Have I made a mistake?

[westminster]

And Dennis, if this is your first IP, then it will have a lot of learning experiences. It might not be your best IP ever but it's the first step and that is always the hardest.

So congratulations to you, enjoy the ride and onwards and upwards!

 

[DennisLeung]

Thanks for the kind words everyone.

I have consulted with my parents' friends again. They are selling and have sold some OTP products in Mascot, Bella Vista, Parramatta. The organisation is as below:
http://www.pia.com.au/en/

Key points that they mentioned to me:
- It is not the right time for Penrith, they advise me to buy in Penrith in 2020
- Buying in Penrith will result in high vacancies and a lot of headache managing the property
- Negative gearing produces a better real return than positive gearing after tax and depreciation
- Buy new is always better than buying old as OTP units that they are selling (and not other OTP salesmen) are never overpriced and a rental guarantee results in never having to worry about the rent. They also stated that have financial and property management services to ensure that you'll never have to lift a finger other than to sign or buy.
- It is OK to buy units in large blocks 50+ only through them, as they will control the strata and create a situation with cheap strata (400-600pq)
- And then by extension, old units have poor capital appreciation, then first 10 years of any property is its prime
- I am an idiot to buy in Jamisontown as it will provide a great deal of headaches for me and it will never increase in value until next decade

I even stated that even if Jamisontown is a mistake, then it may provide some experience for me. They stated that "we are showing you the straight path to take, why are you taking the longwinded way to get to same conclusion?".

 

[Waldo]

Key points that they mentioned to me:
- It is not the right time for Penrith, they advise me to buy in Penrith in 2020
- Buying in Penrith will result in high vacancies and a lot of headache managing the property
- Negative gearing produces a better real return than positive gearing after tax and depreciation
- Buy new is always better than buying old as OTP units that they are selling (and not other OTP salesmen) are never overpriced and a rental guarantee results in never having to worry about the rent. They also stated that have financial and property management services to ensure that you'll never have to lift a finger other than to sign or buy.
- It is OK to buy units in large blocks 50+ only through them, as they will control the strata and create a situation with cheap strata (400-600pq)
- And then by extension, old units have poor capital appreciation, then first 10 years of any property is its prime
- I am an idiot to buy in Jamisontown as it will provide a great deal of headaches for me and it will never increase in value until next decade

I think you have answered your original question - you can safely ignore these people. No need to have second thoughts based on what these guys are saying.

By the sound of it, the only 'safe' way to buy property is through them, the specific developments they are promoting (and getting paid a nice commission on).

Regarding family - They know I own an investment property. At this stage when I purchase another one or two I am undecided if I will tell them. Sometimes it is easier just making the call yourself, without having to justify every decision to someone else.

Earlier in the year I was going to place an offer on a property. I mentioned it to my father (who is a property investor himself) & he highly recomended against it. 6 Months later the property had risen 50k (the offer I was going to make wouldn't have secured the place anyway, so no hard feelings!). The lesson from that for me was if you've done the due diligence & the research, don't be put off by the people who haven't researched the place (even though they are likely to have an opinion on the suburb based on their own experiances/reputation of the place).

 

[skater]

Ah, so here we get to the route of the problem! THEY HAVE A VESTED INTEREST!

Thanks for the kind words everyone.

I have consulted with my parents' friends again. They are selling and have sold some OTP products in Mascot, Bella Vista, Parramatta. The organisation is as below:
http://www.pia.com.au/en/

Key points that they mentioned to me:
- It is not the right time for Penrith, they advise me to buy in Penrith in 2020
Rediculous! Do they have a crystal ball?
- Buying in Penrith will result in high vacancies and a lot of headache managing the property See above! There are actually quite low vacancies all over Western Sydney.
- Negative gearing produces a better real return than positive gearing after tax and depreciation Hmm......This is a whole other topic. Standard salesman speak, but anyway I degress, the unit you were looking at was near new, so there's plenty of depreciation
- Buy new is always better than buying old as OTP units that they are selling (and not other OTP salesmen) are never overpriced and a rental guarantee results in never having to worry about the rent. They also stated that have financial and property management services to ensure that you'll never have to lift a finger other than to sign or buy. Your unit is hardly old. Rental guarantees aren't worth anything and you are usually much better off with independent financial and PM services.
- It is OK to buy units in large blocks 50+ only through them, as they will control the strata and create a situation with cheap strata (400-600pq)
WTF???
- And then by extension, old units have poor capital appreciation, then first 10 years of any property is its prime
NEW units have poor capital appreciation as they are usually overpriced and when sold within the first 10 years will often sell for less than original purchase price unless bought during an upswing.
- I am an idiot to buy in Jamisontown as it will provide a great deal of headaches for me and it will never increase in value until next decade
I really hate to say this, but you are an idiot to listen to someone who has a vested interest in you purchasing their product. Fine, if your own research tells you their product is the right product for you. Not fine if you purchase just to make them happy, shut them up, or because Mum said so.

