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Tell me I'm crazy! OTP for a PPOR

Discussion in 'General Property Chat' started by swanqueen, 7th Jul, 2015.

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Would you purchase an OTP property for your PPOR?

  1. Yes

    9 vote(s)
    64.3%
  2. No

    5 vote(s)
    35.7%
  3. You're crazy! Go back and read investing 101!

    1 vote(s)
    7.1%
Multiple votes are allowed.
  1. swanqueen

    swanqueen Well-Known Member

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    Melbourne
    Okay, I know that the general consensus on this forum is that OTP is the devil (I myself have echoed that sentiment), and I have purchased an OTP property in the past and know what the pitfalls are.

    BUT

    We're sick of renting. I'm so over inspections, hubby wants a bigger space to do his painting, it's really hard to find a place which accepts pets, we're worried we'll be placed at the bottom of the tenant application pile if we decide to find another place to rent (2 adults, 1 dog, baby coming).

    We're looking to purchase a PPOR and have not come across anything that meets our criteria until now. I've just seen an ad for 4 townhouses on a block, estimated completion Mar 2016. Only one townhouse has been sold so far. Looking at the plans it looks like we could be quite comfortable there for at least the next 5-7 years (maybe even longer), plus it's located in a good public school zone, which works if we have kids, and will aid if we ever decide to sell. Location is good, near amenities, transport, parks, etc. The asking price isn't ridiculous for the area (for once!) and the long settlement time works for us as we're only a few months into our 1 year lease. Other similar properties in the area have are selling for a lot higher than we can afford.

    Am I crazy for even considering this? Would you go ahead / not go ahead if you were in my position?
     
  2. WinDyz.

    WinDyz. Well-Known Member

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    If this is for your PPOR, why not ? I always think buying for PPOR is completely different to buying an investment. You buy with your heart and you don't need to look at the number. If you and your family like the area and have the money, I say YES go ahead
     
  3. EN710

    EN710 Well-Known Member

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    Yes for me.
    I did this two years ago.

    If it's a good area and you'll stay there for a decent amount of time, go somewhere you'd like to live in (as long as you can afford it)
     
  4. Be Developer

    Be Developer Property Developer Business Member

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    @swanqueen

    OTP for PPoR

    Pro:
    Pay 10% now and lock in purchase price
    New
    for next 12-18 months keep saving and put it towards stamp duty

    Cons:
    you don't have feel and touch effect
    Valuation may be Lower/Higher
    Developer may not complete the project within sunset clause.

    I have friends who have experienced Pros and Cons of OTP.

    Best to buy something, that is near to completion!
     
  5. Perp

    Perp Well-Known Member

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    Get legal advice on the contract prior to signing, and see whether you're adequately protected against a developer on a "go slow" to trigger the sunset clause. The fact that the price is low actually alarms me a bit, and makes me wonder whether they're just using purchasers to get finance, and intend to trigger the sunset clause.
     
  6. The Y-man

    The Y-man Moderator Staff Member

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    As much as I write against OTP as an investment, I am fully for it as a lifestyle choice.

    Living in something brand new would be nice right?

    The Y-man
     
    swanqueen likes this.
  7. swanqueen

    swanqueen Well-Known Member

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    Thanks guys for your comments. I was worried that I'd let my heart do the thinking instead of my head - which is why this forum is such a great place to bounce off ideas.

    @Perp and @Be Developer what is this sunset clause you mentioned?

    From a developers perspective, would a 5% deposit be palatable, instead of 10%. Or maybe even a bank guarantee?

    What other things can I do in order to protect myself if I did decide to jump in?

    Oh - and finance. In VIC i think you can put a 'subject to finance' clause in the contract. If I understand the process correctly, finance will come through when the building is completed (or close to completed). Is that right? How would one use the 'subject to finance' clause with OTP?
     
  8. swanqueen

    swanqueen Well-Known Member

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    That's partly why I've fallen in love with this (even though it hasn't been built yet!) I'm like a magpie, I like all things bright and shiny.
     
  9. Bayview

    Bayview Well-Known Member

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    Location:
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    My Auntie and Uncle did an OTP for a PPoR in Essendon several years ago...

