"Opinions on the Green Square area in Alexandria,"

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From: Hayley Melidonis


Hi,
I am a very new investor (28, single), and I have been introduced to a property company by a friend. This company is recommending that I buy a final unit for sale in the Linc complex (Australand) in Green Square, Alexandria- the price is $326,500 off the plan, due for completion Dec 2003, and it is without parking, area around 60m2 including balcony.
My question is - am i paying the right amount for it, and does anyone know what the supply/demand predictions for this area are that will affect rental yield?
Thanks,
 
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Reply: 1
From: Nigel W


Welcome to the exciting world of property investing.

It can be both beneficial and detrimental to your wealth.

I tend to think its better to read a few books and do a bit of research before you jump in and buy.

Also, ask yourself who (apart from the vendor and a real estate agent) is making money when you buy? If there's someone else eg a "property company" then it raises my antennae that the price is likely to be inflated - after all, each middleman/marketer/referrer wants some money to stick to their hands...

From your question, I doubt you've done enough homework...that's not a criticism - you just don't know your chosen area of investment well enough I suspect. 300+ is a lot of money...you need to think VERY carefully.

60m2 unit is not tiny but not exactly large...also no carpark is a major detractor and should reduce that price by about 50-60K I think...

Also, new units always include a margin for developers profit... if it's the last unit they should be giving you a hefty discount to get it off their hands and tidy up their books!

Remember too that developers usually discount some units off the plan to get a certain pre-committment level so they can get their finance to build...so if it's the last unit you'll be paying for them to have achieved an average price of say 300K/unit (think about that a bit).

Also, have there been any resales in the building? usually you can't really tell the VALUE until new units have changed hands a couple of times...

what other developments are planned? will it be a nest of ugly units surrounding a la pyrmont in syd or docklands melbourne?

aslo there is a view which many hold that detached houses make better purchases from a cap growth angle (having said that I buy units and make a motza out of them...but that's another story)

which leads me to ask - what is your strategy for investment - what's your exit strategy - what do you want to achieve by buying this unit...

where are we in the property cycle at the moment? is sydney overpriced? what will happen with interest rates in the short-medium term. how will that effect a) property values? b) your ability to afford any purchase?

think on these things grasshopper...

(sorry - don't mean to be condescending...just would hate for you to make an ill-considered decision)

Good luck with it all
keep asking, keep reading, keep learning then do some doing.
 
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Reply: 2
From: Hayley Melidonis


Dear Nigel,
Thankyou very much for your really insightful feedback. You are right I think> I looked at the financial projectiosn provided, and they are highly dependent on the cap growth levels. My strategy is ala Jan Somers- acquiring a long term portfolio. I am being encouraged to buy this one b/c of high depreciation benefits, and b/c this development is actually one of the few priced ones that I can afford close into the city. Regarding future development, maybe I will buy the residex report. My father is going to advise me also. According to other properties in the area it looks good, but according to existing property it doesn't.
I will take your points up with the developer.
THankyou for taking the time to respond- Question: If you had a daughter my age,what would you recommend she do?
 
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Reply: 2.1
From: Jeremy Laws


Seriously do NOT buy anything off the plan. Look at Surry Hills/Redfern/Ermington instead. Ermington probably way better. If you MUST have something newish, buy something that someone else has lost money on already, like a city unit.
 
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Reply: 2.2
From: Nigel W


On 7/18/02 5:33:00 PM, Hayley Melidonis wrote:
>Question: If you
>had a daughter my age,what
>would you recommend she do?

I'd be selling the rights to the story to trashy magazines and doing the talk show circuit. I'm 28 as well ;^)

Thanks for that - it gave me a good laugh!

My gut response to the "spirit" of your question is this: don't invest for tax benefits! they are the icing on the cake.
 
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Reply: 2.3
From: Nigel W


ps. sometimes the hardest thing to do is to do nothing.

(something everyone wrestles with in a hot market. Don't go into a marginal deal just because you're impatient and sick of looking for one that meets your criteria. (assuming you know what those are!)
 
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Reply: 3
From: Rolf Latham


Hi Haley

I notice you work for a great relativeley newby on the block in the telco business.(assumptions :eek:)

Virgin Mobile is a going proposition because it has something different to offer. Even though it resells air-time (another assumption) it is packaged in a unique way which allows it good market share.

Using that analogy,if keen to invest in units (read bugger all land content) then ask yourself why someone would pay X for your unit in 10 years time. If you can satisfy your question with things like, there isnt many units in this area, or it has water views or has close proximity to transport etc, then you may wish to revevaluate the offer.

Australand developments are better than run of the mill from my clients experiences.

