kitchener drive darwin
should i buy a new apartment in darwin. ifyou are looking at investing in property, should you purchase a new apartment in darwin?maybe because you think darwin is a good area or you are going to get some sort of governmentgrant or government boost in order to invest in new property. well, there are definitelysome things that you should consider and some big risks that you need to be aware of ifyou are looking at investing in new apartments in darwin.hey, i am ryan from onproperty.com.au, helping you find positive cash flow properties andthe reason i am creating this episode is because i had a reader email me and say, "hey ryan,i am a fifa worker so fly in, fly out, looking at investing in a property in darwin. goingto live in it for 6 months and then potentially
move out and rent it out as an investmentproperty. what do you think? are there some things that i should consider?" and they arelooking at a particular new-build apartment in darwin.so here are some of the things that i think you should consider when you are looking atany new-build apartment at all whether it is in darwin, melbourne, sydney, gold coast,timbuktu, wherever it is it does not matter. you need to consider these facts. and thefacts are - i think it is about over 80% of all new-build properties in australia aresold through property marketers. property marketers are people separate to the developerswho try and sell the properties for the developers. so effectively, they act like real estateagents but the reason this is a concern is
that they get big commission on these properties.because there tends to be an oversupply of these properties, because these propertiestend to be overpriced anyway and hard to sell; these companies and developers employ thehelp of property marketers in order to sell these properties and property marketers geta commission for that. commissions for a standard real estate agent selling a regular propertytend to be around the 1% to 2%, maybe 3% mark. commissions for someone selling a new buildproperty or property marketer, anywhere from 6% to 8% or it can be discretionary, anywherefrom $5,000 up to $70,000 or $100,000 commission. now, this commission is generally added ontop of the developers' margin, that they want to make. so it can lead to massively overpricedproperty.
i am really concerned about this because ihave seen so many of my readers, i have seen so many of my friends actually got stung bypurchasing new-build property through property marketers that were overpriced for the area.they got sucked in by the sales pitch and end up paying too much for a property. i dida full episode on things that you can do to mitigate your risk when buying through propertyadvisor or property marketer. they tend to disguise themselves property advisors offeringfree service out of the goodness of their hearts. so you can check that out. go to onproperty.com.au/282and i will talk more at the end of this episode about some things that you can do to mitigateyour risk. so wherever you are buying, whether it bedarwin or anywhere else, if you are buying
new-build property and you are not going directlyto the developer, you are not buying the land yourself and then sourcing a builder yourself,then there is going to be a large chance that that property is going to be overpriced becausethere are just many layers of commission in there and profit that people need to makeso the property ends up being with an inflated price. so big risk no matter where you arebuying. the thing you need to consider when investingin darwin in particular is i was at a wedding the other day for ben everingham who is myrecommended buyer's agent and i was sitting at a table talking to people who lived indarwin and they were saying, "yeah, in darwin at the moment so many rental properties inthe market. rents are going down and you can
really bargain for properties and get rentat a really good price." and they were talking about how awesome it is for them as rentersin darwin because the rents are going down for them. so it is a big .... as soon as ihear rents going down and that there are a lot of properties, you can kind of pick andchoose, to me that says that must mean a high vacancy rate and as an owner of a propertyyou want that to be low vacancy rate, more demand than there are properties because thatpushes rent price up. you do not want it to be going the other way because that tendsto mean an oversupply in the market which leads to both long vacancy periods, lowerrents and also when it comes to selling your property, it becomes harder to sell your propertyat a good price.
so i thought i would do some research intothis, so if you go to onproperty.com.au/vacancy, it will take you to this tool by sqm research.absolutely awesome vacancy rate tool. and i have put in the postcode for darwin, whichis 0800, and basically you can see vacancy rates. now to give you a guide, anything under1% is awesome; under 2% is good; under 3% is pretty good as well. anything over 3%,you get a bit concerned about and anything over 5%, you kind of want to stay clear ofthat unless you are absolutely sure you know that market. so i looked at darwin and i lookedat july 2013 or let us go forward, september 2013, we can see rental rates of somewherearound the 2% to 3% mark. not too bad, that is alright. but then we look at the last year,18 months, and we can see this steady increase
in vacancy rates in the area to the pointwhere there are 120 properties on the market in darwin itself with probably a 10% vacancyrate. it does not give us accurately, exactly what it is. but 10% vacancy rate is bad. andgrowth in vacancy rate is bad as well. so when you see high vacancy rates and you seethe vacancy rates going like we do in darwin, that is a red flag that is oversupply in thearea. now if you are looking at purchasing a new-buildproperty, like an apartment complex, all of a sudden when this project is complete, thereis going to be another 30, 40, 50, a hundred property that instantly flood the market assoon as this is complete in terms of availability, in terms of rental and things like that. wealready have high vacancy rates, probably
an oversupply in the area and if we are purchasinga new-build apartment, it is going to be more properties. is that not just going to leadto more oversupply? so if i am going to invest in darwin, i wantto look at the economics of darwin. i want to look at population growth of darwin. andif i am investing in an area that is already oversupplied, i need to know that in the futureit is not going to be oversupplied because maybe we are running out of land to developor maybe there is going to be an influx of people into darwin because darwin is so awesome,i do not know. i do not know much about darwin. but when i look at darwin and i look at purchasingnew-build apartments in darwin, i do get very concerned because: a) new-build apartmentsare generally overpriced anyway; and then
