OTP advertising
- Thread starter woztrac
- Start date
And it is their valuation not one the developer/builder made.
- outgoings - rates, body corp
- exclusions - window furnishings etc?
- warranty process (if building/fittings faulty)
Will you be going there to check when complete? There's often a lot to fix and stuff missing once its claimed to be completed.
The Y-man
To make you feel better that you are not being ripped off.
That's fine and valid.
As others have said - NO.
If there is a property crash in 24 months, your unit could be worth a lot less. Then you need to come up with a lot of cash to settle.
The Y-man
I was asking if i need anything else at this stage. I'm assuming they have to provide it as i said to compare others in the area. (large independent valuer)
If my funds are available now sitting in an account will the bank change that based on a valuation again just before settlement?
Not quite sure I understand this?
Let's say the current val is at $650k, and this is what you sign the purchase contract for.
If you need a loan (not an issue if you have cash to pay the whole thing off), the bank will revalue it when complete.
Let's say there was a bit of a price drop due to a recession or something, and the 2nd valuation comes in at $500k.
The bank might lend you 80% of $500k (i.e. $400k) and you will need to come up with $250k cash ("deposit") to settle.
If you had already paid 10% deposit ($65k) when signing, you will need and additional $185k in this example, or you will get sued.
The Y-man
EDITED - Thanks Will!!
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As per my usual advice - triple any amount they tell you (to be on safe side).
The Y-man
Bank will not commit to any valuation that's not even there yet.
bank will value the property with an independent evaluator once your apartment is completed. And as other said, if market crash and valuation come short, you have to top it up.
For example if you purchase this OTP for 500k, and you put on 10%. And in 2 years time if market crash when your apartment completed the bank might valued it for 400k.
So it mean to settle your property you need to come up with another 100k on top of your initial deposit.
That's the risk. The reward if the price increase in 2 years to say 600, then during settlement your initial deposit will be more than enough to cover the 20%, meaning no LMI, and if you set an offset account you'll have instant equity available to be used.
So really it's all up 2 you, if you've studied the area well enough and you're confidence that the area is in rising trend, I don't see any reason why you should be scared.
Otp also can give you strong cash flow as the depreciation is generally very large in the first 5-10 years.
bank will value the property with an independent evaluator once your apartment is completed. And as other said, if market crash and valuation come short, you have to top it up.
For example if you purchase this OTP for 500k, and you put on 10%. And in 2 years time if market crash when your apartment completed the bank might valued it for 400k.
So it mean to settle your property you need to come up with another 100k on top of your initial deposit.
That's the risk. The reward if the price increase in 2 years to say 600, then during settlement your initial deposit will be more than enough to cover the 20%, meaning no LMI, and if you set an offset account you'll have instant equity available to be used.
So really it's all up 2 you, if you've studied the area well enough and you're confidence that the area is in rising trend, I don't see any reason why you should be scared.
Otp also can give you strong cash flow as the depreciation is generally very large in the first 5-10 years.
However if you signed a contract at 650k with the builder and needing to borrow 80% of this you will have some real problems.
PP 650k
Val on complete 500k (400k loan 80% LVR) - means 100k needed
Meaning your loan will be 400k on your purchase of 650k so you will need 250k in cash to purchase the property OR walk away from your 65k initial deposit (10% of PP).
But
If market booms and the place is worth 900k stats are
PP 650k
Loan 520k (will only lend 80% off PP or val whichever is lower)
Your $$ - 130k
Equity - $250k (roughly double your total deposit)
In most cases you can't walk away either - you are forced to settle due to unconditional contract. So you may need to sell other assets, etc.
The Y-man
Oops!! Ofcourse you are right - mucked up my numbersThanks Will.
The Y-man
I knew you knew but thought I would spell it out a bit clearer
No bank approval will last 18-24 months.
Why do they provide it? It worked on you, didn't it?
I've never seen any OTP provide strong cash flows....the depreciation is also based on how much income you are on, if you are on ordinary income, the depreciation won't do much I suppose.
Plus the strata fees will usually kill all your cash flows anyways, I've never met a single person that have no issues with their OTP once settled.
