Feeling a bit used ...

[boomtown]

As shady said, you probably wouldn't have got a discount if you asked "Would it be possible for me to get a discount?" You should have said "How much of a discount are you going to give me?"

My preferred approach is not - "how much of a discount will you offer me" - its "I think the property is worth X". Ill give you X. If you want to sell me to me fine, if not Ill buy elsewhere.

You need to frame the negotiations in terms of what you think the property is worth - not in terms of whatever random number they have written on their price list.

 

[jingo]

In the past few months, I've since heard from others who have bought OTP in the past that say they got a 10% discount on the asking price.

:

Hi Jodie,

Is it possible that the other people bought into an inferior part of the building? Your unit may be better positioned. Does yours have a better view, or a better aspect, courtyard etc?

Just a thought...

Regards Jason.

 

[Sheryn]

Some of you know we bought our first IP OTP a few months ago. We asked the company we bought from if it's possible to get a discount and they said "no", so we didn't push the issue.

In the past few months, I've since heard from others who have bought OTP in the past that say they got a 10% discount on the asking price.

Would a discount be a standard common thing for OTP?
Is it likely that the company said "no" to us because firstly they know we're new at this and don't necessarily know what happens and second they could drop the price for those who are persistant rather then just accept the no answer?

A 10% price cut would have saved us $41k

OK - First to buy should mean you got the best OTP.

All contracts are negotiable OR you walk away - sometimes you win / sometimes you lose. Sometimes you pay for your property education in big bucks $$$. IMHO you do not learn without pain.

Most OTP need to sell a certain percentage before they can build, currently the volatility in the market can be a problem.

So ask yourself did you buy the best OTP at the time?
Did the acquaintances buy second, third OR twenth quality unit OTP.

Gees its hard to face the fact that you have been used OR duped -- but -- you will be wiser next time.

Congratulations on being honest with yourself and the Somersoft Community that you may have been duped/used.

Best wishes & good luck
Sheryn

 

[buzzlightyear]

My preferred approach is not - "how much of a discount will you offer me" - its "I think the property is worth X". Ill give you X. If you want to sell me to me fine, if not Ill buy elsewhere.

You need to frame the negotiations in terms of what you think the property is worth - not in terms of whatever random number they have written on their price list.

That is absolutely spot on. I can't tell you the difference it makes when having that conversation with REA. Searching in the curent market recently for properties primarily that are either future development or renovation opportunities, by giving the end point (eg comparable renovated property), the approximate costs to get there (many REA don't know what it costs to renovate) and then what the purchase price needs to be to make one or the other worthwhile, I found that changes the dynamic of the conversations with the REA.

First and foremost, they realise you aren't the average schmo walking off the street, you know what you are talking about, and you can generally get past the BS that invariably occurs during negotiations.

The last thing you want to do, is to place yourself at an even greater disadvantage in negotiation, because REA will sell many more properties than almost all people will purchase in a lifetime, so they are already way ahead.

 

[Jodie701]

Thanks for the the responses. You guys are great.

I think depreciator is right, in that it's just the fear, now that we've made the commitment. There's nothing we can do about it now, and I'm not going to know what the true value is until it's completed.

I don't think or worry about it during the day, but if I get woken up at night, then my mind is goes into stress overload and I worry about everything. The night before last, my 18mth old daughter woke me up (she has a cold and was upset) and then it was just like my mind went into panic mode.
I'm feeling calmer now. I'll just have to cross my fingers that everything goes well.

 

[boomtown]

Seriously Jodie Im having slight buyers remorse right now too. I have just paid a massive sum for a relatively tiny property (even if it is a stunning location).

The way I like to think of it (as was pointed out to me by someone on this site) is you don't pay too much - you just pay too early.

If you buy and hold for 40 years and you paid 100k too much it still only going to be 5% of the end value of the home and you will still be way better off than if you had not bought at all.

Cheers

 

[landlubber]

No more OTP.

In our flock we've had three OTP purchases. One town-house, one 3 bed apartment, one serviced apart. They just happen to be our WORST performing IPs after 10 years or so. We will NEVER buy OTP again. Just not worth it. The developer makes all the $$$.
LL

 

[Jon Chown]

Hi Jodie, Given that you paid somewhere between $365K and $400K for your unit, a 10% discount would drop the buy price to $330K to $360K and given that it would cost around $200K to build plus land and DA/BA costs, holding costs, Sales commissions, Marketing costs and GST, there isn't much leeway for profit. I think that you can rest easy on a good buy.

