Need urgent advice with a property purchase

Totally agree.

Looking at the current Sydney market, if I was in your shoes, I would pull out of your current contract (as it is not going to achieve what you seek), save every $ you can to build up your deposit by working your butt off (eg working extra hours, taking a second job, ...), getting your partner to bring in some income (eg working part-time, working from home, ...), cut way back on discretionary spending (eg rarely/never eat out, don’t go on holidays, ...).

In this game, one can never have too much cash. In 3 to 4 years time, you will be in a very strong position to buy.

In the meantime, keep educating yourself by reading this forum, reading books/mags, going to meet-ups to surround yourself with experienced like-minded people, ...

The above is my opinion and is definitely NOT advice. Only you know your full financial situation, attitudes to risk, etc.

Good luck

 

So in the meantime you suggest I still keep paying rent 500-550 per week ? So in 3 years I have lost another 75k which I wouldn’t have if I had invested either in my own property or investment ? Sorry I may be wrong thanks

 

It's not that simple...

Owning your own place has costs too. You have to "rent" the money (interest) and there are costs to owning a home that you don't pay when you rent. (Rates, Insurance, Body Corp).

Like @kierank said you need to make a "business" case.

 

Thanks

 

I imagine you would have to rent this money if you ever own a home anyways . Sooner or later ..

 

No, you haven’t “lost” your $75K rent money. The old saying that rent is “dead money” is not true.

It is the price you pay for the roof over your head and comfortable living space. When you borrow money to buy your own first home, you will be paying interest, again the price for the roof over your head.

I would think that, in the first five years at least, you will be paying more than $550 per week in interest on your loan. For the first $75K you pay off your mortgage, you will only reduce the total amount owing by less than $10K (as a rough guess).

And it is not difficult to lose $75K in capital over five years by making an unwise purchase or in a time of declining values.

Slow and steady often wins the race.
Marg

 

Over 3 years period, if you buy:

Buying Costs: $20,000+
Interest charges: $60,000+
Body Corporate: $15,000+
Rates: $5,000+
Maintenance: $5,000+
Selling Costs: $20,000+
Loss in Value: $60,000+
TOTAL: $185,000+

The above numbers are pulled out of my ass but I would rather “lose” $75,000 in rent than $185,000+ in buying/selling.

As I posted earlier, it is difficult to make money out of property in a 3 year time period.

Buying the wrong property at the wrong time and owning it for a short period will bring anyone unstuck.

Exactly.

@amipatil, crunch the numbers. It ain’t that hard. I gave you a sample above.

Don’t use my bullish.t numbers. Plug in your real numbers, all of your cost categories, ... and make an informed decision.

 

I live near the area.

Look that area is a great live style area....trains take you into the city within 15 min.

But at 632k....for a 1 beddie that is too much....the target apartment type could be a 2 brm which would be 800k plus.

Personally I would not proceed....losts better buys and better capital growth out there. Sydney will not perform for the next 6-7 years. I don't think we have seen the last of the price declines.

Do yourself a favour and look at a better deal.....also based on the neg CF it is going to impede you later on getting the house you want later.....

 

Also Amipatil...... rent money is not dead money...on this purchase you will be paying about 23k in interest plus about 6k in strata if you moved in. That is 29k per annum...plus any repairs. I realise you wont be moving in...but that is about 580pw....which in the current market would easily get you noice T/H to rent in Epping corridor......somethung to think about.

Ignore people who have not seen at least two cycles in Sydney...this one might be one of the deepest in decline...because it overshot...as the RBA decreased rates in late 2015. I warned people in 2016..saying that 2018-2020 would be hard..but no one listened

 

This property will end up costing you more than it will make over the next 3-4 years. Prices are falling, and there is no real relief to be had from interest rates. Even a 5% fall would be a $600 a week loss on top of your 1k a month input, and then the initial outgoings you would pay. This is the more likely scenario of the next twelve months, and things could be worse. Prices may fall further than 5%, and rents are also now on the decline.

This is not a good deal in the current climate. You need to pull out of this deal asap. And do not be swayed in any way by some ****** off agent. You sort of jumped in a bit quick here and need to exercise your cooling off period on Monday.

While I can understand your frustration to perhaps enter the property market instead of renting, this deal is NOT the answer, especially when in your instance you would still be renting, instead of using that money to go into a property of your own.

The goal here should be to find a property with which you could live in and where no money was going to rent but instead into a the purchased property.

