Hi ,

Ive been looking at buying in Darwin NT for a while now and have started looking at off the plan apartments in Darwin CBD area. this will be my first property purchase and looking purely at investment. I am looking at new for the tax benefits mostly.
Darwin is quite a pricey area, although inpex have signed on and i am getting feedback from numerous real estate agents that prices are likely to jump up again soon.
I will be using a limited equity loan from my parents to help fund the deposit, when i decide on a property.
I was hoping for some input as its a big step for me and seems quite a bit of money.

the off the plan i was looking at is a 2 bedroom 2 bathroom unit in a 27 storey complex (6 of those car park and other amenity)
asking price is 545,000. the recent sales for similar units in the area are in the range of 480,000 to 500,000, although they are between 5yrs old and up. a couple of other developments are selling in the same range (around 530,000 to 570,000). I am getting conflicting advice from everywhere.

what do people think. is it worth it buying an off the plan for that price? what are peoples opinions that the prices will rise above buying price for a 2 bedroom unit.
I will probably want to buy another property in about 2 years for a reno (probably not in darwin), so am wondering if ill have the capacity to do that.

thanks in advance to any advice on this.

Rachel

Hi Rachster,

Wow - OTP and throw in 27 storeys to boot doesn't make a good mix for me.

You haven't said how long before the property will be completed so this next comment may not necessarily be relevant. OTP often come with contracts with little or no wriggle room and in a finance world we are currently experiencing I would advise against buying OTP, particularly if the period before ownership is long as you are susceptible to variations in valuations, market changes, bank lending policy changes, interest rate fluctuations, career changes etc This is moreso the case given you are using your parents to help you get started. While on your parents make sure they fully understand what they are doing for you in a financial and legal sense.

Being a 2 bedroom + 2 bathroom apartment is a good decision BUT being a single apartment in a big building means you have very little capacity to add value to your unit above the values achieved by the others. The performance of your property will be inextricably linked to the performance of all of the other units in your building and also in the adjoining buildings.

I would also be very wary and sceptical of the body corporate fees quoted. Being 27 storeys there will be lifts (probably four) and a swimming pool + other recreational facilities I assume. These amentitiesare very costly to run and your body corporate fees will reflect this. What cost were you wuoted for strata/body corporate fees?

There is a thread elsewhere on this site which may be of use toyou as you go through the decision making process.

See http://www.yourmoneymag....ent-Buying-Top-Tips.aspx

Based on my experience I would suggest the amount suggested for body corporate will be found to be too low very quickly. This will have a major impact on your cashflow.

Secondly I highly doubt a 27 storey building can be completed by mid 2013 if it hasn't started yet. That would seem a little quick.

You haven't mentioned the expected rental income for this unit - what have you been told?

Hi Rachster,

Done some quick maths for you based on purchase price of $545,000 and stated rental income of $630/week.

Gross rent return is around 6% mark or $32760/annum (assume full rental)

Need to allow for costs as follows:

2 weeks vacant/letting fees etc - $1260
10% property management fees - $3276
Body Corporate $3412 (I think these will be very quickly found to be too low)
Rates - $1100
Interest (assume 90% lend @ 7%) - $34335

Total outgoings = $ 43,383/annum
Total Gross Income = $ 32,760

Loss = $ 10,623/annum (just on $200/week)

Obviously tax deductions and depreciation will smooth this out a little for you.

Now I don't know your income or your capacity to service the loan (and you don't have to tell) but as a first property I would prefer to see someone start with a smaller step initially before building upwards.

Using a buyers agent is one option some people use. In your situation it would appear as if a smooth talking salesperson has got their hooks into you. Be prepared to walk away and have a chat to some BAs in Darwin.

When selecting a BA make sure you know what your long term property goals are - I know this can be hard at the beginning but knowing this means your BA should be able to find the property that suits you. No point buying an orange if you were after an apple.

Hi Rachster,

Wow - lots more questions. That's OK - honest.

I am not a user of BAs so I am not sure of their costs. Andrew (who at times posts here) is a Brisbane based BA. Hopefully he will be able to provide some comparison to the costs you have been quoted.

In terms of where to go and what to buy there is so much to consider.

1. Have you had your borrowing capacity assessed by a broker?
A broker is more useful to you as an investor. Get a good broker and they will become a valuable asset to you as you progress along your journey. While a lot of people focus on the getting the property right it is equally important (more so?) to get the financing right. This extends beyond just how much you can borrow but includes your loan structure (not so much of an issue for first property but certainly thereafter).
2. While your structure at this point in time may be relatively simple - there will be some advantages to you using Lenders Mortgage Insurance so your parents 'contribution' is kept ao an absolute minimum. Was this aspect of lending discussed with you?
3. I must admit I have been out of the Darwin market for 18 months+ and have lost track of prices in some of the outer lying suburbs (house and land) V small blocks of units V high rise (aside from your quoted price). Certainly if a 'unit' is your preferred investment property something in a small complex will be less costly to maintain if you are only considering body corporate fees. Large and/or high rise apartments are very expensive from body corporate perspective.
4. Rather than fixate on the type of property you may find it easier to focus your attention on the attributes you want in your property - distance from CBD, shopping, public transport, schools, number of units in complex, local plans, employment opportunities, income levels etc. By doing this before you start looking at property you will narrow down the choices you investigate further.
5. Once you have identifed the key attributes you want in a property then start looking at what you can buy in those areas. This is why the discussion with a broker is important to your overall plans.

There are a couple of brokers here who may be able to offer their assistance.

Hope this helps.