Ta

Rolf
 
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Reply: 3.1
From: Tibor Bode


Haley,

I have recently made some posting on Caveat Emptor in relation to my experiences (and the result of being turned off the property market for a couple of years). Apart from the very valid points the others made, I also add another 2 points
Think also about what if you have to sell suddenly within 2 to 3 years (it could could happen to anyone) and the cap gain did not realise? You lost real money every week (most likely it is heavily negatively geared)
and now the lack of promised cap gain can make you really miserable. Why don't you ask the sales person that if they are so sure about the cap gain, are they willing to put the cap gain money into a trust account (and make it a part of the contract), so if it does not realise as per their projection, you can get compensated. Then watch their face! It will be a really interesting experience.
As I think that the property is negatively geared and it cost you ONLY X dollars a week NET taking into consideration the tax benefits (basically you will loose money, but it can be OK), so what if you don't a have job or earn only a small amount? The tax benefits greatly or totally gone (no income to be negatively geared against), but the expense is still there! Whats then?
These points are constantly missed out by everyone in the negative geared property promotion business.

Tibor
 
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Reply: 3.1.1
From: Glenn Mott


Hayley,

Tibor makes a very valid point about owning property that is self-supporting and the risks associated with losing your job.

3 years ago, I moved from Perth to Sydney to chase a girl I had fallen in love with. I packed up my unit, leased it out and advised the tenants of the 2 other properties that I was moving to Sydney but that I would still be managing the properties myself.

After paying all expenses, all 3 returned me about $150 per week before tax benefits.

3 years down the track, I am working in a job I absolutely love, have a few grand in school fees owing, married for a couple of years and wife 3 months pregnant. All is grand.

The job that I absolutely loved was with a company called OneTel. So here we are, a long way from home, I have no job, wife is pregnant and just about to finish work, school will not allow me to graduate until all fees are paid and we pay landlord $250 per week in rent where we are staying. Just to make matters more challenging, the September 11 attacks occur, HIH goes broke, Ansett shows signs of going broke, a federal election is on the way, Christmas is looming and IT spending & employment stops.

Even though the capital value of the properties was increasing, you can't eat capital gain unless you refinance....but who was going to refinance me without a job? What could I have done if the properties were negative on cashflow instead of positive? Borrowed from relatives, get a credit card (again, who would have given me one??), sell a property?? Cashflow saved me in a time of rapid change.


Glenn
 
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Reply: 3.1.1.1
From: Jerry Maguire


hi hayley,
welcome to the exciting world of property investing...
you must have a plan and a very good finance person like rolf that will work with you to achieve your road to wealth...
who's the company that recommend you to buy in that complex?
from the price of $326K & the area of 60m2 it must be a one bedder in that area, you need to get a parking in alex so expect to pay an extra $30K-$60K for parking.
i know that you are new to property investing and let me ask you a question hayley,
if you were to buy a new car do you ring around all the different car dealers and get the best price?
if yes, why not for property?
do the same for rental as well.
do your due-diligence hayley and you will last the distance in this industry.


Also, ask yourself who (apart from the vendor and a real estate agent) is making money when you buy? If there's someone else eg a "property company" then it raises my antennae that the price is likely to be inflated - after all, each middleman/marketer/referrer wants some money to stick to their hands...
60m2 unit is not tiny but not exactly large...also no carpark is a major detractor and should reduce that price by about 50-60K I think...


A:if hayley intend to keep the property for 3-5 yrs or more hayley don't have to worry about if she is paying the retail price. i bought properties OTP ( off the plan ) and sometimes you can't even get a discount at all but i'm keeping it for the long run so it doesn't worry me if i'm paying the retail prices today.

From your question, I doubt you've done enough homework...that's not a criticism - you just don't know your chosen area of investment well enough I suspect. 300+ is a lot of money...you need to think VERY carefully.

A: i agree with you totally on this one nigel

I am being encouraged to buy this one b/c of high depreciation benefits, and b/c this development is actually one of the few priced ones that I can afford close into the city.

A: don't rely just on the benefits

I will take your points up with the developer.

A: sorry about the french do u think they give a damm about your points and you are talking about australand here hayley and they are not your backyarders developers

Seriously do NOT buy anything off the plan. Look at Surry Hills/Redfern/Ermington instead.

A:why not??? what am i looking at here i'm a bit lost at what do you mean!!!???
i know as a fact that there is a project in surry hills and they are selling at $900K and up the place was a success and the whole project was gone in less than 60 days not seconds.

Ermington probably way better. If you MUST have something newish, buy something that someone else has lost money on already, like a city unit.

A: i'm still trying to work out why ermington is better than alexandria??? why do you want to buy a unit in the city for?

I notice you work for a great relativeley newby on the block in the telco business.(assumptions :eek:)

Virgin Mobile is a going proposition because it has something different to offer. Even though it resells air-time (another assumption) it is packaged in a unique way which allows it good market share.

Using that analogy,if keen to invest in units (read bugger all land content) then ask yourself why someone would pay X for your unit in 10 years time. If you can satisfy your question with things like, there isnt many units in this area, or it has water views or has close proximity to transport etc, then you may wish to revevaluate the offer.

A: i agree with you totally rolf.

Australand developments are better than run of the mill from my clients experiences.

