The "Start at the top!" concept

[wish-ga]

These guys couldn't afford to buy a property on their own so they put in together and got one for 890 thousand dollars!! They aren't prepared to live in what they can afford. The "Start at the top!" concept.

(sorry if I came across judgemental, I am biased here because my contemporaries have all had financial assistance to get into houses they can't actually afford on their own. I have bought cheapo because it is what I can afford - less prestige but it was my choice...not trying to be mean but almost every mortgage broker I spoke to was trying to get me to ask my parents for financial assistance, seems to be the flavour of the month in some publications too.)

from the article:

“…an increasingly popular strategy is pooling funds with a friend or family member to buy a property.

That's what Doug McKeough did. The 27-year-old bought a two-bedroom converted warehouse apartment in Surry Hills last year with a friend, Adam.

It cost $890,000.”

full atricle from Sydney Morning Herald - 21 Sept 05 http://radar.smh.com.au/archives/2005/09/through_the_sid.html

Nothing wrong with putting in together as long as you know it isn't going to cause tensions. Last week saw an article about Clive Robertson's Eastwood house (double block) being bought for high $800s. Two brothers pooled finances and bought the property, that means they each got a block for a about 450 thou. Which is pretty good for that particular area. I think it was a great solution! Thrilled for those brothers, very smart move!!!

 

[Glebe]

Wish-ga,

That's their choice. Maybe they like nice places in Surry Hills... I didn't see any quotes of theirs that said they were crying poor.

They listed the advantages of buying as a team, and the disadvantages. They weighed it up and took action. Good on em.

 

[MichaelW]

Advantages:

You're in the market.

Disadvantages:

Its not yours, its only part yours. What a disaster-waiting-to-happen that is.

I'm with Wish-ga, I'd be buying somewhere else in my own right and building up some equity. If you want to live in Surry Hills then rent there whilst buying that nice little IP in Brisbane or some other affordable market. In years to come sell off your IPs and buy that nice converted tiny little shoebox in Surry Hills for a cool $2M (Well, I did say "in years to come")...

Cheers,
Michael.

 

[MarkB]

I am reminded by of an example I saw in an early edition of Paul Clitheroe's book "Making Money" where he talks about the money he lost as a result of having a PPOR in a flat sydney market (late 80's - early 90's as I recall), compared to if he had been renting that same property.

Just done a quick calculation using one of those on-line calculators.

Suppose they have a $700k loan (78.96% LVR), P&I for 30 years at 7%.

The minimum fortnightly repayments are about $2150.

At that rate, in the first 5 years they'll pay $279,500 in loan repayments, but at the end of that time they will still owe over $650k.

Then you have body corporate fees or rates (as applicable).

I wonder what sort of money the place would rent for.

A couple more bits of information and you could do a spreadsheet showing how much CG they need to get in order to break-even financially (compared to renting).

(Ignoring, of course, the psychological value of PPOR ownership).

Will revisit this tomorrow.

Mark

btw. what odds that enough of these partnerships / JV's end in tears that they end up on some consumer / current affairs show?

 

[Glebe]

The people that Wish-ga identied came across pretty level headed. They know the pro's and con's and they decided to push ahead. It's not the choice I would have made, but good luck to them.

 

[thefirstbruce]

I wouldn't have bought a non income producing asset that expensive at the end of a boom, when CGs are likely to be slow for a while, and house affordability is at all time lows in Sydney.

They'd have cleaned up if they bought at the beginning of the boom, and sold at the top.

 

[Merovingian]

I haven't read the article, but I reckon that the very fact that this group have got together and done something, has already put them in good stead.

Good on them.

 

[wish-ga]

That's their choice. Maybe they like nice places in Surry Hills...

Me too! It's a great place. Was on my wish list when I was looking too.

 

[geoffw]

Me too! It's a great place. Was on my wish list when I was looking too.

On your wish-ga list?

BTW, what is a Wish-ga?

 

[wish-ga]

True, true, true...you can't put a price on loving where you live!

Geoff, Wish-ga is the name of my goldfish living in a tank on my desk at work. Chose the screen name for the message boards on an aquarium site and carried the name over to this site.

 

[Macca]

I will say it before Geoff does.............

sounds a bit fishy to me

(pirahna grin)

 

[Peter 14.7]

Me too! It's a great place. Was on my wish list when I was looking too.

As I write from Surry Hills all I can say is "so many cafes, so little time". Love the shoebox.

As for renting verus buying arguement the whole thing depends on you investing the money saved whilst renting. If you drink it you are square with buying and not in the market.

Peter 147

 

[thefirstbruce]

After a lot of messing about with my spreadsheet made for IPs, this is my take on doing what the boys did.

BTW, I lived in Sydney for most of my 20s, East and Lower North Shore.
Loved it.

But I also know one can be pretty happy anywhere, if you have 2 or more like mindeds .

As for cafes and nightclubs, you grow out of it. Personally, I am getting more discerning about what I put in my mouth, and the quality of much food service establishments seems to have dived in the last 15 years

 

[MichaelW]

As I write from Surry Hills all I can say is "so many cafes, so little time". Love the shoebox.

As for renting verus buying arguement the whole thing depends on you investing the money saved whilst renting. If you drink it you are square with buying and not in the market.

Peter 147

Peter,

He he... I was thinking of you when I wrote "shoebox", just being a bit of a tease. Ah well "small things" amuse small minds...



Michael.

 

[leapyeah]

Couples joint venture on property purchases all the time, thinking their relationship will last forever. At least these people go in with an exit strategy. It seems less risky to me than most people's marital home is, in all honesty.

 

[geoffw]

Geoff, Wish-ga is the name of my goldfish living in a tank on my desk at work. Chose the screen name for the message boards on an aquarium site and carried the name over to this site.

I'd be naming my pet fish "Fish Fingers"

 

[tonyd]

After a lot of messing about with my spreadsheet made for IPs, this is my take on doing what the boys did.

Hi TFB,

If you are comparing investment decisions, shouldn't the equities calculation include rent paid?

cheers, Tony

 

[thefirstbruce]

Thanks Tony, will fix that matter up re rent paid. I did include it originally but overlooked it in the revisions.

 

[thefirstbruce]

Here's the revision with rent factored in.

You'd still want to be sure CGs in Sydney apartment property are going to be stronger than 5% pa on average.

 

[markpatric]

This type of scenario could work out well with acreage properties not too far from capitol cities....very well!.
Consider that if you have five or ten acres (plenty of room) one maybe even two homes on the land already.
If you were to sell half share in the property this would free up a lot of cash or even pay the mortgage in full and then some.
Personalities could be the real issue but if you had brothers etc or friends and the homes were a fair distance apart this could work well.
Consider one rates bill, maybe no mortgage, more people to landscape/maintain/add value to the overall property.
Subdivision possibilities down the track could be a huge advantage in that all costs would be halfed and imo this could be a doable strategy to make huge long term gains in the market right now as acreage properties close to cbd areas will only get more and more scarce, with more and more pressure to allow for subdivision.
Great idea!.