First time buyer and confused

Hi Guys,

I’ve been following the discussions at propertychat from the last 1.5-2 years and learnt a lot from the amazing knowledge that is shared here, yet when the time has finally come to buy something I’m not sure what to do!!

Background – We are a couple with a 1 year old baby, working and renting in Melbourne CBD from the past 6 years. We both like city lifestyle and wish to continue living in the city for next 3-4 years

Recently we started looking to buy our first property ever and thought of starting with an investment property which would appreciate well in next 5-7 years so we have some equity

to purchase our PPOR or next investment property. Now one of my friend referred me to an agent he came across on YouTube who helps newbies like us.

I looked at his videos which are impressive and tried searching more on online forums about him but nothing much. Then we booked time with him for an initial consultation.

He showed us few properties – mainly new townhouses in good suburbs.

I asked him why townhouse as I’ve read a lot in propertychat about staying away from new townhouses/apartments and buy something which has more land but he insisted that more land is not always good and depends on what suburb has to offer plus brand name behind the property.

As per him even if it is a new townhouse but in an area which is :

1. Near to the city and good transport
2. Has very little stock available
3. Offers good lifestyle where people can spend time in restaurants, cafes, shopping etc
4. Near to beach, shopping strips and schools
5. Strong community vibes

He recommended that such a property which ticks the above boxes is worth buying as it will appreciate easily. He convinced us to not bother about land portion and showed as a property in Balaclava, which is a new townhouse. He strongly advocated for this area and sees it as one of the potential boom suburbs plus that townhouse is architecturally built which adds more weightage

I indeed like the area and I know it is well serviced with trams/train lines, has good schools, just 6 kms from City and has very little stock in the market.

My search on domain and realestate.com.au for Balaclava showed just 26 properties for sale and 45 for rent (most of them apartments). I looked at the suburb profile and checked the last 5-6 years sales trend and found very few properties changing hand in that area, probably because people wanting to hold on. Also there are only few constructions (mainly townhouses) going on in the area.

However we do have a few questions/ concerns that we are hoping to share in this forum and hopefully get some views from experts here:

1. The new townhouse that he showed us has -2 bed, 2 bath and 1 carpark on 3 levels with - ground floor having a bedroom, first floor with kitchen and living area, and second floor with another bedroom and a little rooftop terrace. It is a small townhouse with total 93 SQM internal area +17 sqm external. So we are guessing each floor will be around 30-35 SQM.

Does it make sense to invest in a small new townhouse even in a good suburb?

2.We will be renting out this property and since it is 3 levels, I am concerned that it will not cater to old couples or couples with young kids as they would not like to take staircases. Interested to know your views if such a property would have limitations in finding tenants

3. We are planning to hold property for at least 10 years and may be longer if it appreciates more. Our agent said that this area has potential to grow at 8% PA which I think is high for a townhouse, a house might but probably not a townhouse. Thoughts please - is even 5% PA also realistic for a new townhouse in Balaclava?
I know it will not be a linear growth YOY but after 10 years I’m expecting it to appreciate at least 50-60%.

Finally I’ve no practical knowledge (apart from reading forums) and have very little time or network to do research properly therefore may be not looking at consequences/full picture of starting with a new townhouse and may be blind-sided by the agent who is probably prioritizing his personal profits at the cost of buyers

Pls let me know your views or share experiences as that will greatly help me to decide.

thank you

 

1) Anyone who is blanketly saying that townhouses and apartments are all bad don't know what they're talking about. The right townhouse / apartment can appreciate in value as much as most houses, but you need to find the right one. Way more research is required to get it right.

2) You found some guy on youtube? comon man...

To answer your questions:

1) "Does it make sense to invest in a small new townhouse even in a good suburb?" Depends. However, I'd highly recommend against new unless it was a very special deal.

2) "I am concerned that it will not cater to old couples" this is a very valid line of thinking and one reason I am a big fan of villas over townhouses, 1 story houses over 2 story, and ground floor apartments. However they don't constitute a huge part of the market so I wouldn't base my decisions on this.

3) "Our agent said that this area has potential to grow at 8% PA" Do your own research, don't trust everything this guy says. He seems to have a vested interest in what he's selling so it sounds fishy.

 

OP, for all you know, this guy is getting commission from developers to sell these new properties.

Balaclava is a suburb that has already seen a lot of gentrification. I don't doubt that detached houses and terraces will increase in value, but I can't really see that happening with townhouses and smaller properties. Particularly when there is a massive oversupply of apartments in inner suburbs in Melbourne. Its a suburb that is traditionally popular with backpacker/working holiday makers. Are you prepared to accept these types of tenants?

Does Balaclava really have good schools? Most families I know of prefer to send their children to the private schools in the area as opposed to the public schools. St Kilda primary is not a bad school, if I remember correctly - but most people try to steer clear of Elwood college. A lot of children that go to Elwood are children from commission housing. Not all, but you need to be aware that you will have all sorts of children in that school. Most parents are trying to get their kids into Albert Park Secondary, Macrobertson Girls or Melbourne High. So while you may be okay for primary schools, I would be cautious about the public secondary school options.

Balaclava is not a bad place to live, I personally love aesthetics of the area and there are plenty of conveniences. But I am not sure it is where I would put my own money. I have had friends move into some newly built properties in this suburb - be very mindful of the design and quality of the construction. I have seen too many properties in this suburb with mould (and surprisingly, not just old buildings - plenty of poorly ventilated new constructions).

I'd ditch the agent from Youtube... he likely has interests that do not align with your own.

 

How does the agent get paid?

 

I agree with @wylie - how would you live in a multilevel townhouse - 2 bedrooms on different floors, it makes it difficult to attract families who want everyone on one level.

 

Agent has not asked us for anything, he said he has access to very reputed developers in blue-chip suburbs and helps his clients build portfolio over time that will lead them to have financial independence. so I guess he gets paid from developer

 

thanks Wylie, we thought same by putting ourselves in tenants place. I would not like my family to live in 3 floors either

 

You are one buyer thats not paying them.

The developer is dozens, maybe hundreds of lots of commission.

whose do you think the agent will favour?

they dont happen to know lawyers and mortgage brokers to make everything as smooth as silk, do they?

 

If in your shoe's, I'd be looking to buy a PPOR and take advantage of current grants
They likely won't be around forever (or you may no longer meet the criteria, like me)
You could buy a nice used townhouse, live there for a few years building some equity, then as soon as you find out you are pregnant with number 2 apply for a loan to upgrade

As stated by others, this guy is getting commission's for getting you to buy.
You would be better off buying a place a few years old, likely a larger better constructed propery than current new stock

 

Just in case it's too subtle.

The agent is being paid by the developer to find buyers. Lots of buyers. Think they are interested in building wealth for you, compared to the millions the developer will pay them just to process those queries from social media?

Don't care who they are, what their name is or what they say they do. Never buy from anyone with that business model.

 

Huge red flag. Unless you’re paying the agent to be your financial planner, why would they help you to build your portfolio? No. They are being paid to sell property to whoever will buy it using whatever means they can to sell it. Anyone has access to these properties, the agent doesn’t have some awesome deal he’s saving his new besties that he finds through you tube.

I don’t know Melbourne at all but a 2 bed, 3 level place does not sound appealing. Might work for a couple with no kids or a share house but that’s about it.

This might seem rude but just hate seeing people get ripped off and want to make sure you realise that’s highly likely the case here.

Steer clear!