I even stated that even if Jamisontown is a mistake, then it may provide some experience for me. They stated that "we are showing you the straight path to take, why are you taking the longwinded way to get to same conclusion?". [/QUOTE]

Seriously! Make a decision! This is getting really beyond a joke! I looked at that website. Here is their timeline in black, my comments in red.

Some of our major achievements include:

2008 During the GFC, we prospered and so did our clients! 184 investors bought 252 properties worth about $1.09bn through the PIA.
Of course they prospered! They sold property! No evidence on if their clients prospered! Me personally, I prospered without them.
2009 Sydney's property price increases by about 5%, proving PIA's investment forecast accurate.
Big deal! They predicted a 5% increase. That's standard salesman speak to predict a set percentage rise each year & doesn't really prove anything.
2010 RBA announces likelihood of increased interest rates. Justin Wang recommends investors switch to fixed interest rate ahead of this. Forecast accurate and beneficial to clients. Hm....from memory Westpac had 4.99% fixed for 3 years. I'll have that, thankyou very much.
2011 We develop Infortec, our in-house online cloud system providing all types of resources from business management tools, sales and forecasting models, visual concepts, client support services, document library, information resource, and data storage.
Woohoo! They developed more resources to sell more stock. Hardly something to crow about.
2012 New sales record - 1037 properties worth $600 Million up until December
Lovely, they sold a heap of properties. No detail though. Just because you sell properties does not mean they are a good investment.
2012. Rental department overseeing 956 properties worth $500 Million. Mortgage Department doing extremely well through brilliant individualised solutions. Rental department huh? I'd prefer to have a local RE look after my properties. Not some central place with no idea what the market is doing locally

 

[monalisa]

Thanks for the kind words everyone.

I have consulted with my parents' friends again. They are selling and have sold some OTP products in Mascot, Bella Vista, Parramatta. The organisation is as below:
http://www.pia.com.au/en/

Key points that they mentioned to me:
- It is not the right time for Penrith, they advise me to buy in Penrith in 2020
- Buying in Penrith will result in high vacancies and a lot of headache managing the property
- Negative gearing produces a better real return than positive gearing after tax and depreciation
- Buy new is always better than buying old as OTP units that they are selling (and not other OTP salesmen) are never overpriced and a rental guarantee results in never having to worry about the rent. They also stated that have financial and property management services to ensure that you'll never have to lift a finger other than to sign or buy.
- It is OK to buy units in large blocks 50+ only through them, as they will control the strata and create a situation with cheap strata (400-600pq)
- And then by extension, old units have poor capital appreciation, then first 10 years of any property is its prime
- I am an idiot to buy in Jamisontown as it will provide a great deal of headaches for me and it will never increase in value until next decade

I even stated that even if Jamisontown is a mistake, then it may provide some experience for me. They stated that "we are showing you the straight path to take, why are you taking the longwinded way to get to same conclusion?".

Exactly opposite of what you have been told is true:

- Penrith has a vacancy rate of 1.8% as of July 2013 (SQM research) - Penrith has been declared a regional city in the Sydney 2036 plan (as you posted in another thread);
- Negative gearing and tax benefits should not solely drive your investment decisions. We look for properties which are less than 25 years old, to facilitate with the cash flow through a tax deduction. However, this is only one part of the picture;
- OTP are always over priced;
- 50+ units would be classified as high density - my experience (when we nearly bought OTP for our first IPs) was that the bank was reluctant to value the units, and another bank's LMI provider had issues as if there is a fire sale in the unit block, your unit will also reduce in value;
-OTP units have little or no appreciation in value for the first fewyears - I am so glad I ended up purchasing a villa instead for my first one - the value of the villa has increased by around 25%, where as the unit would have had little growth (*if* any) in the last 3.5 years. On the other hand, if an establish property is bought well, you are more likely to make money. OTP may work in a rising market - but I am skeptical.
-They may be clamining low strata, but you never know what it ends up being once the property is all built (for our first, we were told it would be $200-$300pq by the agent - now we know who not to trust!!)