Usually strata for the first year is $900/Q and all in a sudden jump to $2k/Q because there were cracks in the piping or leaking etc and the sinking fund account is always empty
and after 2 years the basement auto garage door will start having issues and the lift constantly out of service.....
Also keep in mind the agents usually tell you the reason why these OTP are more expensive than the existing ones are because they are brand new and it reflex the value in the future.
Which they are absolutely true, so what happens when you paid $100k more than the current units?
for example:
* current unit = $500k
* OTP unit = $600k
after two years......
* OTP units settled at $600k
* current unit re-val back at $580k
so....
OTP buyers helped push the economy and helped the existing owners to raise equities
And don't believe the BS that the brand new units can rent more, think about supply and demand........ I've seen OTP owners desperate to find renters and offer all sorts of incentives because they need a tenant to settle their loan otherwise they fail serviceability!!!
Which they are absolutely true, so what happens when you paid $100k more than the current units?
for example:
* current unit = $500k
* OTP unit = $600k
after two years......
* OTP units settled at $600k
* current unit re-val back at $580k
so....
OTP buyers helped push the economy and helped the existing owners to raise equities
And don't believe the BS that the brand new units can rent more, think about supply and demand........ I've seen OTP owners desperate to find renters and offer all sorts of incentives because they need a tenant to settle their loan otherwise they fail serviceability!!!
I've never seen any OTP provide strong cash flows....the depreciation is also based on how much income you are on, if you are on ordinary income, the depreciation won't do much I suppose.
Plus the strata fees will usually kill all your cash flows anyways, I've never met a single person that have no issues with their OTP once settled.
Usually strata for the first year is $900/Q and all in a sudden jump to $2k/Q because there were cracks in the piping or leaking etc and the sinking fund account is always empty
and after 2 years the basement auto garage door will start having issues and the lift constantly out of service.....
Well generally Newer units can give you 15-20k depreciation in first 3-5 years time. If you earned 80k+ that's 37% of the 15-20k and that's equates to 5.5-7k from the depreciation alone.
I bought my first unit a while back when they're 3 years old. Strata is 650, and it has only increased to 695 (in 5 years). It has lift, but no pool/Gym. Never had any issue (i could be lucky).
I have never seen 2 bed apartment with 2000/per strata quarter without pool/Gym
Also keep in mind the agents usually tell you the reason why these OTP are more expensive than the existing ones are because they are brand new and it reflex the value in the future.
Which they are absolutely true, so what happens when you paid $100k more than the current units?
for example:
* current unit = $500k
* OTP unit = $600k
after two years......
* OTP units settled at $600k
* current unit re-val back at $580k
so....
OTP buyers helped push the economy and helped the existing owners to raise equities
And don't believe the BS that the brand new units can rent more, think about supply and demand........ I've seen OTP owners desperate to find renters and offer all sorts of incentives because they need a tenant to settle their loan otherwise they fail serviceability!!!
Nope I disagree with the rent section... In the area that I've been looking through...
An established 2 bed unit (roughly 30 years old) renovated in Lane cove cost around 500 dollars per week to rent.
And all the newly completed OTP has been leased from 700-800 per week.
Similar in the area that I lived at the moment (Westmead):
For an old unit un-renovated is leased for around 400 per week,
and for old renovated unit is around 440 per week,
and the newly established unit (3-5 years) is rented for 480-500
Are you sure they actually leased out at that amount but not referring to the asking price? because generally they are all negotiable...
And when you look at Rhodes....... oh dear Rhodes................
I've had friends that bought Rhodes OTP vacant for a month...they need to reduce their rent to meet the current 2nd hand unit rent to get tenants.... and my other friend even offer 1 week free rent...... all bought in Rhodes/Wentworth Point.......
45k in 5 years is a very poor CG, I would expect in 5 years you should be at least 800k value not 695k. Which makes me think they over valued the apartment when you bought OTP
I bought established for 500k about 3 years ago and would be about low to mid 600s (620-650k) is my guess but would def be worth more than 600k due to one selling across the road unrenovated and 1 less bedroom.
