Hi Roger,
From your post 19 you pointed out some strong reasons to be cautious about buying into the Canberra market at this time and in this way (using lease options).
You will have "out of pocket expenses" to the tune of "approx $250" per week.
"There are a large amount of units coming onto the Canberra market over the next 2-3 years." Possibly creating an oversupply.
"Growth will be minimal."
"The experts predict unit/apartment prices to fall and this will probably have a flow on effect through to townhouses and houses."
"Rent may fall as vacancy increases."
Roger, although you haven't mentioned it, I am guessing that the vendor is a developer who is trying to flog his remaining properties in a market where all buyers with normal deposits have already bought their property in the usual way and what is left are buyers who would still like to buy property but don't have the deposit to get a first mortgage. It is common for developers who have mistimed the cycle to market their properties using lease options to cover their existing loans. Notice how they still protect their profit by selling at market value, though.
Sorry, but I cannot recommend you buy any properties in Canberra at this time using lease options. It is pure speculation what growth, if any, will occur in the next 3 years. The only time to take risks with investments of any kind is in a rising market. Naturally, a vendor who is desperate to sell is going to say, "No way it won't be worth $450,000 in 5 years."
To my mind, a better alternative is to find a property in a growth area at a price which a wrapper will be happy to take on and ask a wrapper to wrap or lease option it to you. You won't be as heavily geared so the downside risk is less and in a growth area you will certainly be able to refinance inside 5 years.
Regards, Mike
From your post 19 you pointed out some strong reasons to be cautious about buying into the Canberra market at this time and in this way (using lease options).
You will have "out of pocket expenses" to the tune of "approx $250" per week.
"There are a large amount of units coming onto the Canberra market over the next 2-3 years." Possibly creating an oversupply.
"Growth will be minimal."
"The experts predict unit/apartment prices to fall and this will probably have a flow on effect through to townhouses and houses."
"Rent may fall as vacancy increases."
Roger, although you haven't mentioned it, I am guessing that the vendor is a developer who is trying to flog his remaining properties in a market where all buyers with normal deposits have already bought their property in the usual way and what is left are buyers who would still like to buy property but don't have the deposit to get a first mortgage. It is common for developers who have mistimed the cycle to market their properties using lease options to cover their existing loans. Notice how they still protect their profit by selling at market value, though.
Sorry, but I cannot recommend you buy any properties in Canberra at this time using lease options. It is pure speculation what growth, if any, will occur in the next 3 years. The only time to take risks with investments of any kind is in a rising market. Naturally, a vendor who is desperate to sell is going to say, "No way it won't be worth $450,000 in 5 years."
To my mind, a better alternative is to find a property in a growth area at a price which a wrapper will be happy to take on and ask a wrapper to wrap or lease option it to you. You won't be as heavily geared so the downside risk is less and in a growth area you will certainly be able to refinance inside 5 years.
Regards, Mike
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