probably mean that you will miss out on being able to claim LMI for 2 years of the 5 available as a tax deduction.
 
Thanks for all for the replies.
Since my initial post, we?ve actually put a holding deposit down on an OTP apartment and are expecting the contract through tomorrow. We?ve taken all the comments on board; many of which reinforced our own thoughts, but the numbers stacked up for us with this apartment. It?s $359k which is at the lower end of comparable properties, is 10-15% bigger than comparable properties and will be of a good quality finish. They?re a privately owned developer/contractor that have done two other complexes in the immediate vicinity and have already started construction of this complex. Body corporate is ~3k which seems reasonable considering the facilities (green walls, pool, gym, 2 lifts) and they?ve offered to pay our first years BC fee. The complex is ~3km to the CBD and has several public transport options within 500m, shops including a Woolworths/cafes/medical facilities within 300m, major employment hubs close by, and is one of the last remaining developable blocks within the immediate area. The developer?s rental appraisal was $440/450pw, but given comparable properties I?d say $410/430 is more accurate.

Completion is around April next year, by which time we should have 20+% saved, plus the $15,000 great start grant. If we do decide to go ahead, we?ll be using a deposit bond in lieu of a cash deposit as we have money tied up elsewhere.

Here's hoping the contract is all above board!

If it's okay may I know which suburb and developer did you go with?
 
Slightly off topic, isn't there a bit of a glut of apartments coming up in Brisbane?

There are a fair few proposed developments coming, however, it'll be interesting to see how many of them actually get done.

IMO buying an inner city apartment is still fine for an investment, just don't buy one of the OTP ones or an apartment in a high rise complex. Stick to the bread and butter ugly brick units.
 
Could the oversupply of apartments impact the yield and CG of houses and villas?

Yield perhaps in the short term while the supply is taken up but I think CG will still be fine (for all existing villas, apartments, houses etc). It's not like these new developments will be sold at bargain prices.
 
The one comment I would make is about the tax deductibility of the interest if you used a parent guarantee, it should not affect what you can claim. The guarantee is a security guarantee which a lender uses the security value of your parents property to support the value of the purchase, which means you can borrow up to 100% of the new property without having to incur LMI. it is your names on title, the loan is in your name.

If you are looking at having this as your PPOR for up to 2 years, then incurring LMI will probably mean that you will miss out on being able to claim LMI for 2 years of the 5 available as a tax deduction.

+1 for this comment. Guarantors doesn't impact the deductability. The additional security from the guarantors is to meet the banks requirements. The debt is in your name, only the guarantors property is used to secure the loan as well as the purchase property.

I've used a guarantor on 2 properties, it's allowed me to preserve my cash/savings for a 3rd & 4th IP (which 1 will become PPOR). That way I didn't pay any LMI and maximised the deductions and reduce the loan on the future PPOR. 2 Years on 1 of the properties has increased ~$20k which I've decreased the mortgage against the guarantor and waiting til start of next year to do the same on 2nd IP. These have given me an infinite ROI as borrowed 105%
 
If it's okay may I know which suburb and developer did you go with?

It's in Kelvin Grove, development by CS Development Group. We paid $359k and ended up pulling together the deposit instead of using a deposit bond. They're about halfway through the structure, so hoping for an April/May completion.
 
Slightly off topic, isn't there a bit of a glut of apartments coming up in Brisbane?

Yep, Noticed this as well.
Stupidly Small ones with lots of amenities and high body corp.
Rental Market Nundah/Northgate area is flooded with new developments on every corner.
 
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