NSW 145k on Innerwest OTP vs alternatives

Wondering what would you do with a 145k at the moment in sydney? Is innerwest (dulwich hill/ marrickville/ petersham etc and not wolli creek) off the plan to take advantage of FHOG, CGT exemption and preconstruction price a viable option? Given its the only chance to get these grants, is it a worthwhile? My view is that its quite safe choice location wise but the uncertainty comes with it could be worrying (interest rises, sunset clause) and likely to be a 1/1/1 unit only.

Alternatives we are considering are:
2. Established unit in same areas with scope to do cosmetic reno
3. Kingswood area 4 bedder with potential granny/ development site
4. Any OTP suggestions? May be the lower north area?

We are starting out and appreciate any advices!

 

I think most experienced investors here would avoid OTP. Hard to know if quality is good until it is more established. If you really want to Go OTP, avoid if possible the high density areas or places with upcoming projects. Lastly be aware of the cons of OTP which have been widely talked about in the media.

Have you asked yourself why you consider OTP? What's your strategy? How does OTP fit into your strategy? I'm sure others would have other opinions here.

 

Boy, there is a lot of stuff getting built now and being planned in the inner west. It's hard to imagine there will not be a glut of flats a few years down the track. I like flats in small, older, well positioned buildings with the scope to add value.
Scott

 

@stevenn, certainly great locations (Marrickville/Dulwich Hill) but as Scott points out, there are plenty of new developments on the way. And OTP is fraught with danger.

If you must buy in Sydney, I would be finding an established place that could do with some love and not expect any noteworthy natural growth for quite a number of years. You are aware the market has had a stellar run and is likely to be out of puff, yeah?

In your shoes, with $145k, I would be investing in a house in Brisbane right now, adding a bit of value with a reno and looking at buying a couple of additional investments before swinging back for a PPOR in Sydney down the track.

 

Appreciate all your comments

Regarding OTP option: reasons being FHOG, stamp duty concession, preconstruction price. I see this as a one off opportunity giving us 15k cash + ~17k stamp duty concession and (if the right complex) can have some CG closer to completion. The comparable being established unit, I am not too sure if I can count on natural gain unless I am able to pick up a good deal and do some reno?

With all the posts re Brisbane, I definitely think the growth is there for the coming time. But having not been there ever and for first investment, we are more comfortable buying something we know and can feel. The buying process and due diligence interstate is daunting.

Our aim is quite simple, getting something preferably neutral CF, up for some easy reno, some equity to pull out in 2-3 years time to deposit for our PPOR. I am sure keen to learn your thoughts on my aim and whether or not innerwest OTP/ established unit fits into the picture

PS: I am starting to read into NRAS path. Can be a contender?

 

You will have to weigh the risks versus the perceived benefits. Note "perceived" because:

1. A comparable existing apartment that's <5yrs old would most likely be cheaper by more than the value of the FHOG + stamp duty concession of the OTP property.
2. The idea that the OTP property will have some CG upon completion assumes a rising or booming market. Have a look at other threads for commentary on how the Sydney market is doing and expected to do for the next

Also in reference to your aims:

• CF neutral in the inner west is unlikely to be achievable right now
• if you're looking for OTP, where is room for reno?
• Wouldn't count on being able to pull equity with OTP. Wouldn't even count on getting a valuation at settlement that is equal to purchase price.

Coming from someone who has bought OTP in the last few years.

 

Have you spoken to a broker as to how much you can borrow conservatively?

There's nothing wrong with buying OTP but what would the market be in 2-3 years time? @Befuddled is right to question whether the benefits of FHOG/stamp duty are worth the shot if buying an established would give you better value.

Then consider supply and demand, not the current but in 2-3 years time.

Does the project have a point of difference in terms of locations? (views, design etc)

Developers have factored in the premium of you buying it new, greater depreciations, higher rent as their sales pitch. What if growth stagnates and you wish to pull equity to buy another place?

New buildings take a while to settle and will not show problems immediately after completion but an established building's problems can be readily seen.

I did the same thing with an OTP with FHOG in 2002/3...it's forgettable experience...if i only had joined somersoft, predecessor of PC.

 

Befuddled and Steve Ryan are on the money Steve, take note.
Not the time to be buying OTP in Sydney.

 

timing aside, market cycles apply to apartments as well as houses pretty much identically

if youre buying for the following reasons and its an investment, its not a very good reason to

- You like the fact that you get something brand new
- it comes with a rental guarantee
- its new so it must be low maintenance
- you dont have to worry about the building process eg dealinbg with tradies,
- you are paying todays prices so there will be CG by the time it finishes

 

I will just leave this article right here

A third of off-the-plan buyers are in trouble

 

I believe if you must consider OTP, consider Brisbane inner circle or Melbourne outer circle.
Sydney is a no no anywhere for OTP.

Try to predict the market in 2 years time to gauge the benefits you are after.

 

I think Brisbane inner apartments will have pain... my opinion is is stay away from them...

 

@stevenn if you need to know more about NRAS, @euro73 probably can share some thoughts between buying existing NRAS or new OTP NRAS property ?

Earlier this year, my friends bought new OTP apartment in Jordan Springs NSW for approximately $450k 2/2/1 which turns out to be good NRAS unit in a newly developed suburb.

 

Tekoz... just remember Jordan Springs is out near Penrith.... if demand drops... I believe it will feel a lot of pain.... I'd buy somewhere else if I had $450k to play with.

 

RE the NRAS approved 2 bed apartments at Jordan Springs... I was offered 15+ NRAS apartments in that project to sell earlier in the year. They wanted 560-620K for the 2 bedders, which I thought was a huge premium, considering st Hilliers was doing a better 2 bedder project at Thornton Estate, next to Penrith station for low 500's. Jordan Springs is full of nice new houses and a little shopping centre but it has no rail and limited bus services . But I don't work in maybe's or guesstimates...so as I always do before I take on any new listing, I had 9 valuations done - yes, nine! 3 valuations each x 3 apartments ... As expected - it was ugly - and I said thanks but no thanks.

FYI The best of the 9 vals came in @ 480K. Most were @ 440 - 460K... So your friends will be OK at 450ish, because they bought in the pre sales release when the developer needed sales. But the poor buggers who paid high 500's -low 600's in the 2nd release are in for a very rude surprise in Feb/March when they call for settlements. 80-100K shortfalls.

As far as new OTP vs established properties are concerned...it simply comes down to valuations. I have some NRAS approved stock in Harris Park at the moment which would be considered "off the plan" but its 6 weeks away from completion and Ive had multiple valuations done and they are solid. t Every bit as good a buy as an established dwelling. Far superior cash flow to an established, old dwelling.... far superior .

 

Yes, that's what I can see from the RE.com.au auction clearance rates, the Sydney Southwest area was hit the hardest.

Hence they (my friend) can only afford in that area since the beginning of the year.

 

Yes, I guess they're just lucky to buy their first PPoR eventhough it is just an apartment. They have to pay for the LMI as well due to the LVR was quite high.

But I believe since their apartment is also categorized as NRAS, they can always rent it out and then received some support by the Govt.

 

They cant have it both ways. if they purchase it and use it as their PPOR, it cannot ever be used in the NRAS. However, if they use it as PPOR they can use it as a regular INV property at a later date. or, if they start it out in the NRAS and decide to use it as their PPOR later on, thats also OK. But if they use it as their PPOR first, it can never be entered into the NRAS.

 

Ah I see, that's something new to me.
Thanks @euro73

 

One of the requirements for NRAS is that the dwellings must be brand new dwellings, never tenanted before.