In reality, your parent's friends are telling you to take the 'long winded' path - in my view you would be ahead with an established property where numbers stack up, especially as Sydney values increase.

My advice would be to not listen to these people - I wouldn't classify them as friends

Good luck

 

[neK]

Dennis, similar to what others have said here, do what you think think is right. Sometimes parents just don't understand and don't want to lose face over something their kids have done - asians especially.

There is a lot of do as a say not as I do - maybe its because of the environment they grew up in.

One day you'll be a parent and will probably say the say thing to your kids (which were right for you back in the day), but completely irrelevant for their timeline.

 

[neK]

Thanks for the kind words everyone.

I have consulted with my parents' friends again. They are selling and have sold some OTP products in Mascot, Bella Vista, Parramatta. The organisation is as below:
http://www.pia.com.au/en/

Key points that they mentioned to me:

- It is not the right time for Penrith, they advise me to buy in Penrith in 2020

Its going to hurt when i request for them to pull that magic crystal ball out of their butthole. There is always a right time to buy.... its when the numbers stack up.

- Buying in Penrith will result in high vacancies and a lot of headache managing the property

People are always scared of the unknown.

- Negative gearing produces a better real return than positive gearing after tax and depreciation

I love when people say this to me - I ask them to hand me a dollar and I give them back 30 cents and say negative gearing is wonderful. Then walk off

- Buy new is always better than buying old as OTP units that they are selling (and not other OTP salesmen) are never overpriced and a rental guarantee results in never having to worry about the rent. They also stated that have financial and property management services to ensure that you'll never have to lift a finger other than to sign or buy.

Anyone can give a rental guarantee... I'll just charge you more for the property And I also have property management services - its called a property manager who deals with the crap so I don't have to.

- It is OK to buy units in large blocks 50+ only through them, as they will control the strata and create a situation with cheap strata (400-600pq)

Oh hell fcking no! Larger units = more disagreements = more time wasted = more money wasted = high strata (and it usually has lifts and pools and other things that suck up money).

I've also had agents selling OTP that as an investor I should get into the Executive Committee that way i can keep fees low - ie keep the sinking fund at $10 and make sure the building is insured for less so the premiums are lower.

OTP strata is always low... at the beginning and thats because its to attract buyers. 12 months later after the AGM, strata is up by 100%.

- And then by extension, old units have poor capital appreciation, then first 10 years of any property is its prime

I find that older units are built better and have better noise insulation and are generally built better As for appreciation - it really comes down the numbers when you buy.

- I am an idiot to buy in Jamisontown as it will provide a great deal of headaches for me and it will never increase in value until next decade

And if you buy what they recommend and same thing occurs, they'll just shrug and say the market was unpredictable.
Its a standard tactic in sales - make the buyer feel stupid so they agree because they want to save face. Yes it does work on most people.

I even stated that even if Jamisontown is a mistake, then it may provide some experience for me. They stated that "we are showing you the straight path to take, why are you taking the longwinded way to get to same conclusion?".

Because the longwinded path doesn't pay them

 

[china]

- Negative gearing produces a better real return than positive gearing after tax and depreciation
-

I find this hard to understand. Why take on a loss making investment when you could be profiting from day one.

I find that neg gear is a far more speculative venture wherein for a period of time you are incurring an investment loss in the hope that you will have a large pay off down the track.

Whereas with pos or neut gear, the investment can stand on its own two feet regardless of what is happening in terms of tax or the investor's personal situation.

 

[Scott No Mates]

China, as you have realised (before you have jumped in), residential negatively geared investment is for mugs/pumters, if it wasn't then the corporates would be investing in resi as well.

Dennis, stick by your convictions. If you have done the numbers and believe this to be the best course of action according to your situation then, if you are wrong the only one to have lost (but learned) is yourself. If you make money, then you have won.

