OTP buying - Fortitude Valley -2016 completion

[Poe]

OK, feel like a tool here as I got the suburb wrong. Same details but the suburb is Newstead, not Fortitude valley.

I have checked and there is a rental guarantee and half the apartments will be PPOE.

From what I can make out, the median price for units in Newstead is already over $800K. So does this mean the $50K I am putting in as a deposit now with settlement in 2016 for the remainder mean there is a good chance I will be in the positive in terms of capital growth? It does seem a bit too good to be true but I can not find any cons right now.
I am going for a 2 bedroom apartment which appears to be the right type to get for that area.

 

[kamchatsky]

I can see in past sales at Newstead for 2 bedrooms for last 4 months, it ranges from 425K - 850K. So it depends on your unit itself. Sometimes sales of million dollar penthouses can skew the median price of units.

 

[Frankie]

Hi Poe,

I also talked with one of Ironfish rep before (around two years ago). She pushed me into buying one bedroom unit in Sydney and even to the extent that she wanted me to borrow money for deposit from my dad (I did not have enough deposit at that time since I already purchased a unit). From that point on, I just ran away and I am glad that I did not proceed with them. I know this may only apply to me but I think it won't hurt you to research the area first. Find the latest comparison of 2 bedroom unit at Newstead. 500k is a big purchase for Brisbane market. I think you could purchase a house with land with that amount of money somewhere 10-20 km from Brisbane CBD (please correct me if I am wrong). Good luck with your journey.

 

[S.T]

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.

You might want to clarify that you're talking only units then. I'm talking about better uses of the OP's deposit. I specifically mentioned 'property' in my post.

There are many threads on this forum where first time investors have been sucked in to buying OTP only to see their investing stunted for years to come. My original post was aimed at the OP looking around, doing some reading on these free forums and to look at better properties for that money.

 

[sumterrence]

Rental Guarantee hey ................ Ask them how much is strata first

From what I can gather OTP units in Brisbane, I'm glad that back in 2008/09 I didn't sign up for the lucrative so call 5 year rental guarantee, because I checked the units now and it's pretty much selling at the same price as back in 2008 when they proposed .

God bless my friends and family that stopped me buying otherwise I would not be able to be in the situation where I am now

Be very careful as they love to use massive depreciation table and rental guarantee to bait newbies into believing they are making the best decision ever in their life when you look at what they present to you, you almost can't believe how good it was and it's such a shame not to take the offer..........that is the time when you need a second thought.......

However, I could be wrong

 

[Poe]

Thanks, there have been a lot of good points raised.

I am trying to make sure I am not selling this to myself, while at the same time trying not to once again miss out on a potentially good deal. Basically, if the median price of apartments there is already over 700K, am I too hopeful in this apartment when time comes for settlement in 2 years to have gained a lot of equity by then.

No one has mentioned anything negative about the Newstead suburb yet. I think this is the development I am looking at : http://www.brisbanetimes.com.au/que...or-five-tower-development-20140723-zw64y.html

 

[JDM]

Newstead is a great suburb. You can be forgiven for getting the suburb wrong as the devleopment you have linked to is on the border of Newstead and Fortitude Valley.

I am far too closely linked to the developer through my professional life so I won't make any further comment on the particular project you are looking at.

 

[S.T]

Newstead is a great suburb. You can be forgiven for getting the suburb wrong as the devleopment you have linked to is on the border of Newstead and Fortitude Valley.

I am far too closely linked to the developer through my professional life so I won't make any further comment on the particular project you are looking at.

That explains it.

 

[danwatto]

Personally I hate OTP and I'll tell you some reasons why, then you can make up your own mind.

A big problem with OTP is, you see many people that sell them a few years later the sale price is less than they paid, or still the same as they paid - why: because the price was too high.

Often they have the capital gain priced into them, but that capital gain is not guaranteed.

OTP is not a beginner's strategy, it's for later when you're more experienced and can sniff out the bad deals. There's several reasons for this.

OTP the contract is written in favour of the developer, as opposed to a standard real estate institute contract for buying established.

OTP usually pays more commission and more marketing, so you're wasting more of your purchase price.

OTP you are signing up now for something you do not have unconditional finance approval for. No bank will give you an approval that lasts 2 years, in 2 years circumstances change:
-Valuation could go down
-Bank could place LVR restrictions on the area due to lots of developments
-Your income/salary could go down or your job change
-Family circumstances

You can't really buy other property while it's being constructed without risking your finance approval, without being very careful in the meantime. Whereas with established property you would buy one at a time until you can't buy anymore. With OTP you have to always be conscious of that settlement coming up and it really ties you down.

Some questions to ask:
-What is the median price in the area for units like this, are you buying ABOVE median price, if so it's possible you are paying too much, consider negotiating down or walking away. You will have trouble getting equity out because valuers are often reluctant to value above median unless for a very good reason.
-Are you paying a premium on top of what established units can be purchased for, not what they are advertised for. For example if an established unit is $500k, you might be able to buy it for $475k. How much extra are you paying on top of this? Don't pay a premium due to it being new, in a couple of years it will be just like the others and prices will normalise.
-Ask yourself why you don't buy an established property. Try and buy one from a motivated seller, that you can really negotiate the price down low, $20k-$50k below median price or more. Then in 6-12 months you can re-value it at the new median price and take equity out to help buy the next property.

Alot of the above is because OTP does not match my growth strategy, but it's just my opinion and thought I'd share it in case you can identify with any of those points.

Some OTP can be good, but it's not an easy game.

 

[JDM]

That explains it.

I'm a property lawyer that specialises in property development. Makes sense that I would have acted for a number of developers.