 

[Jodie701]

That's a good way to look at it boomtown

landlubber may I ask how what capital growth did you get after 7 to 10 years on the OTP compaired with your other purchases? I'm hoping it'll double in 7 years, but that's probably wishful thinking, lol.

Jon Chown our contract is for $417,500 for a 2x2 apartment in Harris Park, parramatta.

 

[kph]

In our flock we've had three OTP purchases. One town-house, one 3 bed apartment, one serviced apart. They just happen to be our WORST performing IPs after 10 years or so. We will NEVER buy OTP again. Just not worth it. The developer makes all the $$$.
LL

Sorry to hear you've had bad experiences !

Happily, I can add that our OTP purchases have always been profitable.
Admittedly they have all occured between 2004 and 2007 and in WA where we experienced this 'once in a lifetime' run on property values.

The apartment was in a Finbar development who have this habit of selling everything OTP, instead of just the minimum presales required to get the construction finance to flow.
I am sure we made more than they did on this one.

The others were land purchases where titles were not available for up to 12 months after the contracts were signed.
Mostly those properties almost doubled in market value by the time they were ready to settle.

With regard to apartments, it was possible to chart their approx value during construction by comparing the m2 rate for comparative apartments on the market being sold OTP.
This was substantiated by the valuer who would count 'unconditional' presales as being valid.
All fine while the market is still selling, but the music stops when it comes time to settle and all those buyers can't get thier finance and forfeit their deposits as well as throwing the sales evidence into disarray.

Here is an example of some OPT buyers worst nightmare..

 

[landlubber]

Hi Jodie, Given that you paid somewhere between $365K and $400K for your unit, a 10% discount would drop the buy price to $330K to $360K and given that it would cost around $200K to build plus land and DA/BA costs, holding costs, Sales commissions, Marketing costs and GST, there isn't much leeway for profit. I think that you can rest easy on a good buy.

Hi Jon,
I'm just doing some simple maths on your numbers so please feel free to correct me... OK? Do you really mean that the profit margin was probably between $130K and $200K per unit ? My goodness...no wonder we should be asking for a discount !!! ...and you consider that's "a good buy" ? What am I missing here ...except any CGs for along time .... ?
LL

 

[kph]

LL
No, you forgot to add all the extra costs associated with doing the development.
The development feasibility would have been done on the basis that the profitability was around 20%. As time and costs slip, this may erode down to 15%.

Hardly a get rich quick scenario for the developer mate.

Kevin

 

[landlubber]

Established houses win every time !!

landlubber may I ask how what capital growth did you get after 7 to 10 years on the OTP compaired with your other purchases?

OTP 2 storey townhouse (Brunswick, Mel) paid $224K,1999, now $420K.
OTP 3 bed apart (Mel CBD) paid $320K,1996, now $550K.
OTP serv. apart (Mel CBD) paid $205K,1997, now $235K. YUK !!! ( to be fair, it's a great yield IP though.)
Compare ...
3 bed house/land (Blackburn, Mel) paid $134K 1997,now $550K. YUM, YUM !!

Them's the numbers. The established house example above is typical of many in our flock. Valuations for all are official bank val's May 08.
LL

 

[landlubber]

Sorry to hear you've had bad experiences !

Hi kph, not quite "bad" experiences....I've posted the for-real numbers. Just not quite as pleasant as our "established houses" experiences.

Happily, I can add that our OTP purchases have always been profitable.
Admittedly they have all occured between 2004 and 2007 and in WA where we experienced this 'once in a lifetime' run on property values

Yes, I understand OTP can work in "boom/rising" markets such as you've had in WA and good-on-you for riding the wave. Many watch it go by. Just make sure you've got a seat when the music stops.

LL

 

[kph]

Agreed 100%
Not a good product to be playing musical chairs with !!
Depends on the reason for buying as well imo.
We bought on the idea of using it as a lock up and leave convenient base in the city.
When we settled and moved in, we found it was too small and the 'lifestyle' didn't quite suit us.

Your 'landed' properties show some compelling numbers in comparison though.

kp

 

[Jon Chown]

Established houses win every time !!

Statements such as the one above are totaly incorrect and new members to the site should be given all of the facts in order to make the right decision for them.

Landlubber has quoted a couple of properties with their Purchase price and current bank valuation (frankly not worth the paper they are written on).
I will quote two properties with purchase date and price and sold date and price - you compare.

