Burnt by OTP purchase

Discussion in 'Investment Strategy' started by Jason A, 8th Jul, 2017.

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  1. Jason A

    Jason A Member

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    Trying to figure out what direction to move forward. I basically purchased OTP 4 years ago to be my PPOR in a small development. Don't own any other property. Developer encountered contamination issues and went bust. Got my deposit back but basically down atleast $300k in capital growth. Listening to the wrong advice once again i never repurchased in 2015 fearing a crash and have watched prices go up even further in sydney. I currently rent in Alexandria Sydney at $560k a week. My saving grace is I have accumulated $550k in savings. Trying to figure out whether to purchase an apartment in surrounding areas or maybe rentvest options? Any info or suggestions would be much appreciated. This saga has really stressed me out last thing i want is another dud
     
  2. TMNT

    TMNT Well-Known Member

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    How can you be down $300k when you got your despot back?
     
  3. Jason A

    Jason A Member

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    Lost potential capital growth. The property would be worth $300k more than I paid for it
     
  4. Guest

    Guest Guest

    I think you'd be crazy to buy in Sydney right now... but I thought the same 2 years ago so DYOR ;)

    Aim to buy in a market rising from the bottom of the cycle, not one turning down from the top.

    There have been a lot of changes recently (including within the last week), to stamp duty, first home buyers grants, foreign investment rules / taxes, lending environment, interest rates, so it may not hurt to hold off for a couple of months (or just take your time in the hunt for a property) to see how things play out.

    upload_2017-7-8_23-7-6.jpeg
     
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  5. Sackie

    Sackie Well-Known Member

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    The problem you face is the same thing I hear from many people who get stuck on 1 or 2 properties, or buy disasters. Its lack of knowledge and or listening to the wrong people, which is so easy to do.

    I don't know why you'd want to buy a unit in or near Alexandria now with the market at such a peak and also the supply of units in the area is massive. You have a lot of money saved so assuming you have the serviceability, you can build a very nice portfolio relatively quickly.

    I would look at states which are not at the peak nor right at the bottom or still falling. Personally I like Brisbane atm and I see a lot of upside to many markets there. If you have the serviceability, you could buy some good homes in good areas with add value potential, decent yields, keep a good cash buffer and you're all set.

    Do your own research. I wouldn't listen too much to people who don't have good scores on the board. Don't let fear paralyze you, cos you may miss the next set of opportunities.

    Above all - Educate, educate, educate yourself re property investing. You will never get very far if you don't have the education yourself. You can't completely rely on others to make you rich, it wont work.


    Good luck
     
    Last edited: 9th Jul, 2017
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  6. eletronic_exp0430

    eletronic_exp0430 Well-Known Member

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    If you have $550k in savings right now I would NOT buy a single unit at all. I would disperse that monies and make that money work for me.

    As Leo said above you can make that $550k into quite a large portfolio of good investment houses with excellent yields for cashflow and great potential to make massive capital gains in the future.

    If you were to drop the entire $550k into a single dwelling especially a unit in Sydney at this time near Alexandria for investment purposes well good luck to you. Plenty of better and more effective ways of building wealth.
     
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  7. larrylarry

    larrylarry Well-Known Member

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    Stay away from Alexandria. More supplies to come on. Spend weeks reading up here and to form a strategy first. If you are keen to build a portfolio then spend the time learning. If you are only interested in finding your own home then it's a different story. Listen to people who have invested in multiple properties, too many non investors giving their 2 cents.
     
  8. Angel

    Angel Well-Known Member

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    Start to learn everything you can about Adelaide and Perth.
     
  9. Poppy

    Poppy Well-Known Member

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    How much is emotion playing a role in your decisions?

    It sounds like you might want to buy a place to live in, so you're not purely buying for maximum cap gain.

    If that is the case, and you want a home to live in, I would buy close to ATP in redfern. Even though we are at top of market I still think redfern offers perennial value :) would buy again there in a heartbeat if I could get finance - unit not house as terraces are a Maintainence headache

    If you want to mix it with investment get a place with a car space and rent it out separely
     
  10. jins13

    jins13 Well-Known Member

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    What are your goals @Jason A? Do you just want to have a PPOR to call it home and pay off the loan asap? Or do you wish to build a property portfolio?

    I do agree that buying in Alexandria is very risky and maybe another location is more suitable. I've personally seen some price reductions in listings across Sydney and may present opportunities in the future.

    Are you also eligible for the FHB's concessions as well?

