Jane compares houses and units for first-home buyers in the FHLDS scheme. Houses historically outperform because land appreciates while buildings depreciate. Units carry extra risks: oversupply, building defects, body corporate costs, and off-the-plan delays that can cost you tens of thousands.
Questions this video answers
June 26, 2020.
A 10% deposit of $50,000.
From $400 per week to $320 per week.
Scheduled for 2018 but only completed in 2020.
First Home Loan Deposit Scheme, round two.
Chapters
Hi, it's Jane here and welcome back for my next tip for those first home buyers who are looking at buying their first home, especially those of you who are preparing for the first home loan deposit scheme round two. Now yesterday we talked about a bit of information regarding, you know, why you would look at potentially using the home builders grant and how you could use it and my warnings and concerns about the pros and cons about that. Now one of the things that I picked up on, you know, there's a lot of people who were looking at using that to buy an off the plan unit or to buy a house and land package. And today I just want to talk about buying units versus houses. Now the top three questions that I get asked are always should I buy a buy new? And the second most common question is should I buy a house or a unit? Now traditionally what we have seen across Australia is that the properties that have gone up in value the most are those that have land because, because the house actually depreciates in value or the unit and the land goes up in value. Now obviously if you have a unit, you have a smaller percentage of the land as a component of your overall ownership than what you would have as a house. So my concern with people who are buying units, and I do own a unit, but is that they're not aware of all of the issues that come with it. Now let's be very clear here. We know that there has been an oversupply of units in some of the major capital cities throughout 2019 and through 2020. We know also there's been some building regulation issues and fire issues that we've had with some of the newer units that have gone up. We know that some units have been specifically built for major target markets around student accommodation and obviously with immigration slowdown at the moment that there's some real concerns about those units as well. So there's a lot of different types of units. New, old, in very large blocks, on big developments or in smaller blocks and those that have a niche market. Now my concern with buying a unit and especially a new unit is there's nothing that actually distinguishes your unit against any of the other units in the complex. So when someone can't get a tenant and they drop their rent to 320 a week from $400 a week, that kind of now becomes an expectation of what the rent is. But more importantly, when they drop their 450,000 dol thousand dollar property to 420 or $320,000, that is a bigger issue because that now becomes the set point of what the valuers are going to value the other properties in that building against. So you are actually at the mercy of the market. Now what often happens in new units as well, these new units all come on for sale and rent at the same time. So if you bought a new unit, what you'll see is the people who are investors will also then put them their property on the market at the same time to lease that property out. Now if you're going to be clever about this, potentially what you would do is maybe have a six month lease or a nine month lease. So your lease comes up at a different time than everyone else's in the market. But there's all of these risks that are associated with it. Now buying off the plan, traditionally what happens is you're buying in 2018, you're buying at 2020 prices because the developer sees that over that period of time the property should go up in. What can happen though is that it's you as the buyer who's taking all this risk, not the developer. So arguably should possibly not only be buying at 2016 prices, but even lower than that because you know there is actually more risk associated with you taking on that property. Now I recently had a client who took on a property to purchase off the plan. It was supposed to be finished by 2018. It has only just been finished in 2020 now due to Covid, his employment circumstances have changed and he can't complete that sale. And the developer who's delayed this for over two years now, as I said, in three weeks time, you have to settle. Now there's you know, tens of thousands of dollars, a 10% deposit that could be lost due to the fact that they're not going to be able to sell that property or purchase that property. But there could actually be an economic cost. So if he bought that for $50,000 deposit, so $500,000 property, so he'd secured the property with $50,000 and that 500,000 DOL now going to sell at 450 or less because of where the market is, he could also be up for that change in price. So there are a lot of issues associated with buying off the plan or pre purchasing like that. And as I also discussed with the value of your property being affected by the other properties in the area. Now I have had oldie style units, I've had been in blocks of units that don't have lifts and don't have all the strata fees, but still the ownership of that unit, although it's mine. I have to go to the body corporate and have to request any major changes that I'm making as well. And really, you know, in one of the units that I own it came up that there was some work to be done. And I'll share the whole ugly story of that later when we're through it. But the cost blew out. You know, per unit was up for over $100,000 each in the costs of the renovations and improvements were going to be made. It's still not completed. There's little old ladies who are selling their units because they can't afford to keep because they were living on their pension and this is just taking the last of their money. So just horrible stories. And that's because works had to be done and the group decided on going one way and that resulted in very, very large costs. So, you know, I just want you to be aware of there are so many issues when you're thinking about house or units in buying. Traditionally houses have outperformed the unit market. There are risks in the unit market. I know sometimes that it does feel that it's cheaper to get into a unit. But if this is a stepp for you to buy into a unit as a first home and potentially make it an investment property like what I talk about and creating that foundation of financial security for you for the future, a unit may not just be the right thing for you. Now I do have an ebook that I can share with you if you go to when I tell you in one moment if you go to JaneSlaxmith.com au forward/hunting properties and I'll actually put this in the links for you below. But if you go to that that page, I'm going to put in there an ebook for you with the three top questions that I answer because I really think before you go ahead and buy a unit you should be aware of all of the risks and might be cheaper, but it might just be something that could set you back many, many years. Anyhow, I hope this has been of benefit to you and as always, here is to your property success. Bye for now.
