OP in Wollongong

[floodster]

Hi Guys, just joined the forum and am really enjoying the read. My wife and I are looking at purchasing an OP large unit/apartment in the Wollongong CBD. The development has not started yet and is proposed for completion mid 2017.

I'm a bit nervous about the purchase, just wanted your thoughts on OP's and more particularly the Wollongong CBD.

Floodster

 

[DaveM]

A lot can happen in 2.5-3 years.

Market rises, developer calls in the "signficant variation" clause and wont sell as they can get more money now.

Market falls and you are committed to what may have significant negative equity, low valuation and having to put in much more cash deposit

 

[knightm]

Foodster as Dave said there is a whole conversation about off the plan. This is a separate conversation to the one about Wollongong.

 

[Jamie M]

Hi Floodster

Welcome aboard.

If you do a search on "off the plan" or "OTP" you'll find heaps of info regarding the pros/cons of this approach. There's quite a lot to consider.

The single biggest issue in my opinion is the inability to arrange formal finance approval until it's actually built. This means that if you can't arrange finance in 2017 for whatever reason - then you will lose your deposit (and sometimes more).

If the valuation comes in lower than purchase price (which can happen) - that can cause a bit of grief too. Especially if you've got a small deposit.

Cheers

Jamie

 

[knightm]

Hi Floodster

... if you can't arrange finance in 2017 for whatever reason - then you will lose your deposit (and sometimes more).

Mmmm. An alternative if you are thinking about W'gong would be an established property. Much lower risk in many regards, there is established capital benchmark, a good amount of comparable sales and you know where you stand. Wollongong is well worth considering due to its location, infrastructure and point in the market cycle.

I think you actually need your finance sorted prior to any investing decisions. The brokers on this forum are some of the best in the country. Jamie M is one of a select few I would recommend as he can help you consider the big picture, your investing goals, any structuring issues, and THEN move onto specific properties. Once you are ready to move a good broker will also get you the best loan product for you.

You are in the right place, keep reading and researching, and you will make more informed choices than 99% of investors who use the blindfolded dartboard method. Best of luck!

 

[S1mon]

im a fan of apartments in the gong cbd. my mum lives in a 3 beddy in market street i think it is. body corp isnt the cheapest but great place to live. its on the free bus route, 3 or 4 mins walk to city beach. same to the shops and win stadium. I havent seen them yet but i assume the new target and coles and the renovated city walk bit etc make it a lot better. It was always lacking a target type store. i love taking my kayak out of belmore basin there and and dropping a line.

As for an investment...not sure. whats the population growth like? from memory the illawarra population growth sounded pretty good, mostly predicted in the city in high density and west dapto. Theres been a lot of apartments built over the years but market seems to soak up the supply without too much trouble. I think vacancy rates are pretty good/low? being on the free bus route certainly helps given it goes past the uni (i only loosely watch the market to see how much i will inherit one day )

 

[danwatto]

Hi Guys, just joined the forum and am really enjoying the read. My wife and I are looking at purchasing an OP large unit/apartment in the Wollongong CBD. The development has not started yet and is proposed for completion mid 2017.

I'm a bit nervous about the purchase, just wanted your thoughts on OP's and more particularly the Wollongong CBD.

Floodster

If it's your first or second IP, I would be seriously questioning your reasons, ask yourself why you want off the plan. Are the small advantages worth the huge list of disadvantages?

OTP is for experienced investors who are very sure of their strategy, and very careful. For every good OTP investment there are many more bad ones so it's easy to get burnt. Same with the additional risks that come with it (market risk, financing risk, contract risk, lost opportunities etc)

 

[Redom]

Hi Guys, just joined the forum and am really enjoying the read. My wife and I are looking at purchasing an OP large unit/apartment in the Wollongong CBD. The development has not started yet and is proposed for completion mid 2017.

I'm a bit nervous about the purchase, just wanted your thoughts on OP's and more particularly the Wollongong CBD.

Floodster

Heya,

Wollongong's experienced a fair bit of growth, so you may be purchasing near the top of the cycle. Combine this with an OTP transaction and it may be a reasonably risky deal.

There's a lot of info on OTP on the forums - lots of it is negative to be honest. Some of the very successful investors on the forums will tell you to run in the other direction. Although, if employed well, it can also be a very powerful way of 'getting into the market' and experiencing growth without much money down.

Also, as Jamie pointed out, i'd get my information right on OTP financing before proceeding. There are financing risks associated with purchasing now and financing in 2 years+ time. You'll need to ask yourself where you and your wife will be in 2 years time, and whether it will cause any issues with potential financing.

Cheers,
Redom

 

[floodster]

Thanks everyone for your responses. This will be our fourth IP, and in this case a totally different strategy to what my wife and I are used to. Our usual strategy is to buy renovate and hold which has worked well for us. Our change in strategy has come due my connections to the developer through my employment.

The reason for our interest in this project is that the particular unit is a 3 bed plus study in the centre of the CBD, with 121 internal Sqm of living space. The unit is unique in that there is only 20 in the complex. So my thoughts are to purchase with a deposit bond hold until all of these particular units are sold and flip prior to stamp duty in 12 months. Can anyone explain the implications of this scenario in further detail.

Thanks all for your interest in my post.

 

[danwatto]

Why will it be worth more after 12 months? Are you buying below market value?

 

[DaveM]

Our change in strategy has come due my connections to the developer through my employment.

Alarm bells starting to ring.. unless they need presales to get finance why would a developer sell to you cheap?

The reason for our interest in this project is that the particular unit is a 3 bed plus study in the centre of the CBD, with 121 internal Sqm of living space. The unit is unique in that there is only 20 in the complex.

If there are 20 in the complex then it is not unique.

So my thoughts are to purchase with a deposit bond hold until all of these particular units are sold and flip prior to stamp duty in 12 months. Can anyone explain the implications of this scenario in further detail.

If you cant flip it, or value drops, you have to settle. Lets say you buy it for $700k and antcipate putting in $700 for deposit bond to hold. You cant flip it, bank val comes in at 650k with 90% lend, do you have $115,000 + stamps to settle with? Or worse they will only lend at 80% because the market is slow, you will need $180,000 + stamps to complete.

 

[belvoir]

What Dave said about valuations is true but this 'significant' variations clause is a bit of ********.

 

[JKWS.]

Floodster Wollonong is a great place to invest, the market is just slow of Sydney and it leaves for a few decent opportunities. It's also going through great change, only a few years back the council was riddled with corruption and it drove allot of developers away with inquiries. This pushed prices up and now the area is just catching up- still in a rising market. It's also not got a great deal of land suitable for development sprawl withing Wollongong itself.
Although I don't know your circumstances I would suggest what a few people have already said- buy something that you can add value too.

Only warning; Mirvac (I think) have bought up hundreds and hundreds of acares just south for housing lot developments similar to what you see in Shellcove. It's been quite hush hush so I don't know much more.

 

[S1mon]

will you get the 20k+ or whatever the selling agent would have otherwise got, if you are dealing direct with the developer?

 

[knightm]

As per above comments OP is a different set of risks. Understand them before committing. If you know the developer and can get a genuine discount (perhaps he/she wants the early pre sales for bank finance etc) then it might be worth it, but plenty of people get screwed in these situations.

Existing property (whether its 5 yrs or 50 yrs old) is often lower and more measurable risk.

 

[floodster]

Thanks everyone for your replies. Had a lot of thought about it and have declined the purchase. Your responses have confirmed my hesitations thanks very much.
Floodster

 

[knightm]

Floodster did you end up purchasing anything else?