Thoroughly confused about OTP IP!!!

Hi All,

Have just discovered this forum and after reading so many posts that I have gone cross eyed I figured I'll just throw out my concerns and see who can help.

I have recently read some books about wealth creation and IPs and suddenly it all seems to make sense. I am really keen to get started but am unsure about the option I have been presented with as so far.

I am looking at a 1 bed OTP apartment near Brisbane CBD marketed by Ironfish. It all sounds good but as my first IP I am freaking out at the idea of tying up $35K for 2 years or so and hoping it appreciates and then rents etc. The research presented sounds good and then area being developed seems good too.

I am 35 and am keen to set up a portfolio over the next 15-20 years and this could be the start so any advice, ideas would be greatly appreciated.

Thanks in advance.
 
Hiya

2 year OTP has some nasty little risks in it that might not be so nice.

From a finance point of view,while all might be hunky today, come settlement, either the market, availability of money, or your changed cirumstances may conspire to make it a no go at the time

ta
rolf
 
Thanks so far guys.

My job is secure and my circumstances are also fairly predictable over the next few years. Have been told I can't get a deposit bond as I don't have any other property (therefore equity). I may need to investigate this further.

I agree that there are risks but am hoping that the Brisbane market is on the up in the next few years and therefore the development will increase in value. Obviously, I'm relying on the developers statistics here for projections etc. I'm sure this is the idea behind all OTP sales but any suggestions as to how to back up their stats would be great.

However, having read another post about someone in Cairns with an OTP unit that the bank valued at less than their purchase price it's got me thinking?

Am pondering whether to go with this option or try to buy something else that is ready to go or can be completed in 6mths or so. Oh for a crystal ball! :confused:
 
Look my comments below are more aimed at OTP with a 2 year settlement as a strategy.

My job is secure and my circumstances are also fairly predictable over the next few years.
You must be comfortable indeed. Don't drive a car? Fly in aeroplanes? No chance of falling sick, having an accident, family member requiring you to act as a carer? No-one on the planet better at your job than you? No competitor planning a corportate takeover? I'm impressed. You seem to have completely avoided the human condition. :p

Have been told I can't get a deposit bond as I don't have any other property (therefore equity).
Doesn't sound right?? :confused:

I agree that there are risks but am hoping that the Brisbane market is on the up in the next few years and therefore the development will increase in value.
Hope is not an investment strategy.

Obviously, I'm relying on the developers statistics here for projections etc.
Groans.........If the vendor is so positive about their own future projections, they why don't they keep them all for themselves? (finance permitting). Please do not rely on the vendor's future growth projections. Do you think they might have a conflict of interest? :rolleyes:

I'm sure this is the idea behind all OTP sales but any suggestions as to how to back up their stats would be great.
There are NO stats for future growth predictions. That's why they are called predictions not certainties.

However, having read another post about someone in Cairns with an OTP unit that the bank valued at less than their purchase price it's got me thinking?
Read some more threads on OTP in here and think some more too. Read what happend a few years back in the Docklands where the end val was less than the purchase price and the banks also reduced their LVR on settlement. There were lots of tears and people selling family homes to come up with cash to cover the shortfall.

Am pondering whether to go with this option or try to buy something else that is ready to go or can be completed in 6mths or so.
Personally I'd be doing the latter.
 
There are many risks in OTP investments and you won't find these discusses or even acknowledged by the people promoting them.
You may also wish to do some thorough research into the company you refer to and the guy behind it. I'll say no more in order to protect myself from a legal standpoint.
The risks are both less and more manageable with other investment strategies, in my opinion.
 
Like the others have said, there are a lot of risks with OTP. I have never bought one, and I never intend to. However, I know you can also make a lot of money with them if they are priced right in a growing market. I would do a lot more homework before entering into it.

Maybe start out by finding out what price similar developments (already built) are selling at NOW. Also look at your overheads and the possible rental returns. Then do a comparison to the development that you are looking into. Sometimes just looking at this alone will speak volumes.
 
And there's nothing better in Sydney to buy!? :confused: since you have it your profile.
Seems to me your buying a glossy brochure.
You should read more on this forum.
 
You are in Sydney. Why not invest $300 now - that should get a cheap air fare (mid week fares are the cheapest) and a night's accommodation. Make a couple of appointments with RE agents who have quite a few comparable properties (as per www.realestate.com.au), fly up and actually have a look around at what $350K (assuming the $35K is a 10% deposit) will buy now.

