OTP apartment for PPOR, am I crazy?

For the life of my property investing career I've steered clear of OTP apartments like the plague but I'm now seriously considering one for my PPOR, tell me I'm crazy.

My wife and I are in our late 20's and have been trying to break into the Erskineville market, we're looking to buy a 2 bedroom apartment to live in for the next 10-20 years (we're tired of renting). Looking at past sales the apartments we would consider purchasing are in the 1.1M range and are tightly held.

We've been looking at OTP apartments and found one that we both love, it's a 90sqm (82 internal / 8 external) split-level penthouse apartment for 1.15M. I've done a ton of research into the developer and builder even asking owners of previous developements and they seem to do good work. Construction has already started and is scheduled to finish March next year.

We know the risks of OTP and are ok with it, we have a 40-50% cash buffer and have over 100K in free cash after all expenses so we can easily afford it. Worst case we can sell down investments to cover the whole cost. We've spent over a month thinking about it and are still in love with the idea.

However my investor side is telling me this is a terrible idea and I'm really conflicted since I've never been emotionally attached to a property. It's in the Ashmore district in Erskineville so there are a bunch of other apartments being built as well so over supply might actually become an issue.

What should we do?

 

How can you love something so much if it's not even built yet? Personally I would just stick to an existing apartment - at least you know what you're buying. That's without considering the risks of buying at this point in the Sydney market, especially with buying an apartment.

A buyer's agent may be useful to help you find something off the market if you are having trouble finding an advertised property that ticks all the boxes.

That said, I find it hilarious how developers market properties in Australia. An 80sqm apartment is hardly a "penthouse"

 

@jamesk - how long do you see yourself there?

Would it be a good idea to sell investment to pay off this OTP apartment, which likely is overpriced if you compare to established properties in the area?

I would be listing the pros and cons of the approach and how this may end up financially in 5 years. You don't necessarily want to liquidate multiple performing investments to complete this deal.

Further, it also depends where you are in your investment purchasing journey. If there is much borrowing if not. If there is just enough for PPOR, then I'd go for something (established).

Having said that, home is a very personal & life style decision. Are you willing to however pay the price of this potentially putting you back a number of years? It's okay to live also.

 

I read a number of these threads but still get shocked at the prices in Sydney and what people are paying.
Back to topic, I'd agree with sticking with existing properties if it was me.

 

I guess you can say we love the idea of it, we've seen the developer's and builder's previous work compared to the advertised designs and in all cases they were fairly accurate so we have some confidence it will turn out ok.

We have a buyer's agent but aren't that into the properties he's forwarded to us they're also in the 1.15M range so we would be paying the same price for something older.

Haha yea we're aware of the marketing gimmick but it is a top floor apartment XD

We're looking to spend 10+ years in the apartment if we do buy, we're not the type of couple to have kids or maintain a house, maybe once we retire we might take up gardening.

Realistically I won't have to sell any investments to cover this purchase, we have ~500K for a deposit right now which I think would be enough to cover any valuation issues.

Whenever I hear about OTP I generally think they're overpriced but I've noticed 2 bedroom apartments in the area going for 1.1M so in either situation we'd be paying a similar amount. But I've never bought OTP before so I'm not sure if there is anything I'm missing here. In my mind I'm either paying ~1.1M now for an established property that doesn't tick all the boxes or 1.15M in a year for a new one that has a high chance of ticking all the boxes.

I'm conflicted as a investor because it's been drilled into me to avoid OTP apartments and signals are pointing towards the end of a cycle. However as a home buyer I'd probably still be waiting a couple years till we see any significant drops in prices and I know this purchases wouldn't put us that far back in our investment journey if it went sour.

 

Valuation risk is secondary when the key risk is - your life circumstances changing.

When will the property be ready?

 

Good point =]

That was actually on the cards but after a few trips to Melbourne we decided it wasn't for us.

That makes sense, we're both in fairly safe occupations, to give a bit more background our investment portfolio is ~3M after paying back the bank. So while it wouldn't be devastating if we needed to draw another 650K to complete the purchase it would still suck.

It's scheduled to complete in March next year, the developer is ASX listed and have been telling their investors the same date as well.

 

I haven't really looked into Erskineville at all but the price does seem expensive for an apartment there

 

That's great. However a lot could happen in life in relation to health etc. Whilst we don't want to think negative, it's a huge risk to expose yourself to.

 

Here's some in the complexes we liked:

A306/33 Bridge Street, Erskineville, NSW 2043 - Property Details
610/1 Pearl Street, Erskineville, NSW 2043 - Property Details
404/33 Bridge Street, Erskineville, NSW 2043 - Property Details
1210/93 Macdonald Street, Erskineville, NSW 2043 - Property Details

There are cheaper apartments in some other buildings but none that we would buy.

The fees aren't something we've thought about in detail, thanks for mentioning it. In terms of inclusions I've gone through the contract and the things we want are in there.

Yea the risk profile is a bit high on this one, that's probably why the investor in me is telling me to avoid it. I'll spend some more time with the wife thinking it over and deciding if we'd be ok with the worst case scenario.

 

Top floor apartments (I'm living in one currently) can be noisier then others. All the services are on the roof above you eg aircon toilet vents. A friend used to live in a penthouse and vowed she wouldn't do it again.

 

I wouldn't buy an apartment at that price when I can a terrace and fix it up.

Sold Price for 7 Henry Street, St Peters NSW 2044 - 2013724074
Sold for 1.08m last weekend
(Don't know how close to the action of west connex)

 

If you enjoy watching a beautiful sunset, this may change in 2 years time...

 

I'm sure others wont agree with me on this but personally I would never buy anything OTP unless I was absolutely, 100% sure I believed in the product, the developer, the price and the risk taken on was minimal. But 99%, I wouldn't be getting involved with OTP. And there are many, many good reasons why caution is key here.

That's just me.

 

So true, g/friend purchased magnificent apartment with views to city and river in Burswood, Perth... I think she paid $1.4M, she just sold it 12 months ago for around $1.1M. She got built out, Perth Stadium ....ouch