Investment Property vs FHOG

[MsAli]

Hi all,

Although I may be a bit late but I am still considering my options before the FHOG gets over. Initially my sister and I had decided to pool our funds together to buy a townhouse in the west/Parramatta region. However given we are both 23 and have only been working for a year and a half and two years respectively, a 500k or so townhouse may have been a struggle to pay off and would have been more of an emotional investment as opposed to a long term wise decision.

We then decided to go for our own apartments, within the 400k range each; where we could get one brand new apartment and one off the plan/under construction. That would have given us 6 months to occupy as residents to satisfy the FHOG requirements and when the second one would have been completed we could have moved to the second one - leaving the first one to be rented out; hence smaller mortgage repayments together in total. We have found the first new apartment in Pendle Hill - ideal location - close to shops, station, medical centre, park facing from the balcony, ground floor with a courtyard. We offered 365k. We are now waiting for the bank valuation. We hope it is valued to what we offered OR we would negotiate it.

Now for the second one, we considered some under construction apartments in Westmead area. Three bedders are listed at 450k! And two bedders at 430k. I know we can definitely negotiate on these. However as we all know, the FHOG has inflated the prices considerably. Also since we dont get to apply for a loan on an under construction property till three months before completion, there is a massive risk that i) The bank WILL value it below the asking price (as developers are going crazy at this point in time) ii) The ending of the FHOG will bring the prices down. This would put us in a situation that we have to forfeit the 42k - 45k deposit! I am gathering most developers will not agree to the contract as subject to finance/valuation of the property from the bank - which does not happen till 3 months before the project completion.

Therefore, we are considering, we make use of the FHOG on the first apartment (once hopefully the valuation goes right) AND then get a house in the west in areas such as Pendle Hill/Wentworthville/Toongabbie/Seven Hills, where there is high rental yields/has tenants and a big enough land for future growth and construction prospects. The rent would assist with the repayments and the land overtime will grown in value - given where we buy.

So since I am a novice to property investment, I'd really appreciate your views on what we can possibly do in this situation?

Thanks!

 

[Propertunity]

there is a massive risk that i) The bank WILL value it below the asking price (as developers are going crazy at this point in time) ii) This would put us in a situation that we have to forfeit the 42k - 45k deposit!

This is just one of the risks with OTP. It has happened to people before and it will happen again. Whether it will happen this time - onlly time will tell - but I don't think so.

The ending of the FHOG will bring the prices down.

Probably not

I am gathering most developers will not agree to the contract as subject to finance/valuation of the property from the bank - which does not happen till 3 months before the project completion.

Definitely not

AND then get a house in the west in areas such as Pendle Hill/Wentworthville/Toongabbie/Seven Hills, where there is high rental yields/has tenants and a big enough land for future growth and construction prospects. The rent would assist with the repayments and the land overtime will grown in value - given where we buy.

That whole Pendle Hill/Wentworthville/Toongabbie/Seven Hills is in high demand from the Indian population......and more and more are moving in every week. These areas has shown some huge capital growth recently and rents have gone thru the roof. Good luck trying to buy in there at the moment - good listings last a few hours only. You will need to work hard.

But as a strategy - fine you should not go wrong here.

 

[MsAli]

Thanks for your answer Propertyunity .

Still considering our options. Given I have serviceability of upto 420k, I am considering off the plan 2 bed room apartments in Homebush West. There are a few developments happening there. They are asking between 395k and 415k. I am caught by surprise as 2 bedroom units in Wentworthville and Westmead are around 429k. I have a feeling signing a contract for a 2 bedroom apartment for 400k or so in Homebush West is much more safer than signing a 420k contract in Westmead. What do you think?

 

[Propertunity]

I am considering off the plan 2 bed room apartments in Homebush West. There are a few developments happening there. They are asking between 395k and 415k. I am caught by surprise as 2 bedroom units in Wentworthville and Westmead are around 429k.

There is a reason that units in Wentworthville and Westmead are more expensive - and it relates to supply and demand. Much lower supply in Wentworthville and Westmead and much higher demand. Homebush is awash with units and more still coming on line.

I have a feeling signing a contract for a 2 bedroom apartment for 400k or so in Homebush West is much more safer than signing a 420k contract in Westmead. What do you think?

What do you mean by "safer"?

 

[MsAli]

By safer I mean, there is a bigger chance of the bank valuing a property to 400k in Homebush West as opposed to Westmead/Wentworthville. However I saw some today in Homebush West. The agent showed us 1 bedroom and 1 study one - which were listed for 340k online - however he was trying to lure us into believing it was 2 bedrooms and asking for 398k at least. Anyway, those were like pigeon holes with no sun light. It was quite unsafe to go on the site as it was still under construction, but we managed.

