All Topics / Help Needed! / Off the plan apartment mistake

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  • Profile photo of ariss123ariss123
    Join Date: 2015
    Post Count: 4

    Hello All

    Years ago when I knew almost nothing about property, I purchased an off the plan apartment in West Melbourne. It came to completion and settled late 2014. I lucked out as the property was slightly cash flow positive, so it is not costing me any money to hold it.

    I purchased a small one bedroom unit with no car park as this property was my “foot in the door” in a sense. It has been a great learning experience, however, after a seminar this weekend with Steve, I have realized that my desired investing strategy does not fit with this property.

    I purchased the unit for $310,000 and a recent free evaluation from a local real estate agent put the property between $300,000 and $330,000.

    With all costs of buying and selling added up (excluding early exit fees from my finance provider as I still need to find out the total cost of these), I stand to make $5000+ if all goes well or lose $25000 if I cannot get more than $300,000. I presume the exit fees will diminish any chance of me actually making a gain at all.

    Walking through Melbourne this weekend I noticed that there are many A LOT of apartment complexes being built. I am worried that there is far too much supply for demand and the lag of construction could affect my property’s price significantly.

    My question is: Should I look to sell now or hold onto this property long term?

    I feel that I should be cutting my losses as I could use the capital to work with my desired investment strategy.

    Since I am still quite “green” in property investing, any thoughts and advice would be much appreciated.


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    Profile photo of RedwoodRedwood
    Join Date: 2013
    Post Count: 340

    Hi there, depending on the size of the complex I may be interested. West Melbourne is obviously within walking distance to the CBD so very attractive for developers and buyers alike hence the supply of apartments. If you like you can send me the floorplan and the building and i’ll have a look at it. However, it needs to be less than 100 and preferably less than 50 in the complex for our clients.

    Cheers Ivan

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    Profile photo of StannisStannis
    Join Date: 2015
    Post Count: 23

    Hi Luke,

    I would probably do a couple of things in your situation.

    The first is to do a proper cost analysis of selling and see what you really will end up with as a profit or loss. There are some figures in your text, but even if you bought it for $310,000 and sold for $330,000 I would be surprised if you came away with any profit from a capital gains point of view, even though it was off the plan with what I assume is some stamp duty concessions (Vic new properties).

    Remember to work out your cost base for when you bought as well.

    As you say you are green, I’ll just point out a couple of things although you may already be aware of them.

    If you sell using a real estate agent, commissions are typically around 2.2%. RE agents can and typically do charge for marketing above and beyond their commission, and its not uncommon for about $2000 worth of marketing for a standard agent (this is: professional photos, “feature” ads on and domain, billboards, etc.). So on a $330,000 sale, expect a $7260 commission, couple of grand worth of marketing, $1500 for legals (contract etc.) and you easily can say good bye to $10k.

    You purchasing costs include stamp duty, not sure what that looks like on this particular property but it would be in the correspondence you have with the conveyancer (legal team that did the transfer of title), as well as the legal team cost, plus any inspections that you had done, e.g. pre settlement inspections to identify defects etc. If you bought this off the plan you may have paid a fee to an investment group or buyers agency, that’s also a part of your costs. Anyway, for a $310,000 purchase price, it wouldn’t be far fetched if you actually had to spend $320,000+ to get it (more if it was an existing house as you would pay more in stamp duty).

    By the time you work out your sales costs and your buy costs, there isnt a lot left for a profit margin. And dont forget capital gains tax weighs in here – if you have made a profit.

    I have a similar situation with a property so I can more than emphasise.

    However, this isnt to say that you dont have some capital to roll into your next investment which you allude to. I am assuming your loan is around $290,000 or less. You mention early exit fees from your financier, there should only be minor fees unless you have a fixed interest rate for 6 months plus. Otherwise its pretty straight forward, some discharge of mortgage documents and the like, but nothing expected in the thousands, at least at the conventional ‘big four’ banks anyway for a standard variable investment loan.

    The real estate agent can do a market appraisal and/or a comparative market analysis – some agents call this one and the same but just beware your terminology. ‘Valuations’ are typically reserved for valuers, who assess a property and give a formal report. A valuation is typically ordered by the bank (at your behest), in order for you to get them to realise any growth so they will look at financing out some of the equity. Have a look at what the RE Agent gave you, hopefully there is comparatives in there (some times the appraisal is just a letter) so you have an idea yourself – real estate agents can inflate a price to get you to want to sell so just run some diligence on this side of the fence as well.

    I’m a numbers man, I like to do a lot of analysis because the numbers dont lie, and informs you exactly what point you may sell at to make a loss, or make a profit (dont forget CGT).

    The other side to this is your concern about your market. This is another conversation however what I would say to you is this: How well dialled in is your goals and strategy? Are you not sure about them, and you’re not sure about this property as well? Really take the time to evaluate your goals and strategy and plan. I wish I had done that before I started my portfolio, buying and selling assets, making losses and some profits. If your concern is about the over supply, then get informed, really dig into it, all these apartments on the way, well what does demand look like? Whats pop. growth? Hows employment looking? Whats the economy (interest rates/consumer sentiment) doing? how much supply will these developments give? whats the feeling on the street – talk to real estate agents, buyers agents, existing investors, locals, council, town planners – whoever.

    Not saying dont sell, just saying do the numbers, and if you are going to sell, know what you will make or lose before you do it, and have a reasoning for why you can take the loss or profit at that time that stacks up. Do the research and be informed. Perhaps its just that you can do better with that capital somewhere else as you mention. Realise the time it may take you to sell the property, or even find a property that is in line with your strategy.

    Hopefully a couple of things to think about,

    Happy investing and best of luck,


    Profile photo of Modernity InvestingModernity Investing
    Join Date: 2006
    Post Count: 181


    I would suggest you need resist the temptation to trade your 1st property. Property is medium to long game at best.
    It’s an asset, it’s not costing you anything to hold it and your properly selling at the wrong time in the market cycle for West Melbourne. You can be assured that you haven’t been ripped off because of the market appraisals show you are at best break even. Double check you are claiming depreciation, sit tight, and one day you will be pleased you didn’t sell it.

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    Profile photo of ariss123ariss123
    Join Date: 2015
    Post Count: 4

    Thanks Ben and Mark for your great responses!

    I’ve decided to do some in depth research on the area before making the final decision. I still plan to sell it but I will also go get expert (non bias) opinions to help me understand when will be the right time to sell.

    Ben, I have decided for my investment strategy to purchase properties where I can add value right from the start (renovations, subdivisions, etc.). Obviously a brand new apartment doesn’t really fit into this category. I guess I’m lucky that I only purchased one property before discovering the approach I wanted to take.

    Mark, after looking into the market cycle I have to agree. It is more than likely a better strategy to hold this property long term. I look forward to doing my own research to see how long it may take to reach a profitable value. As above however, the strategy I wish to follow doesn’t align with the property. Being in my early 20’s, I don’t have much capital to work with and don’t want to have a majority of my capital tied up in an asset that is going to take several years to perform.

    Again, thank you both for your insights :)

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