I personally have an OTP unit under contract. I think that shows me putting my money where my mouth is with OTP purchases.

 

[S.T]

I'm a property lawyer that specialises in property development. Makes sense that I would have acted for a number of developers.

I personally have an OTP unit under contract. I think that shows me putting my money where my mouth is with OTP purchases.

Always nice to disclose you have a personal interest in the development, so that people can take your comments in context.

Are you in the same situation as the OP? Is this your first investment property that you're basing the rest of your investing on?

 

[JDM]

Always nice to disclose you have a personal interest in the development, so that people can take your comments in context.

Are you in the same situation as the OP? Is this your first investment property that you're basing the rest of your investing on?

To clarify, I don't have a personal interest at all. I am professionaly conflicted as I should not comment on developments where I have acted for that party previously. I have moved firms and have not had anything to do with that developer for 6 months or more but still find it inappropriate to comment.

Essentially, yes. It will be PPoR or IP1.

 

[Ed Barton]

Basically, if the median price of apartments there is already over 700K, am I too hopeful in this apartment when time comes for settlement in 2 years to have gained a lot of equity by then.

From what I can make out, the median price for units in Newstead is already over $800K. So does this mean the $50K I am putting in as a deposit now with settlement in 2016 for the remainder mean there is a good chance I will be in the positive in terms of capital growth? It does seem a bit too good to be true but I can not find any cons right now.

A few posts and the median of the burb has dropped $100k. This tells me you are using your heart, not your head. Or perhaps you are slowly seeing through the BS. Not good for an investor. Do you even know what median means?

You seem to think that if you buy a property below median price for the burb that it has a better chance of price appreciation than buying, at, or above the median. Did they tell you this in the seminar/brochure? It may be true for a burb that suddenly becomes more desirable/gentrified - you've missed the boat for gentrification in Newstead.

No one has mentioned anything negative about the Newstead suburb yet. I think this is the development I am looking at : http://www.brisbanetimes.com.au/que...or-five-tower-development-20140723-zw64y.html

The burb is full of units. Most recently constructed or under construction with the potential for even more units. There is, or will be a glut of units in Newstead - promised rents are unlikely to materialise.

That development is in the most least desirable area of the burb.

 

[willair]

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

Maybe it was just the value catch-up stage in units in some inner city areas, but from what anyone would be starting too see in units rentals they seem to be staying vacant a lot longer,or as one real estate agent told me several of his longterm tenants have purchased their own home..

 

[Benvolio]

I have purchased an established and an OTP in brissy this year.
There are definitely better OTPs than others and there are reputable companies that assist with selecting the better crop based on certain criteria (lower density,low strata, location, uniqueness etc). Obviously they only look at OTP so they opinion will be biased.

HOWEVER (this is only my conclusion) there is always better bang for your buck when buying established.

What i mean by that is you can do more with the money you would spent on an OTP especially when the money you are willing to spend could be spent on a house with a decent size block.

i also think that there is more room to add value in an established property.

 

[Benvolio]

That said if rental guarantee is mentioned , RUN!

 

[Redwood]

That said if rental guarantee is mentioned , RUN!

I just tried to talk a client out of an apartment investment here in Melbourne, I said severely over prices at $10.5k per sqm 10km from city, his response - but it has a rental guarantee !!! - GRRR - personally I do not like rental guarantee, its like chocolate on a muffin.

Newsted has been mentioned above - again heavy promotion - I push my clients away from there for sure.
Cheers, Ivan

 

[antistar]

Gotta love rental 'guarantees' from $2 companies

 

[AlmostBob]

run away, quickly
otp valuations seldom materialise in the finished product

who would buy any other product, delivered in 2 years, that you could not see even a demonstration version.
If you order a bmw custom, it is based on the g85 in the dealer, you can ride it.

otp uses suckers as a source of cash to finance the build,
if values fall the developer will hold the sucker to the contract price and the sucker loses money paying for crap
if values rise, the developer will break the contract and sell the property to some other sucker at the higher price, still paying for crap
a rental guarantee is the developer's acknowledgement that the numbers do not add up, there is no reason to guarantee gold

the developer gets rich, nobody else does

If you can't see it and touch it, it does not exist

If you wish to continue, I have some shares of harbour bridge to sell, only 10k each

 

[JDM]

run away, quickly
otp valuations seldom materialise in the finished product

This comes down to doing your own research and buying something that is priced well. If you have bought well, it will val up.

who would buy any other product, delivered in 2 years, that you could not see even a demonstration version.
If you order a bmw custom, it is based on the g85 in the dealer, you can ride it.

The difference is that property generally appreciates, cars and most other items do not.

The benefit of buying off the plan is that you have the opportunity for capital growth during the contract period without the holding costs.

otp uses suckers as a source of cash to finance the build,

Deposits are held in trust and cannot be used towards the cost of construction. They are generally held in an interest bearing controlled money account and the buyer usually receives the interest.

if values fall the developer will hold the sucker to the contract price and the sucker loses money paying for crap
if values rise, the developer will break the contract and sell the property to some other sucker at the higher price, still paying for crap
a rental guarantee is the developer's acknowledgement that the numbers do not add up, there is no reason to guarantee gold

1. Obviously the developer will hold the buyer to the contract. That's usually the nature of signing a legally binding agreement.

Do you think someone selling a coal mine is going to release the buyer because coal prices have dropped?

2. How does the developer just 'break the contract'? I've been in the property development industry for eight years. In that time I've seen developers let buyers out of contracts and never seen a developer 'break a contract' to sell to another buyer at a higher price.

3. A rental guarantee is often the developer acknowledging that it can be hard to find 100+ tenants when all of the units come on the market at the same time following completion. Once the initial tenants are in, this issue is minimised.