I saw these off the plan townhouses - 4 bedrooms, 1km from Blacktown station, double story, single garage, 2 extra car spaces etc. The agent showed me two contracts that were signed off for 425k. They told us we need to sign asap as these are selling fast. The one we liked was free standing. But honestly, stepping into the property market, I'd rather spend a bit less than that, be comfortable with the size of the mortgage and probably prefer getting a 2 bedroom unit/townhouse in Pendle Hill or Toongabbie, near the train station for around 350k - 380k. The mortgage would be small, easier to find tenants and it will give me a bit more freedom to invest further. Not much time left, but I hope I can get this sorted soon.

 

[Propertunity]

By safer I mean, there is a bigger chance of the bank valuing a property to 400k in Homebush West as opposed to Westmead/Wentworthville.

I understand the emotional POV of wanting a valuer to agree with your purchase price if you want the property etc. But really, valuers will put a figure on it according to their opinion of the value. There is no need to fear this. An under val could help you renegotiate the price lower (or not, in this present market)

It was quite unsafe to go on the site as it was still under construction, but we managed.

Again I understand the need BUT this is a developer's worse insurance nightmare scenario

I'd rather spend a bit less than that, be comfortable with the size of the mortgage and probably prefer getting a 2 bedroom unit/townhouse in Pendle Hill or Toongabbie, near the train station for around 350k - 380k. The mortgage would be small, easier to find tenants and it will give me a bit more freedom to invest further.

Go with this - I'd agree

Not much time left, but I hope I can get this sorted soon.

Well nothing like leaving your run until the last 2 weeks - you like living dangerously

 

[MsAli]

Good news! The value for the first unit we chose in Pendle Hill apparently came on the dot and now we are waiting for the unconditional approval before we exchange contracts mid coming week !

As for the second place, we decided to check my servicability again - seems like I must not borrow over 380k (including 10% deposit). I could potentially find off the plan 2 bedroom units in Westmead which will be built in a years time for 375k. But there is a risk with these and I don't want to commit to such a property as a first property. Also don't want to get into Bank Bond etc which cost around $1500. Lastly, Its hard to say much when we don't have something tangible to see whether we like size of the rooms etc.

So I am considering a new 2 bedroom unit in Blacktown - 12 min walk from the station. Those are listed for 285k or so. A few people my broker dealt with has bought those and the valuations have come back fine. That would meen I'd hardly put in 5k from the pocket besides the FHOG. I can rent it out in 6 months time.

Someone warned me to not go near Blacktown as its a "dead" suburb. I don't have any plans to sell the property for at least 5/7/10 years. So do you think it's going to be worth it? At the end of the day it will be an asset, being paid mainly off by the tennats.

Looking forward to your view ! Thanks!

 

[Propertunity]

Good news! The value for the first unit we chose in Pendle Hill apparently came on the dot and now we are waiting for the unconditional approval before we exchange contracts mid coming week !

Congratulations.
Just bear this in mind though (I had to explain this to a client of mine just last week as well). If you are buying say for $420K and a vlauer values at $420K that means one of two things - either he agrees it is worth $420K or he thought it was worth more, say $435K, but if this was the case, he'd still value it at the purchase price. (in most instances)

Someone warned me to not go near Blacktown as its a "dead" suburb.

Who is the someone?
Blacktown is fine for IP purposes, it has changed a lot in the last 10 - 15 years. The worst year ever for units was 1995 with -8.9% growth. The best year 2001 with +25.9% and it has grown in 2009 also.

I don't have any plans to sell the property for at least 5/7/10 years. So do you think it's going to be worth it?

Probably. 5/7/10 year time horizon is always good for RE

At the end of the day it will be an asset, being paid mainly off by the tennats.

Even better

 

[MsAli]

Thanks Alan . I didn't go for that unit - was just double minded about Blacktown.

I saw this new unit in Westmead and absolutely loved it. It was overlooking a reserve - all green view from the balcony! The location is superb. The expected return is $400 per week on a 2 bedroom unit. We are getting a good deal as the developer is the same guy who developed the Pendle Hill unit we are getting. However, the strata for this Westmead development is $750 per quarter! The building has lifts, and we chose a unit on the ground floor - even then it is this high!

A lesson we learnt with the Pendle Hill property is that never trust the agent's strata figures as he quoted $300 for that unit and it turned out to be an estimate of $568 once I spoke with the strata manager. But anyway, $568 is still much better than paying $750 a quarter. I really like the Westmead unit but I don't think I want to pay that much strata when I will be renting it out anyway. I have requested the agent to find out what units are available in the block and what their strata is so I can see if I really want to buy there.

What are your thoughts?

 

[Propertunity]

Sorry I did not see this post - but I have replied to your PM.
Cheers,
Alan