OTP buying - Fortitude Valley -2016 completion

Discussion in 'The Buying/Selling Process' started by Poe, 11th Nov, 2014.

  1. Poe

    Poe Member

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    Hello All,

    I am close to signing up for an off the plan apartment in one of the multi-storey building being constructed in Fortitude Valley with my SO. This would be my first IP for an approximately $530K property to be setled in 2016 with a 10% deposit now.

    This is being done with a property group who believes we can get at least 5 properties in 5 years with our current income, paying interest only and using equity of the IPs to purchase the next one(s). Later on, to sell one of the IPs to pay off the others.

    In case I am in way over my head and a bit too trusting, are you able to see any flaws with the plan this property group are going with? I will be meeting with them soon and do not want to sign anything I will regret later.

    The initial property appears to be in good flood-free locations and has generated a lot of good press, so it does look to be a good investment.
     
  2. Richard Feynman

    Richard Feynman Mortgage Broker

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    Run. It's a trap.
     
    Last edited: 11th Nov, 2014
  3. Poe

    Poe Member

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    Any particular reason? The company, Ironfish doesn't seem to have a bad rep from what I could search. I guess my main concern would be paying too much and/or not getting a good return/equity growth as expected.

     
  4. belvoir

    belvoir Member

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    Who is the property group?

    Ask yourself how much deposit/equity do you need for the next purchase. Then ask yourself how much does that $530k property need to grow to achieve that next purchase?

    Run the numbers.
     
  5. Poe

    Poe Member

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    That would be IronFish


    Thanks, that's a good question. I'll ask when I see them next.
     
  6. belvoir

    belvoir Member

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    Also, ask the mortgage broker/solicitor who introduced you to iron fish how much they stand to make on the sale. Watch their face expression. Usually its a big clip circa 1%-2%. If so, tell them thats fine but would they throw you a couple of grand your way .

    Iron Fish are known for sourcing their investors from China to help developers sell their stock. The problem with this is that you are going to be buying into a building that is going to be full of investors. However, that is quiet normal for the Brisbane market.

    I hope at the $530k price point your are getting at a minimum a 2 bed 2 bath 1 car 80sqm unit. Make sure that it is full turn key, blinds, dryer, air con etc...
     
  7. Poe

    Poe Member

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    They approached me directly (met them in an investment expo from some months back), so I met them in office rather than in a seminar environment.

    Yes, I was thinking of this as well when I first heard about this - they ore-empted me though by letting me know that only a certain percentage was for investors as the rest for owner-occupied.

    Thanks again, I'll make sure I get this info as well.
     
  8. S.T

    S.T Member

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    Why don't you read up on these forums, take your 10% and go buy a better value, existing property soon, instead of waiting the 2+ years for this one to settle + get equity in it.

    I'm always suspicious of investment companies with these type of plans that only want you to buy NEW OTP properties. Makes me believe there is a nice fat commission in it for them from the developer of the property.
     
  9. RPI

    RPI Member

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    There are some great developments in the valley and some ordinary ones too. There is nothing wrong with OTP if you know what you are doing. Asking about percentage of investor to PPOR would be a great starting question.

    How many units in the development? Is your unit the same a hundred others, think about the vacancy rate when they all come on the market together.

    Just a couple of the many considerations you need to look at.
     
  10. JDM

    JDM Property Lawyer

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    Which development in the Fortitude Valley are you looking at?

    My view is that the Brisbane market is on the rise and as such, buying OTP is not a bad move at the moment assuming you are paying fair market value.

    As mentioned by RPI, finding the first tenant can be difficult following registration of the development. I would consider requesting a rental guarantee from the developer to mitigate this risk.
     
  11. JDM

    JDM Property Lawyer

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    Simple answer is because there are no holding costs for the 2+ years yet you still get the benefit of the capital growth.
     
  12. S.T

    S.T Member

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    That's IF you get capital growth from this OTP purchase. Personally, I'd rather put that $53k to use now to find a better property.
     
  13. Benvolio

    Benvolio Member

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    get some land with that sort of deposit
     
  14. JDM

    JDM Property Lawyer

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    Exactly the same if as buying an established property. What would you prefer, two years of holding costs and no CG (ie established property with no growth) or no holding costs and no CG (ie OTP purchase with no growth)?

    What makes a 'better' property? Why is OTP inferior?

    Why? Units have out performed house and land in many parts of Brisbane for the last few years.
     
  15. S.T

    S.T Member

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    or c) house, with land that's good potential for CG and is slightly positive in 'holding' costs. Plenty of people on here do that today, just takes some research.
     
  16. LeoT

    LeoT Member

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    POE run for your life.
     
  17. JDM

    JDM Property Lawyer

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    So a cashflow positive house for $530k in Brisbane with good potential for CG? Sign me up.

    Whether to buy house and land or a unit is another topic and not the point I was making. My point relates to OTP unit vs established unit.
     
  18. JDM

    JDM Property Lawyer

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    Why? I'm curious to know your reasoning.
     
  19. LeoT

    LeoT Member

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    This is a no brainer. This makes sense what simtr is saying.

    Forget about a unit that's in a complex with hundreds of other units. There is a million reasons why its increased, unnecessary risk and will most likely make a poor investment choice. And if you don't know the reasons... then your just gambling with this decision.
     
  20. Redwood

    Redwood Member

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    Hi Poe,

    $530k in Brissie - wow! no thanks.

    Generally in Melb I use a value calculator of $8k per sqm as guidance for inner city apartments - how many sqm is this?

    I know many developments are going up in the area and know most of the developers as their main targets are my client base which is chinese and SMSF investors and the OTP mkt in brissie is following the same trend as Melbourne with significant bulk purchases by the Chinese. This raises concern for valuation down the track. Personally I see this area with a high commission model - perhaps the property promoter will disclose their commission - generally the higher the commission the more of a concern you have with value.

    Sit back - relax and do your due diligence. If you do buy off the plan, please independently verify the rental estimates if if there is a rental guarantee - then ask more questions.

    Personally I find inner city brisbane overrated in the apartment market and you can find better opportunities around brisbane if that is your preference.

    Cheers, Ivan