Rookie mistakes

(1) Understand what you want to achieve
(2) Pick 3 suburbs and research those suburbs
(3) Go to as many opens and talk to as many agents and property managers
(4) Surround yourself with like minded people
(5) Know the numbers and keep emotions out of it

 

Make sure you know whats happening in a particular market regarding recent sales and average time on market etc. If you are acustomed to buying in a hot market where your room to negotiate is limited you may need to adjust the mindset buying elsewhere.
This is something I learnt when I could have negotiated a little harder. If you don't know the comparable sales or generally how quickly properties are moving then you don't know if its likely you will need to offer asking price or can purchase at a considerably lower price. In other words you are purchasing blind.

 

@swanqueen would you be able to hare why OTP is/was the bad decision ? is it about rental yield wise or ability to gain Capital growth?

Most people here in the PC & SS forum are against Off The Plan proeprty be it House & Land Package or even OTP apartment for the most. If Sydney population growth is steadily increasing then why OTP is a bad invefor the long term.

 

Don't lock in a fixed rate loan for 15 years.

 

@S.T Yes if the locked rate is high eg. 5-6% but if it is 4.5% that sounds too good to be true.

 

Almost everything will go up in the long term. I don't think anyone is denying that. But what's likely to go up more? There's your answer.

 

You should have a chat to JohnHenry on the Somersoft forums.

 

Not all OTP plan properties are outright bad, but statistically, you'd do better buying an established property. There's a few reasons why OTP tends to be worse investment:

* Foreign investors can generally only buy new property which means they focus on OTP stock. You're competing in a market where a lot of it's influence is not locally driven. When the property needs to be resold however, it is on local terms.

* Developers control the price by releasing stock when it suits them, not necessarily in line with the general market. They also price the property outside of the general market. Developers know you get more tax deductions, stamp duty savings, etc. They factor this in when they sell the property. You may think you're saving money, but not if it's above market value.

* I've seen arguments where an OTP unit sold for $200k in 2000. In 2005 a similar OTP unit in a similar location sold for $350k. This would be a massive gain! Unfortunately the OTP unit from 2000 is no longer brand new and will only sell for $250k in 2005. The two properties are not comparable because one is new and one isn't.

* Do you want to be competing with dozens if not hundreds of other investors for a tenant the weekend after settlement?

* Some developments have been building in a particular area for over a decade and there's still more coming. Unlimited supply restricts growth.

* If the value of the property drops between purchase and settlement (I've seen it happen at multiple points in time), you'll need to come up with the difference in cash, the bank won't lend against negative equity.

* You might argue that this is all irrelevant if you've got a 30 year outlook, but the most successful investors make their money when they buy. What's the opportunity cost and how does that effect the next 30 years if you buy the wrong property?

* Here's the kicker: Banks are more restricted in their lending practices around OTP properties. They don't like them. With all their data, expertise and research, if they banks don't like certain properties, perhaps that's saying something. It's arrogant and stupid to think you know more about property than the banks do.

 

Yes, it's always an idea to check with council if there are any developments affecting the property or surrounding area that you're looking to buy. Check neighbouring zonings, ownerships and recent and historical DA submissions (via council and databases such as RPData, APM or ask a friendly selling agent for details here) before committing to a sale. Re: comparable sales. Ensure you are on top of these and know what's sold nearby that's similar so you're paying fair value and not inflated or unrealistic. Independent research is imperative here. Good luck.

 

My mistakes include:
Bought an apartment in a complex with hundreds of apartments in Rockdale. Had to cut rent to get tenants. High strata (swimming pools, lift, sauna, gym, landscaping). Holding costs too high while we live in another townhouse.

Paid the townhouse loan fully (thanks to concerned parents).

But learned the lesson and bought a fixer upper and created massive equity in this market...and using equity to look for an IP.

 

I will second this. This is exactly what I was referring to here–I fixed for 15 years....:

 

@Peter_Tersteeg: Many thanks forthe detailed explanations mate. I'll keep those points in mind.

 

My biggest mistake - *** Don't believe what the real estate agents tell you about expected rent (but do ask them).***
Take into account that one will be modest, one will be guessing, another will exaggerate and maybe one will tell you a whopper. Therefore, you can't compare. Do your own research. If you can't research enough in time, don't buy there.

 

Good advice.

Our first rental had an expected rent of $450p/w....ended up being $350p/w and took 3 months to get a tenant.

Admittedly the rental market was flat at that time, but had I known this would be the case, I would not have bought the property.

It was a tremendous setback for us cashflow wise...took the fun out of it right off the bat.

But I plodded on, and being an idiot, bought another just to smash my head against the wall even more..

 

I think they're the same person

 

Paid over real property value.
Developers charged a premium for new and shiny (which I only found out about later.
Valuation came up short so had to dig into my own pockets to make up the shortfall at settlement, which caused me lots of stress.
When trying to rent it out we were competing with about 100 similar properties in the same area, so took longer to rent out. Had to drop rent multiple times just to attract tenants.
CG was not great.

Yes it would probably increase in value if I were to hold it for a long time, but in the short term I was counting on using the CG to finance the next property. Which didn't happen.

Looking back i could have gotten better results had I bought elsewhere.

Never again...

 

I concur

 

Thanks for sharing the very precious knowledge with us here @swanqueen , it is something that I really appreciate from you. people likes to share and boasts their portfolio, but sadly not many people here dare to share the bad story learnt from the experience.

Hopefully that OTP apartment that you bought will appreciates in time, I guess for the next 6-10 years so that you can put it back on the market for a profit.

 

So much great info here, thank you!!

When people talk about OTP, is that the same thing as a house and land package? Or are OTP normally apartments?

When people research a suburb, where do you go for the information? As many have stated, we can't really trust the real estate agents. Do you guys just keep track of the properties up for sale in the area and then find out their prices and then compare the similar homes to see what the market value of the area is?

How do you go about getting a more accurate figure of expected rent rate for a particular property?

I think my main issue atm is that I know I need to research an area before comitting to buy, but I'm so green at this and I don't know where to go or look for those types of information about a suburb. Can people impart some of their wisdom as to how they go about researching an area? Thank you SO much

 

Some investors mustn't mind very much about rent. I'm a tight-wad so I really don't like being duped or having my 'budget' mucked around. I've learnt my lesson now. I need to be 'on the ground' to see, hear and smell everything about the property. Also, I ask the tenants and I ask other renters in the area.
In fact, I'd rather buy less properties and get it right with the ones I buy. I am actually renting in the area where I've recently bought.
I suppose the best way - if you don't live in the immediate area or know others who do - is to inspect a few rental properties yourself. It's not really something that comes through as a true figure even on sqm research - though I trust that site - because rent comes in a range and the condition and age of the property dictates how much a tenant is willing to pay.
I would also talk to property managers about what's needed in the area and how to get the house/unit into shape - before you buy.
Some people can do this remotely. Not me. I have to see them, quiz them, pester them face to face for best results.
The best way atm imo is to do your research remotely, take time off work, go to the place, have an outcome in mind, be prepared to let go of the outcome if reality doesn't stack up, harass agents and property managers and tenants, observe everything, have a few sleepless nights, keep letting go and then jump when it all falls into place.
I suppose if everyone did this, investors really would get a bad name.