Kangaroo Point - 2bed 2 bath unit purchased 22/10/02 $209,000 sold 19/3/08 $402,500. Gain $193,500 or 16.8% per year. Rent $380 week.

Greenslopes - 3 bedroom Colonial home on 567m2 land purchased 25/7/03 $360,000 sold 20/6/08 $415,000. Gain $55,000 or 3% per year. Rent $350 week.

Both of these properties were purchased by the same couple as investments and I tried to talk them out of the house purchase but they said that all of their friends had advised that you had to have land with your property for it to be any good. Five years later they tell me that they wished that they had listened to me.

Now this post is not to say that Houses or Units are better than each other but to show that not all houses will have good gains (especially without maintenance which was my clients mistake) The benefit of the unit was that the Body Corporate maintained the investment for them.

I wont even bother entering into the amount of difference in short fall or contributions between the Unit and House taking into consideration negative gear.

Please do your homework on each property that you consider - all may not be as it seems and land has very little contribution to the equation unless it is able to be developed.

 

[landlubber]

Yep .... you can be lucky !

Hi Jon,
Given your subtle self promotion of your web-site in your post I'm sure we can expect your statistics and advice to be totally impartial and not influenced by your vested interest.... Also, as a would be RE expert you, of all, should refrain from quoting stats from such short periods i.e. four/five years for isolated instances and promoting them as the norm. Not good enough.

This thread is concerning OTP purchases. I stand by my comments. Yes, an investor can be lucky, yes, like kph you can "ride the boom" ..but miss these windows of opportunity and get the timing or the cycle wrong and you can wait a LONG, LONG time to see CG's from an OTP purchase.

They will build many more apartments (..and I'm sure you'll be happy to flog 'em), but they're not making any more land. You may have seen a recent graph displayed by Alan Kohler on the ABC showing land prices and building prices for last 20 years. Virtually all the CG has come from the land component.
LL

 

[boomtown]

Jon

This conversation (to date) has been OTP v non-OTP rather than houses v units.

I think you will agree with me that 2 otherwise identical properties (whether houses or units) - one being brand new and the other 3 years old - the new property will sell for a premium. That premium will be lost as the property ages (building component depreciates).

Accordingly if you purchase OTP you pay a premium for a new dwelling which is lost over time. That means that, for dollar for dollar, a OTP dwelling (house or unit) is not as good as an investment for CG purposes as say a dwelling that is at least 4 years old.

*Note that I have not taken depreciation tax consequences into account in making that assessment.

 

[Jon Chown]

Boomtown, I was not attempting to promote the benefits or otherwise of purchasing OTP properties because frankly purchasing any investment property is all about the timing and I could quote OTP properties that have had tremendous gains and some that have suffered high short term losses. My reaction was to the comment that “Established houses win every time” which was indeed a misconception from my research of past sales data.

I am proud to be a Real Estate Agent and the fact that I promote my business has little to do with the statistics that I quote. I began my sales career in 1977 and have witnessed many highs and lows in the investment cycle. Wanting to share my experiences with others is my prerogative and you as readers have the right to ignore or accept the information that I give. I hope that at the least you might look deeper into the issues and find out the facts for yourself.

Landlubber says,

You may have seen a recent graph displayed by Alan Kohler on the ABC showing land prices and building prices for last 20 years. Virtually all the CG has come from the land component.

I won’t deny that the cost of land has increased (in 1977 I was selling 700m2 for $6000 a block and now 30 years later you would be hard pressed to find a block under $300,000 in the same area). The problem I have with this statement is if this is the measuring stick we use, how do you explain that in 1988 a new 2 bed unit in West End was selling for around $95,000 and now 20 years later you can’t buy a new 2 bed unit under $550,000 (where did this gain come from?). In my opinion the land has nothing to do with the equation in this instance. The demand for 2 bedroom units as an affordable residence on the other hand is the main contributing factor. In my opinion too many people get fixated with the need to own land.

They will build many more apartments (..and I'm sure you'll be happy to flog 'em),

Sorry LL I don’t flog units – People buy them as a lifestyle choice and a viable alternative to houses.

 

[boomtown]

Wanting to share my experiences with others is my prerogative and you as readers have the right to ignore or accept the information that I give. I hope that at the least you might look deeper into the issues and find out the facts for yourself.

And I trust you will continue to do so. I agree with 90% of what you say - I just happen to nitpick the other 10% .