How crazy am I for seriously considering an OTP for a PPOR in Sydney?

Widening the thinking a bit. If the op was willing to pay LMI, the deposit of probably about $130-140k would allow a higher purchase price. Arguably more value?

 

I feel like saving up 20% and then choosing something within your means should be reasonably easy to do? Cos at that point it’s just a decision.

I guess in my mind the concept of saving up 100% to avoid interest just seems impossible, so it seems like less of a waste, even though yes you’re right, you’re essentially paying for a bank to give you extra money.

with that said I guess I spoke too soon when I said I definitely won’t use lmi, I guess if something was so perfect I’d maybe do it. But I doubt it

 

yeah, for example, the petersham place I linked finishes in October, so between now and then I probably should have no problem making up that shortfall. If it was 20% however? Yeah I’d be in trouble.

the thing is though I saw some stats about Otp, and Sydney apparently 99% of the time retains its value and 1% of the time drops value at settlement, whereas places like Melbourne are yeah, significantly riskier (like 45%).

 

ahhh I gotta be honest I’m nervous about this kind of thinking, I’m very much keen to have a small, manageable debt (I have never had a debt outside of hecs), hence my desire for something small.

Once my first place is out of the way, I might be a bit more open to spreading my wings a bit, but my life is generally focused on reducing my stress as much as possible, rather than chasing the biggest gains, and that’s been a conscious choice.

 

Your call.
Some people make a conscious choice to learn to manage debt, and understand risk instead of just be afraid of big numbers.
Many have millions in debt, but little stress because they know how to manage debt through LVRs and buffers. Yet most people feel $5k credit card is not stressful because it's a small amount.

Price conscious isn't just about buying for a low price. Value conscious is how much you get out of it in the future.

Just because you dont feel stress doesn't mean there's no risk. Will a low-leverage plan get you to a comfortable retirement? When you have a family, is that 1 bed going to be enough?

Imagine if you had bought something in your 20s.

 

I'd scratch the Rosebury one, location is important and that sounds like a compromise you shouldn't be making based on your priorities.

From there I'd go with the Newtown property. I think it's a better location than Petershem but regardless of my opinion is IS close to the rail station, Sydney park, and King St.
Secondly, it's already built so you know what you are getting and how much It will cost you. There will be money left over to do the kitchen as you desire.
It may not not have the layout appeal you are looking for in a PPOR but are you realistically looking to live in a 1bed unit on your own long term? Life might quickly dictate a 1bed is not enough, even as a couple I'd want a 2bed.
Newtown with parking is also a bit of a rare treat, you could probably rent that separate if you don't need it.

Personally I'd either keep saving and/or invest in the stockmarket until your life circumstances evolve a bit further. I wouldnt buy into the Fear Of Missing Out

 

Thanks for the responses everyone!
I’d like to try and sum up the advice just to make sure I have it clear in my head.

• When buying property, growth is super important, so I should at least be looking for something with some physical land attached to it.
• There are loads of risks with Otp - dodgy work, oversupply, devaluation, etc.
• If I want to live in apartments (or near the cbd) my whole life, then I should probably rentvest, as it’s smarter to rent apartments than own them.

I guess, that’s what I took out of it, does that make sense or have I taken the entirely wrong message out here?

I’m actually open to rentvesting as I don’t really have an emotional attachment to owning my own home, I simply felt like I had the means to get into the (lower end) of the property market and figured I should look to stop paying rent. Equally happy chucking it all into stocks if that’s deemed to be the smarter option.

 

Your plan of buying a spanking off the plan for ppor is the opposite of your summary?

The alternative to buying a otp for ppor isnt only to put it all into shares. As a younger person, you might want leverage.

600-ish could get you an older unit, or a weatherboard house with land.

But leveraged investing assumes you are comfortable with debt, or at least see the point of it. If your first response to 'weatherboard house' is 'who would rent that?' then it wont work for you.

 

Have you ever looked at the numbers for rentvesting? They will blow your mind:

Strategy: Rent where you live and Buy Investment Properties

And:

Strategy: Rent where you live and Buy Investment Properties

 

Spending less money because you do not want too much debt is sometimes the most risky thing to do. Buy a property that you can afford, achieves what you want but will also over-perform or at least perform at the market rate. I vote no for off the plan but if you absolutely have to buy off the plan then make sure the unit you buy has something unique to the rest of the building eg extra car space, private outdoor space etc.

 

yeah I guess the summary is me attempting to summarise the feedback from everyone here - which yes, strongly goes against the original OTP plan.

Your last point is quite funny because that’s literally what I was thinking, or that maybe I’d have to tear it up and build on it, but then how deep am I into this thing before it makes me money??

I guess I’m just deathly afraid of losing my job and actually having expenses that necessitate my income being at a certain level. I’ve had two periods in the past where I didn’t have a job for a long period and both times managed it through just living like a hermit. With a big mortgage that feels like less of an option.

 

Funny because it's true, and yours is a common opinion (could bet money on it when you clearly want new). But this is not based on actual experience.

In the last Sydney boom, a weatherboard out West would have doubled in price with no work done on it, sold as is, and cashflow positive throughout. Put a 10% deposit + costs on it? Made 7 times your money in less than 10 years. That's a real example, but that's buying before a boom and selling near the top.

You do what you are comfortable with. Just understand the consequences. Can you retire on just that 1 bed?

 

Which is an even bigger reason for you to consider using LMI.

 

I second Y-man above. Maybe consider REITs if you want property exposure without the taking on your own debt (I'm not a big reit fan personally), likewise leveraged ETFs which I have never held myself.

Similar to your concerns, I was out of work for most of this year. I dont have any debt and am of the shares > property persuasion.
Dividends are not yet at a level to support me, but I certainly didn't have the burden of mortgage debt hanging over me.
I rent a decent place but always had the option to quickly downgrade at no expense if it got tough.

The low cost leverage of residential property is great when it works in your favor, but there are generations who have never seen the other side of the double edged sword.
Unless you get in margin lending then you are not going to get yourself into major trouble with shares and REITs.

 

I would definitely buy second hand one if i were you. But understand that it is personal choice.

Also some banks (cannot remember, St George maybe?) that allows you to pay $1 LMI for like 85% borrowing. This would work well for buying existing properties and you can borrow more. This option won't work for OTPs though.

I would definitely take the LMI option, especially now that the cost of debt is at record lows, and buy the best PPOR available. The cost of buying and selling house is very expensive so it is better to move to a place that you are happy with, given it is PPOR.

 

1 bedder apartment will get old fast. Rent in a building you like, even one of the OTP ones you are looking at and see if you like it for 12 months... cheaper than paying stamp duty for something you end up selling too soon..

 

With OTP, your "from $630k unit" will not have any of the features seen in the photos on the advertising brochures and website. That bedroom with an incredibly high ceiling and the balcony overlooking the city will not be in your price range. Your "from $630k unit" will be out the back somewhere near the garbage collection laneway with the view of another concrete wall.