You will then be in a far better position to evaluate the OTP proposal. Read the fine print carefully - 2 years may be the minimum. I heard on the radio recently that residential developments could not get finance until they were 75% pre-sold, but of course that could be media hype.
Marg
 
I heard on the radio recently that residential developments could not get finance until they were 75% pre-sold, but of course that could be media hype. Marg
Marg, that has ALWAYS been the case that they have to get 50-75% :D and that is in easy credit times. I've also heard in the current credit environment :(that no finance for developments is forthcoming without 100% pre-sales in some instances.
 
I've also heard in the current credit environment :(that no finance for developments is forthcoming without 100% pre-sales in some instances.

I've heard this from some close friends int he OTP industry.
In a good market, they have to work hard to get 75% pre sales. They have Buckley's of getting 100% in this environment.
Many OTP projects have had the plug pulled.
The word minefield springs to mind in the context of developing, selling or buying OTP projects.
 
Wow. So that's what I call a response!

Thanks to all above for the advice. Yes this is a major leraning curve and I do feel as though I'm being sold a "glossy brochure" but with little or no experience it seemed like a good starting point, (no I haven't actually paid anything yet).

Propertunity, your comments are great and thank you. I am a teacher so have a solid job and regular income which at the moment seems to me to be a good thing. I'm now thinking that I need to slow down and start to leran more.

My incentive to go with the Proprety Ivestment company as mentioned above was the idea that they have done the research for you and selected developments in areas that will/are growing. I realise that they are also selling and am a bit sceptical of whether or not they are doing more selling than research. Does anyone advocate using these types of comapnies?

Thanks again.
 
I bought an OTP unit 2 years ago that has just been completed and is not worth what I paid for it.

Are you able to finance it, still? That's one of the many traps - expecting to borrow at, say, 80% LVR on completion, then finding the valuation has taken a hammering, so you have to cough up a huge chunk of your own cash to fund the deal.
Which forces many buyers to put their properties (in the same development) on the market at the same time, which puts further downward pressure on the valuations.
They don't mention that in the brochure.
Thanks for sharing your experience.
 
You have been given lots of good advice here. Definitely do a search of the threads, there have been alot on this topic.

Personally I like OTP. Having said that, there are a few very static rules I follow.

1) finance -
ensure you fall well within the servicability reqirements and project for a 2-3% increase and see if you are still serviceable (you never know what might happen). I don't know of any financial institution who will guarentee finance 1-2 years out (and in my experience it always takes longer then predicted). Also ensure that if all hits the fan and you cannot get finance, loosing your 10% deposit is not going to bankrupt you. (In my case loosing 40k would be a real kick in the proverbials, but would not mean the end of the word as I know it - It satisfies my SANF). It is also worth building up a buffer of more cash in the time it is being built, in case the valuation t the end comes back less then purchase price, and you need to chip in some of your own money, before the banks will help finance.

I have looked at deposit bonds, but they don't suit me. Go to a good broker and get they to walk you through your options.

2) Value -
ensure the price of the place matches what it would be valued at this point it time, if it existed now. DO NOT PAY MORE THEN IT WOULD CURRENTLY BE WORTH. Never rely on capital gains - hopefully you will get some, but never try to guessitmate what it will be worth, what it is worth now is all that matters. Compare to existing buildings and see what they are worth.

3) ensure you do all your other research as per normal.

Like I said, find the older threads...
 
...I realise that they are also selling and am a bit sceptical of whether or not they are doing more selling than research. Does anyone advocate using these types of comapnies?

Nope. Certainly compounded if:
- it's your first investment
- you haven't done your own research instead of relying on theirs, and
- you're buying out of state.
 
Thanks to everyone for the advice above.

I have slowed down and will think about looking into a unit in Sydney near CBD as a first IP and save the idea of OTP for a rainy day.

Cheers.
 
Correct me if i am wrong but since you need to sort your finance prior to the completion of the OTP property how can the bank valuation come in under??.As far as i know a bank wont value the property if it's not complete i was under the impression that the bank based it's valuation off the purchase price to begin with.

For the record i think i purchased a property in the same complex that was put towards the OP.http://www.hamiltonharbour.com.au/ .I haven't bought OTP before and have a few other properties to fall back on so i have no problem's sleeping at night.
 
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