Over the years we have purchased five properties together and currently hold four.
I wish I could say I knew exactly what I was doing back then, but it was quite the opposite.
So here is the first of a multi-part series on our property journey, and the lessons learnt along the way.
Age and living circumstances
I was 26 years old when I bought my first property in Sydney. After working two years overseas, I was two years into new and fairly stable job. I was living with parents at the time, and they were encouraging me to ‘get onto the property ladder’.
Why I started looking at property
At the time, the Sydney market was coming out of a 2 year slump (2010-12). I was hoping to find a place to move out into. The first home buyer concessions were attractive – including a $15,000 First Home Buyers grant and stamp duty concession. But it required a purchase of a new home.
What I ended up buying
I was looking mostly in the Inner West and Lower North Shore areas. My parents were pushing me towards off the plan apartments. Personally, I wanted to buy a semi or house in the inner west.
In the end I settled for a 1 bedroom, off the plan, unit in the lower north shore, in the suburb of Greenwich. After getting the first home buyers grant and stamp duty concession, the purchase price was $505K.
What buying an off the plan property is like
With off the plan apartments, you don’t get the benefit of seeing a property – it’s all glossy marketing brochures and peering at a tiny display model of the block.
At the same time, it works if you have a small deposit because you can put down 5 – 10% and then pay the remainder (a further 10%) when the property is fully constructed and reaches completion. It also works well in a rising market. Maybe I’m naturally a worrier, but not knowing what the end product would be like was a great source of anxiety.
My anxiety was on a few fronts:
1/ Not knowing exactly what the final product would look like.
2/ Not knowing when it would settle – i.e. when I would need to stump up another $50K deposit.
3/ Now knowing when I could move in – construction delays can mean your move in date is months later than anticipated.
How is it doing now?
After living in the property for a period, I decided to rent it out. I started getting rents of about $600 a week. Which is pretty good yields wise. Rents have declined across the board in Sydney, so unfortunately I’m getting no where near that original rent amount. The property is valued at about $750K so it has appreciated (on paper) at least.
Things to look out for / lessons learnt for off the plan
- Make sure you can get a loan at settlement. You might have a job now, but will you have one in 12 months time? You need to be in a stable income position to be able to get a loan at the time of settlement. This might be 12 to 18 months after you exchange contraccts and ‘buy’ your off the plan home, due to the construction period (and any potential delays).
- Do your due diligence – on the developer, builder etc. As you will be relying on their track record and reputation for the quality of the final build, rather than being able to inspect an established home. Even THEN…a number of large high profile builders have been involved in off-the-plan defects of late.
- Report all the tiny defects After settlement there is usually a few months period, where you can report minor defects and these get rectified by the builder. In my case, I had 90 days warranty period over minor defects. For major defects, the waranty period is six years in NSW. Look into every nook and cranny of your new home to see what needs fixing. For me, the kitchen stone bench wasn’t quite glued on right, which was reported and fixed.
- Watch out for low strata quotes. You don’t know exactly what the strata will be for an off-the-plan unit – which can create cash flow uncertainty. Usually the develoepr/agent provides an estimate. Expect your strata bills to increase relative to that initial estimate. Why? Because a lot of things soon run off their warranty period and maintenance and repairs won’t be covered anymore. If there are defects, a sinking fund may be added on top of the usual strata fees to help with repairs.
- Be ready for a flood of properties in the rental market on completion. If you intend to use as an off the plan property, keep in mind that a flood of properties in the same developerment will hit the rental market, all cookie cutter identical to yours, at completion. The imbalance in supply and demand will likely result in either a longer time on the market, or reduced rents.
Hope you found this helpful! I will post our next few properties in due course.