I know that I am a risk taker with my investments (or have been) and my family have not agreed with my decisions (oooh why would you buy there? Ooooh too much debt.... Ooooh it is interstate, how are you going to manage it? Oooooh it is leasehold (not freehold), isn't that risky? Oooh it is old... Ooooh it is vacant land etc)

 

[china]

China, as you have realised (before you have jumped in), residential negatively geared investment is for mugs/pumters, if it wasn't then the corporates would be investing in resi as well.

This is what I have always thought. I look at the top 20 wealthiest people in australia and find that none of them have got there by building a humongous resi portfolio by neg gearing. I wonder whether any of them hold any resi IPs at all. In contrast, some of them hold massive comm IP portfolios and is the reason why they are on the top 20 list.

 

[china]

Dennis, similar to what others have said here, do what you think think is right. Sometimes parents just don't understand and don't want to lose face over something their kids have done - asians especially.

)

I can identify with this.

Recently, my mother, who knows and agrees that I need to be more proactive with investments beyond term deposits, told me that her cleaner wants to offload her Camperdown OTP apartment which is due to settle mid next year at expected completion.

She seemed somewhat miffed when I explained that my regular learnings on the Internet tells me that I do not believe OTP sales in mega blocks reflect good value and hence, I would not wish to participate at all.

 

[geoffw]

This is what I have always thought. I look at the top 20 wealthiest people in australia and find that none of them have got there by building a humongous resi portfolio by neg gearing. I wonder whether any of them hold any resi IPs at all. In contrast, some of them hold massive comm IP portfolios and is the reason why they are on the top 20 list.

It depends on what you want out of the investment as well as what you can put in.

Peter Spann once put it. In any investment, you can have good growth, good income and safety. Pick any two.

 

[Scott No Mates]

horses for courses eh Geoff?

 

[DennisLeung]

Basically everything you guys have said makes sense and is exactly what the book writers (Lomas, Lindemann, McKnight et al) have all written about. Probably still a good experience to endure and 'overcome' in a sense these extreme sales tactics in real life to provide first hand experience once and for all that OTP is an absolute no-no in such large blocks.

We spent all day driving around Bella Vista with the two family friends piping on about how good the Norwest Business Park is with its booming property values and million dollar houses and comparing that to the fact that such things did not exist in Penrith. The old lady (in her 50s) who is friends with my mother was talking all day about how I was young and inexperienced (which I am) and making a point that we should listen to her friend (employee of PIA) as he was experienced. States that he himself has signed contracts to buy 6 OTP properties via PIA with 3 settling this year and 3 next year. Expects each to increase by about 100K in the first year at least. I asked them that if he was so sure I should buy one and he should a sign a 'guarantee of capital gain' rather than simply provide a rental guarantee. He stated that he couldn't as it was dependent upon the market.

From my understanding PIA exists as a "take the headache away from property investor" company. You pay a fee to be on a waiting list. They choose the property to sell you, they choose the rent to rent it at, they choose the property management style, they try to get on the board of directors for strata and make the strata very low. They claim they are not overpriced but they are. If you look through the past projects completed on their website they display:

- 57-72 Queen St, Auburn (3 and 2 bedders selling for 300-385K in 2007, sold for 385K in 2013)
- 8-10 Lachlan St, Liverpool (2 bedders selling for 300K in 2011, sold for 330K in 2013)

and some other stuff whose sold prices I can't find yet but still looking up.

This is basically history repeating itself again. In Dec 2007 my mum met a fellow traveller in a tour group over in Tasmania and the other person ingratiated herself with my mother. Their commonality was shared in putting me down as someone who was socially backward, immature and still a child at my age at the time (19) (and I don't deny that I probably was at that stage in my life). Started inviting me and my mum over for Christmas parties, giving gifts, sweet talking her. At the time I was disgusted with the so called "friend", her son and the rest of her family. Ended up with my mum buying a "magic wonder bed" known as Ceragem - claimed to be a device which could cure cancer - $4000. My mum to this day refuses to let me even touch the bed as she fears I will break it and still believes it has extra ordinary therapeutic properties. After the purchase incidently they stopped becoming regulars. I think the last time they spoke was in early 2008.