    It was great - until they found out (after thy moved in) that a decent number of the other townhouses in the complex were rented and the renters were ****** for the most part; who made lots of noise, had no respect, etc

    Destroyed their experience and the feel of the place, so they sold up and moved away.

    So; that's the warning; you may get cr@p neighbors.

    Mind you; your complex is only 4 dwellings - they lived among about 30.

    Tell yer what; buy my joint - pretty much brand new; you'll love it...10% deposit now and balance in 12 months as per yer OTP.

    We have great neighbors, quiet court, amazing Bay views.

    Sell for $1.6m

    You can even move in and rent it until settlement if you wish. We'll do you a good rate.
     
    Last edited: 7th Jul, 2015
  10. Perp

    Perp Well-Known Member

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    Um, that would be the main reason why OTP has a bad rep. ;)

    Sunset clause is a date where, if the properties aren't completed, the developer can cancel the contract. The idea behind them is that if they get a horrific - say more than a year - delay in planning, they're not forced to sell properties, that have now cost them a lot more to build, at the original price; they can instead cancel the contract.

    The problem is that many developers have been misusing them for market advantage. Say the finished value is predicted to be $600K, and that's what you buy for. After you sign your contract, the market booms and the developer realises they could now get $800K for the townhouses. Now they don't want to sell to you any more, so they deliberately "go slow" and make sure they're not completed by the sunset date. They then cancel your contract and sell to somebody else for $800K.
     
    Big Will likes this.
  11. The Y-man

    The Y-man Moderator Staff Member

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    Deposit - usually doesn't worry them.

    VIC - I don't think you can put a subject to finance. The banks can refuse to lend you if the valuations don't come in sweet at completion.

    The Y-man
     
  12. Befuddled

    Befuddled Well-Known Member

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    Location:
    Sydney
    Are there any current near new stock in the area you're looking at? I'd go for that instead. Why? - you can move in right away!

    BTW I voted yes
     
  13. Tillie

    Tillie Well-Known Member

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    Also do not forget if your personal circumstances or market changes and the house valuation falls short before your settle, banks might not lend you as much as you thought. But if you have enough buffer that should not be a huge issue.
     
  14. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Read the sunset clause very carefully in the contract :)

    Developers have a tendency to not complete projects on time and like clauses to cover them for being VERY late. Or worse, allow them to renege your purchase and re-list the property for sale for a much higher price.

    You wouldn't want to get stuck renting for another 3 years, I am guessing..
     
  15. vtt

    vtt Well-Known Member

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    Location:
    Inner West, Sydney
    When it comes to PPOR then do what you want. Hubby and I did this 12 years ago buying an OTP townhouse 3 months from completion.

    My advice:
    - for the first two years expect that a lot of your neighbours are renters, though this is not an issue if you buy a nice place in a nice area as it will likely attract a better class of tenant
    - get ready for defects. Be prepared for leaking bathrooms, cracks in your beautiful perfect walls and water ingress in places that you'd never expect. Make sure the builder is reputable and not likely to go under any time soon.
    - don't buy any of the extras eg upgraded carpet, upgraded kitchen etc. After a few years (or right away if your budget allows) renovate your apartment to be totally to your taste and make it unique so it doesn't look like all the others, doing this smartly will make YOUR apartment the one to buy and make its rarity level increase
    - purchase the best located apartment, the one with the north aspect or north east aspect, and the one with the most practical floor plan. For example buy the one that has good sized bedrooms and a bathroom that has a window. Avoid anything that has bedrooms with no opening windows and bathrooms without a window - ventilation is critical in avoiding mould and a window in the bathroom is a psychological positive for future buyers
    - be prepared for strata fees to go up after the first five years, it's about this time that everyone realizes that the block needs maintenance!

    Good luck!
    vtt
     
    Gockie likes this.
  16. wombat777

    wombat777 Well-Known Member Premium Member

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    Make sure you get a building inspection done on completion as there can still be construction/quality issues that should be sorted out. If you can arrange it and construction hasn't started, see if you can negotiate stage inspections as special conditions when signing the contract. Best to get someone independent.