In saying all that, there is no rush and most property in your area is probably falling more in price than your current weekly rent. So for now just save like no tommorow, sit back, relax and learn whatever you can. Do NOT rush. We can see where that nearly led.

Losing the $1,500 will end up being money well spent. As some have said, a cheap lesson. And you may end up learning a lot more than you could or would have ever hoped to as a result.

Cancel that contract asap and do not be swayed by the agent. Let us know how it goes.

Good luck and all the best.

 

I think I see a pattern forming @amipatil .....

 

Amipatil,

I own/buy in Artarmon. Great suburb, very stable with shops - on a train line, and the public school is the 2nd best in NSW. So people are crawling over each other to live in that catchment area.

Hard to know if the price is reasonable without seeing the property. Sounds above the median for a 1 bedder, but it is an above average area.

So if you don't own any property at all in your mid 30's, I don't know why people on this forum would discourage you to proceed. It may not be a perfect property, but it's a start. And in real estate, doing something usually puts you at a distinct advantage to 90% of the populace.

In order to be a good or even great investor, first you have to start, and that involves making mistakes.

My only concern with your story is that you want this to be a stepping stone to a larger property in 3-4 years time. And unless you are renovating and improving the property, this is not really the time frame you should be expecting material upsizer returns.

Generally speaking though, there are worse mistakes than buying a 1 bedder in Artarmon.

 

Even if you're trying to house a 4 person family?!....

No one here is saying do nothing. EVERYONE is saying do something else!

 

A rather scripted sounding response.

Firstly you say you have to start somewhere and that involves making mistakes. You then followed on by saying there are worse mistakes than buying a 1 bedder in Artarmon.

It sounds as though you know it is a bad investment and yet are encouraging him to purchase it anyway. From a buyers agent from that exact suburb. No mention of falling prices or rents, or the likelyhood of this continuing.

I would of expected a better response from a buyers agent. You took zero consideration of his overall situation and position.

Basically your answer was, buy now, and just completely discard everything anybody else says.

 

I doubt the people crawling over each other for the catchment area are in the market for 1 bedders.

 

Thanks for your thoughts Clyde,

My response was more that Artarmon is a very safe, investment grade suburb, and for a person in their mid/late 30's, there are worse places to start.

However, I also said that a 3-4 year horizon to springboard into a larger house wasn't going to cut it.

If I were being a really cheeky buyer's agent, I would have suggested that it was all too complicated, and to get some professional help. But I didn't. Instead, I encouraged Amipatil to take the plunge and risk making a mistake in what is a modest purchase in the scheme of things.

It's hard to make money out of real estate if you leave your run too late (which is most people). So given we didn't know that much about this person's circumstances, budget etc, some encouragement for a small start like this seemed to be the most productive suggestion.

 

Seriously?!

600k when you're starting out is NOT modest! Get it wrong and it's enough to send a small family back to the stone age.

 

Exactly. Makes one wonder what they are actually paying for when they employ such services.

Pretty shocking stuff.

 

Please. What absurd outrage.

Real estate has it's risks. We can agree on this.

The median unit price in Artarmon is $910k, and in this context, and in the context of Artarmon as well as the lower North Shore writ large, $600k is an entry-level proposition.

Can we agree on that as well?

So $600k is a lot of money I agree, and I wasn't being flippant. But in the context of Sydney and Artarmon in particular, I would consider this a (a) low risk suburb, and (b) a low risk price point (under the median).

All of this faux outrage distracts from Amipatil's very good strategic question about whether to use an asset like this to springboard into something bigger in a handful of years. And on this basis, I think we can also agree that while this particular asset might be a solid starting point for a bigger portfolio, using it to flip into another house in a few years just doesn't give the property enough time to compound.

Pretty uncontroversial for people familiar with this area.

 

I saw no 'absurd outrage' . Is that what you call common sense is it ?

I already did the sums, you obviously have not. The sums were done on the following. A 20% deposit, $450 a week because I doubt an agents call of $500 a week in a falling rental market. Plenty for rent in the 300s and you told us this was the bottom end. And considering he is or would still be paying $550 a week in rent. And also he said he would put in 1k a month. With $450 rent he would actually need to put in more than this just to cover the loan.

These were the results.

If this investment property rose 10% over three years he would almost break even on upon sale but would lose 85k in rent over those three years. And then there is some capital gains tax.

If prices went nowhere in three years, upon sale he would be down 70k plus 85k in rent over three years.

If prices fall 5% upon sale in three years he is down 100k plus 85k in rent.

And if prices fell 10% upon sale in three years he would be down 130k plus 85k in rent over three years.