I believe this is the same thing in a much bigger scale and there are more things at stake than a 4000 dollar bed, which with all respect is not that huge of a setback, but the thing is that she does not have this level of insight to even know such a thing happened and is happening right in front of her eyes. Because if she did, at least that 4000 dollars could be classed as to have "returned some value" in terms of life experience.

All in all, tomorrow I will be hopefully start to finalise my purchase of Dent St and then make another offer on an apartment I spotted in Lidcombe (very similar characteristics to my existing one).

 

[geoffw]

horses for courses eh Geoff?

Yep.

It does depend on a lot of things.

But I think it's wrong to knock a strategy that really works for many people just because the results are further away.

Perhaps negative gearing won't make me one of the top 20 in Australia. But I don't want that.

Most of the top 20 are in some kind of business (mining, funds managament, other business). A couple are into the property developing business. None of them got that much by passive property investment.

Negative gearing + business provided me with the luxury to take a year without working so that I can study for a job I actually enjoy doing. Strong capital grwoth provided the means to get into business.

That was the horse for my course anyway.

 

[china]

Yep.

It does depend on a lot of things.

But I think it's wrong to knock a strategy that really works for many people just because the results are further away.

Perhaps negative gearing won't make me one of the top 20 in Australia. But I don't want that.

Most of the top 20 are in some kind of business (mining, funds managament, other business). A couple are into the property developing business. None of them got that much by passive property investment.

So would it be reasonable to say that for those that want very significant wealth, it may be an idea to emulate the strategies of the top 20? Clearly, they have a proven model which works whether it be in property, share investment or business model. Then there are countries e.g. NZ which have no negative gearing at all, wherein people must still be getting rich via property investment.

 

[china]

B.

This is basically history repeating itself again. In Dec 2007 my mum met a fellow traveller in a tour group over in Tasmania and the other person ingratiated herself with my mother. Their commonality was shared in putting me down as someone who was socially backward, immature and still a child at my age at the time (19) (and I don't deny that I probably was at that stage in my life). Started inviting me and my mum over for Christmas parties, giving gifts, sweet talking her. At the time I was disgusted with the so called "friend", her son and the rest of her family. Ended up with my mum buying a "magic wonder bed" known as Ceragem - claimed to be a device which could cure cancer - $4000. My mum to this day refuses to let me even touch the bed as she fears I will break it and still believes it has extra ordinary therapeutic properties. After the purchase incidently they stopped becoming regulars. I think the last time they spoke was in early 2008.

).

Thats a lot of time and effort invested to get 4k. I wonder what is their hourly rate for their efforts and return on time invested / profit margin.

 

[geoffw]

So would it be reasonable to say that for those that want very significant wealth, it may be an idea to emulate the strategies of the top 20? Clearly, they have a proven model which works whether it be in property, share investment or business model.

I don't understand the need to be in that top 20 group. But if that's what you really need, go for it. I don't have any need for excessive amounts of money. I have a comfortable home and a great family- that's good enough for me.

 

[Ace in the Hole]

So would it be reasonable to say that for those that want very significant wealth, it may be an idea to emulate the strategies of the top 20? Clearly, they have a proven model which works whether it be in property, share investment or business model. Then there are countries e.g. NZ which have no negative gearing at all, wherein people must still be getting rich via property investment.

No, because you are extremely, highly unlikely to repeat their results.
For those who made the top 20, there's probably 10's of 1000's who tried to go too big and failed, and probably lost it all, it can destroy you.
Luck plays a massive part at that level.
Almost like getting a bad beat in the World Series of Poker at the final table.
You might only get 100k getting knocked out in 10th place to the winner who gets 10 mil.
The result could have been the other way round if luck went your way.

Why not go for a conservative 10 or 20 mil net from proven and safe strategies?
From your starting point you shouldn't be too far away.

 

[china]

I don't understand the need to be in that top 20 group. But if that's what you really need, go for it. I don't have any need for excessive amounts of money. I have a comfortable home and a great family- that's good enough for me.

I agree, no one really needs more than a couple of mil and a good house. However, I think that the top 20 are there not because they need a couple of billion but enjoy seeing the success of their business ventures wherein the money is like the scoreboard. My question is whether passive resi property investment even when done successfully using neg gearing is a good enough investment / business model to bring people into great wealth.