A: thats why they cost a bit more than the others hayley

Think also about what if you have to sell suddenly within 2 to 3 years (it could could happen to anyone) and the cap gain did not realise? You lost real money every week (most likely it is heavily negatively geared)
and now the lack of promised cap gain can make you really miserable.

A: what if you pay $326K for it and the property price only goes up to only $380K-$400K the worst case scenario( $74K in 3 yrs at green square ) do u think is that possible at all if you done your due-diligence in the area which is highly unlikely.
if property price doubles every 7 to 10 yrs and you only have $74K capital growth in 3 yrs shall i say HOUSTON WE HAVE A PROBLEM.
i bought a few OTP in alex also known as green square now a few yrs ago for $210K now it is worth over $400K

Why don't you ask the sales person that if they are so sure about the cap gain, are they willing to put the cap gain money into a trust account (and make it a part of the contract), so if it does not realise as per their projection, you can get compensated. Then watch their face! It will be a really interesting experience.

A: it sure will be a experience but can you tell me who would do it in the first place?
you must have done it b4 yourself thats why you are suggesting it and the salesperson must have put it in writing for you, did they?

3 years ago, I moved from Perth to Sydney to chase a girl I had fallen in love with. I packed up my unit, leased it out and advised the tenants of the 2 other properties that I was moving to Sydney but that I would still be managing the properties myself.

After paying all expenses, all 3 returned me about $150 per week before tax benefits.

3 years down the track, I am working in a job I absolutely love, have a few grand in school fees owing, married for a couple of years and wife 3 months pregnant. All is grand.

A: i like your story did you have a plan when you decided to move down to sydney?

The job that I absolutely loved was with a company called OneTel. So here we are, a long way from home, I have no job, wife is pregnant and just about to finish work, school will not allow me to graduate until all fees are paid and we pay landlord $250 per week in rent where we are staying. Just to make matters more challenging, the September 11 attacks occur, HIH goes broke, Ansett shows signs of going broke, a federal election is on the way, Christmas is looming and IT spending & employment stops.

A: like they say SHIT HAPPENS
PEOPLE DON'T PLAN TO FAIL,
THEY JUST FAIL TO PLAN

Even though the capital value of the properties was increasing, you can't eat capital gain unless you refinance....but who was going to refinance me without a job? What could I have done if the properties were negative on cashflow instead of positive? Borrowed from relatives, get a credit card (again, who would have given me one??), sell a property?? Cashflow saved me in a time of rapid change.

A: have you talk to a finance broker like rolf to solve your problems glenn?
you say that your properties is going up in value and you can refinance very easily
there is a type of loan call LO-DOC that you don't need to provide any financials at all.
so hope that this would solve your financial difficulties glenn by have a chat with rolf.

the post above is just what i think as an opinion...
like one seminar presenter use to say opinion is just like an arsehole everyone got them...

good luck on your journey hayley
regards
jerry
 
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Reply: 4
From: Glenn Mott


Jerry,

We did manage to get by, I was unemployed for only a few hours and managed to complete the studies over the next couple of months, we flew home to Perth, and 6 weeks later I had a full time IT job. At the time, it was very upsetting and stressful on all involved, but it would have been a lot worse if my properties were taking cash from me rather than feeding me.

Glenn
 
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Reply: 4.1
From: Tibor Bode


Jerry,

Have you considered that you bought those OTP units a couple of years ago in a different timing of the cycle, not now.
You may do as much due diligence as you wish, you CAN NOT guarantee cap growth. You may say it is most likely will happen, but thats all to it. Or if I am wrong and you can guarantee it, are you willing to put up the money after trying to convince someone that 'its a sure bet'?
I doubt it, just like the developer / sales agent / promoter / whoever you wish will not do it. When I asked for it and after they got the picture and that I was serious, I got the usual bulldust. Past history does not guarantee future performance. It is just an OPINION even if it is an educated one.

My point is that for a non seasoned investor at this point in the cycle is it really wise to jump into a heavily -ve geared property while they relying on their income from their JOB(earned income), not on their passive income, in the hope that growth will take care of everything (even mistakes). Yes, over a long period of time it will, but during that period of time pray that you don't have a situation that you have to sell, otherwise you are stuffed, if the gain is not there.
Even for a seasoned investor it is worth to consider that if the expected / projected growth does not realise how much money they've lost. Just think of opportunity cost, total gain reduced due to high buying cost (buying at retail price) and lack of cap growth, etc.
It does not mean that Alexandria is either a good or bad investment. I don't know and quite frankly I don't care. It is not the issue.
The issue to supply a confident OPINION as a FACT. It is not and someone might just fall for it. When something goes wrong are you also willing to face the person and explain why your OPINION was not correct and they got into trouble relying on it?
Sorry mate, while I personally would not fall for it, someone else might will. It is nothing personal with you it is a general comment about providing responsible advice to other people, especially who are less experienced and will take the advice seriously. I know, they should have their own accountant, lawyer, etc to talk to, but lots of people just don't bother for one reason or another.

Just the 2c.

Tibor
 
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