How can I best use the FHOG #2

[Property Meister]

hi everyone

sorry, but I needed to ask this, it was killing me,,

my understanding is that you - Buy an existing and get $17k from the government ($14k fed and $3k state)
- Buy new and get $26k from the government ($21k fed $5k state) and then also get some stamp duty concessions if off the plan

Now we all know the potential pitfalls with OTP. so if this was for IP#1, say you are looking at an entry level place say about $300k, then the stamp duty in vic is $11k (not too sure why its $13k if its NOT for a PPOR according to the calculator, but then you wouldn';t get the FHOG if you don't live in it right????)

so basically, you are saving $26k+11k=$37k so that is 12.3% for a $300k property that the government helps you out

however if you purchased an existing $300k proprerty then you save yourself $17k out of $300k=5.6% in savings

from a CG perspective and if this was going to be IP#1, taking in to consideration the current crappy economy, would it be safer to buy an existing $300k property to save 5.6% and to pay the extra $20k or to go OTP and to save yourself the $37k in total as opposed to $17k......

lets assume that there is a existing $300k property right next to a OTP $300k new place.

the $20k stamp duty +FHOG saving seems like quite a significance..

so essentialy buying $300k existing will cost you $17k less, while $300k OTP will cost you $37k less....

just seems like it may be worth the risk...

I hope I make sense...

I would really like peoples opinion on this

 

[Property Meister]

would someone be so kind and give me a few pointers about this,, iam a bit confused.. maybe its because there are so many FHOG questions

 

[marg4000]

It really all boils down to the individual properties and which you think is the better deal with regards to future prospects and present value.

It's purely a matter of opinion, so I can't see that anyone can really help you.

My advice would be to look at as many properties as possible, and in each case deduct the relevant grants to give you the net cost to you. Then go for whatever is the best value. Don't be influenced by the size of the grant (i.e., buy new because the govt will give you more) because that is not much use if the price is inflated to begin with.

It is the net cost that counts.
Marg

 

[Aimjoy]

Buying OTP is a strategy to be used in a 'rising' market. Even when engaged in, in that way, it still carries inherent risks:
1. The developer goes bust during construction - opportunity risk for you as your finance from the lender was tied to this project (even though not drawn down). Developers are still currently going broke - Raptis for a recent example.
2. Contract has 'out-clauses' usually allowing the developer a change in 15% of the finishes - this can drastically affect the kitchens & bathrooms which are primary divers in end-value
3. The lender gets cold feet during the 1 - 2 year construction period and reduces your LVR - leaving you to stump up more cash out of your own pocket on settlement.
4. The RE market vals drop during construction but you are still forced to settle on your purchase at what is then an inflated price
5. If 4. occurs other purchasers like yourself may have to sell at fire-sale prices thereby reducing your property value even more (comparable sales in the same building)
6. If 4. occurs and you cannot settle you will lose your 10% deposit and get sued by the developer for any loses he makes on the re-sale to another purchaser.
7. If 6. occurs and you used a deposit bond and not cash for the deposit, the deposit bond issuer will be chasing you for the funds.
8. There is no guarantee that we are in a rising market atm. We may be? If you do this and make $'s it will be because you lucked out. This is not investing this is speculating and it carries a high risk.
All points 1. > 7. have actually happened - and I can give you examples if the above has not been enuf to convince you.

 

[Property Meister]

thanks for the response everyone..

I do understand the traps and risks associaged with OTP. and that OTP was very successfull in the early 2000s, obviously not now...

but the $21k + $11K -$24k+$13k in savings, do seem substantial.

I cerntainly would not go OTP at all for at least a few years at the least ,but I wanted to hear others opinions on their reasons for OTP.....

seems like the extra $20k or so insavings is simply too risky!!

 

[Aimjoy]

seems like the extra $20k or so insavings is simply too risky!!

That is it exactly!

 

[Property Meister]

yep, totally agree...looks like back the drawing board..

I was thinking of making the IP#1 as a PPOR for the first 6 months to get the FHOG..... wouldn;t mind a funklier newer looking place. but I need to think with my head and not my heart!!!!!!!!!!

 

[Aimjoy]

Meister,

Scrape together a deposit, hit the feds for the FHB grant before June 09, hit the state govt for the stamps concession and get your PPOR. After 6 months make it an IP if that is your plan.

Newer does not = CG. Older property in established suburbs generally have better CG initially (although both work out OK in the longer term).

 

[Property Meister]

hi aimjoy

I think i get your drift

are you suggesting to get a deposit ready and basically take advnatage of the $14k governent FHOG before June 09... or is there more to it>???

 

[Spud1]

Dont get talked out of buying a new property, I think you are crazy if you dont take advantage of the stamp duty saving as well as the 21kFHB grant.

You dont have to buy sonme way out OTP purchase, find a block locally get a local name builder to build you a 3-2-2 house, you cant go wrong.

Spud

 

[Property Meister]

spud, thats an interesting approach..

However, being a novice, I would think your approach would only be suited for those with experience or those newbies that know AND trust someone that is experienced..

what do others think?

 

[Rockstar]

PM,

Not sure where you are looking to buy but have you thought of purchasing a block of dirt large enough to put a dual occ on. You could do your DA just for one house first to get your grant but build it so that you can stick another house on at a later date when you have the access to more $$. If you can get a flat block you can put an economical project home onto it for minimal cost.

Hence you are not only getting the maximum grant but also value adding for down the track.

 

[murtagh]

spud, thats an interesting approach..

However, being a novice, I would think your approach would only be suited for those with experience or those newbies that know AND trust someone that is experienced..

what do others think?

You should come to a MIG one week when Spud is there - his enthusiasm for building is infectious.

 

[Property Meister]

PM,

Not sure where you are looking to buy but have you thought of purchasing a block of dirt large enough to put a dual occ on. You could do your DA just for one house first to get your grant but build it so that you can stick another house on at a later date when you have the access to more $$. If you can get a flat block you can put an economical project home onto it for minimal cost.

Hence you are not only getting the maximum grant but also value adding for down the track.

thanks rockstar,

I know of this approach abut have never considered it, however my gut feeling is that its really a project for someone in the know! I think that others with good reasons will just say "just buy IP#1 existing property or a brand new one to save on stampt duty and grants"

it seems like a speciliast area or have I got it wrong?

 

[Rockstar]

thanks rockstar,

I know of this approach abut have never considered it, however my gut feeling is that its really a project for someone in the know! I think that others with good reasons will just say "just buy IP#1 existing property or a brand new one to save on stampt duty and grants"

it seems like a speciliast area or have I got it wrong?

PM,

There is no right or wrong. It's whether you have the confidence to do it or not. You really have to do a feasibility study to determine if it is worth it. Definitely it is more risk yet you need to make it calculated risk and go in with eyes open.
I did just this a couple of years ago on a duplex and increased our net worth by 180k after the one year project. I was totally inexperienced at developing but did my research and took the plunge. The scariest bit for me was whether I would get the DA through. After that it was pretty smooth sailing.

Take Murtagh's advice and go talk with like minded's to open your mind and do some networking.