    I know some people here are quite happy to rent and use the funds to invest in properties or shares, but I can't do that. I need a place to call home and be able to emotionally and mentally unpack. In saying that, my PPOR is rather small in comparison to my tenants!
     
    Last edited: 9th Jul, 2017
  11. Gockie

    Gockie Life is good ☺️ Premium Member

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    And on the flipside I'd really like a Terrace in Alexandria, going with the general rule that the value of land tends to appreciate. But it wouldn't be a great investment for the OP imo because he'd have to borrow a lot (assume 1.3mill to buy) and he wouldn't get a FHB grant and its not tax deductible and it would stop him in his track for further portfolio purchasing. I think an IP (possibly 2) somewhere else is a better option. Or yes, he could do an apartment in the area, he mightn't see rampant CG over the coming years but instead possibly see slow growth. Long term I think its a very desirable area though. Extremely convenient, and walk to city or take a train.

    As to other ideas, I like @Jess' one she had in another thread, buying a splitter block in Brisbane.
     
  12. Sackie

    Sackie Well-Known Member

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    Subdividing a splitter and then building isn't as simple as it sounds and there are alot of risks involved. It's worth it IF the end values and margin makes sense or you are buying long term and holding until the numbers make sense, then develop.

    For me personally it makes little sense to buy and develop a splitter now if the numbers don't stack up and the reason is simply becssue of the inherent risks involved with development even at the best of times . Everyone wants to develop these days though few understand the risks, and many get bitten by the consequences.
     
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  13. Gockie

    Gockie Life is good ☺️ Premium Member

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    I reckon even if he doesn't even split it himself, it's still worth owning for the possibility of what could be done. There's more future potential than buying something on a small block. The drawback would be the cashflow though.
     
  14. Sackie

    Sackie Well-Known Member

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    Well for me it depends where you buy. If the large block is too far from the CBD then you can be waiting until the cows come home for the development potential to materialise. In which case I'd prefer a house with reno potential closer to the CBD. Also as you pointed out, cashflow will be greatly affected with a splitter site, especially in 10km ring to the cbd. Looking at 1mil plus with rents ranging from 450-700. Ouch.
     
  15. jins13

    jins13 Well-Known Member

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    I'm biased and prefer to live in a house further away from the CBD at that price range. I just couldn't justify paying that much money for a PPOR. Seeing quite a few friends who are debt free/ mortgage free in their 30s and 40s!
     
  16. highlighter

    highlighter Well-Known Member

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    Honestly I'm not sure you'd have seen $300,000 in capital growth anyway, unless you happened to be selling at the right time. Some 1 in 5 to 1 in 6 OTPs are already selling at a loss, and growth in several big cities has stalled as apartments enter oversupply.

    People might have told you to avoid them in 2015, and you should avoid them now. The fact a bubble hasn't yet crashed does not mean it isn't on the brink, it just means it's closer. Any fundamentals analysis will show you apartment prices are unsustainable, and with a 60% drop in foreign buyer interest, rising rates, tightening lending, accumulating supply and rapidly rising negative sentiment, the risks far outweigh the potential gains.

    If you want a PPOR your analysis will be different, and an apartment might suit. However, I'd otherwise go for a good house in a tightly held area that has not seen rapid development and is dominated by owner-occupiers, preferably with a high proportion of people paid up on their mortgages. Those sorts of assets are practically crash proof, as long as you're not buying something very obviously overpriced in Sydney (if you're watching Toronto right now, you'll know property doesn't stay over $1 million for long. It prices out the median buyer, so... most buyers, and investor momentum depends on those buyers and always will. When buyers dry up, so does growth, and then inexperienced recent investors leave the market because their plans are usually growth dependent).

    You can put $550,000 quid to much better use than an apartment.
     
    Last edited: 9th Jul, 2017
  17. larrylarry

    larrylarry Well-Known Member

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    this is exactly what a lot of new investors want to do, buy a large block and subdivide down the track but cash is locked into the land that is not developed (unless you buy it real cheap and rent is covering repayments) and the risks and costs associated with it may not actually pay off. I reckon DA and sell off at the appropriate time is probably a better strategy especially when lending is tight and will for years to come.
     
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  18. Gockie

    Gockie Life is good ☺️ Premium Member

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    I'd try to buy where there is solid infrastructure and strong demand...
     
  19. jins13

    jins13 Well-Known Member

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    Property selection is so important now or else an investor may spend unnecessary time on the sidelines.
     
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  20. Sackie

    Sackie Well-Known Member

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    Not trying to be picky with you...but where there is strong demand there are strong prices, hence back to 1mil plus. :)

    If you mean possible strong future demand I agree :D
     

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