b) the vacancy rates in the area is extremelyhigh and that is a big for concern for me. so what are some things that you can do tomitigate your risks if you are looking at investing in new-build apartments, whetherit be in darwin or anywhere else. the first thing that you should always, always, alwaysdo is actually research existing apartments. now this particular development that i waslooking at, i am not going to call them out by name, but basically they are 1-bedroomapartments, started at $430,000 and went up to $460,000. so what i would then if i aminterested in 1-bedroom apartments, i simply go to realesteate.com.au, to the buyer's section.i put in the suburb, which in this case is darwin. i make sure i am only looking at thesame property type, in this case it is apartments
and units, and i set minimum beds and maximumbeds to 1. so it is only going to show me properties with 1-bedroom. and basically ihave sorted them by date, newest to oldest, and if i go through i can look at existing1-bedroom apartments that have already been built and look at the price. so we can see$348,000 for this 1-bedroom property in darwin. so that is $80,000 to $110,000 cheaper fora 1-bedroom apartment. now obviously you need to compare what the complex is going to belike, what the property is like. but basically i can go through this. i can see this placeis $250,000. this looks very small because of the couch in the kitchen, so maybe notexactly relevant. we have a pretty nice-looking complex here, $353,0000. again $80,000 to$110,000 cheaper. i am going to ignore the
ones that are super cheap. we have one here,$460,000, so that is a similar price. again $350,000, $370,000. one for $565,000, i wonderwhy that is so expensive. a cheap one for $225,000 and $250,000. maybe they are holidayresorts or something like that. maybe they are studio apartments. $345,000, there isanother one for $460,000; $349,000; $385,000; $425,000; that looks like a new-build propertythere. we can keep going through this, $360,000; $397,000; $350,000; one for $478,000; youget the idea. the majority of the apartments, 1-bedroom apartments, in darwin seem to bearound that $350,000 mark. there are a few above that in the $400,000s but generallylike $350,000, $380,000, $398,000. there are cheaper ones for $275,000. here is one for$400,000. and these are big apartment complexes
so they probably have all the good stuff likea good pool, they have the gym, they have all that sort of stuff in there because theyare already in bigger apartment complexes. so by doing our research and researching existingproperties, we can really get the idea that, "hang on a minute .i can purchase this new-buildproperty and pay potentially $80,000 to $110,000 more than i need to." and the fact that wehave a vacancy rate of 10% in darwin might mean that these people are finding it hardto sell their property which means that we could get a discount on existing propertieseven further to save us even more money. so is it worth buying new-build property andgetting maybe a grant or maybe a boost from the government of $10,000 to $20,000 but overpayfor a property by $80,000 to $110,000. you
do the math on that. for me, that is absolutelynot worth it. the second thing that you should try and dois to find out how much commission they are getting. if you ask these property advisorshow much commission they are getting from these property, generally they are not goingto tell you and that is a big warning sign for me because if they are not willing todisclose their commission, if it is not transparent, then that is an issue for me. for a real estateagent, it is really easy to find out their commission. it is generally like around 2%.you can call the real estate agent and say, "look, i am looking at listing a property.just trying to work out what your commission right is." and they can probably tell youright off the bat, very transparent. however
with property marketers, they tend to hideit. in the fine print, the commission is generally put on the build, not on the purchase of theland or whatever it may be. so, definitely concerns there. so try and find out how muchcommissions they are getting. you are probably never going to find out which means they areprobably getting paid too much. and also, if there is a rental guarantee,run for your life. basically. rental guarantee means that they are offering something fora reason. there is no free lunch in terms of property. you are not going to get a rentalguarantee because they absolutely love you, they are offering rental guarantees becauseit is hard to sell these property at this price. by offering a rental guarantee, itis kind of like a carrot that an uneducated
investor is going to think, "oh, this hasa rental guarantee therefore it is a good investment." so it is kind of a trick of thetrade. they offer a rental guarantee on an overpriced property in order to get peoplewho want that guarantee and see it as stable, to actually invest in the property withoutdoing their own research. so if you see rental guarantee, run away.so those are the few things that you should do. i have a list of 7 things that you shouldalways do before buying from a property advisor. you can download a free checklist for that.go to onproperty.com.au/282 in order to get access to that free checklist. so when itcomes to should i buy a new apartment in darwin, you guys can see my opinion on it. it is thatit is high risk and you really need to consider
your options, consider the future growth potentialof darwin before going ahead and doing this. but definitely some concerns that i have aboutdoing that. look, i wish you the absolute best in yourproperty journey. i do have a course on how to do suburb research. so some of the stuffthat i have talked about here to understand whether an area is a good area to invest in,likely looked at darwin and we saw high vacancy rates - that is one of the things to lookat, we also want to look at population growth, the economics of the area and a bunch of otherthings to make sure the area is a good area to invest in.so if you want to learn more about how to do suburb research, check out my course. goto onproperty.com.au/suburb and you can check
out the course details over there. that isgoing to help you mitigate your risk, understand the suburb so you do not invest in an areathat is oversupplied like darwin is potentially and so that you will invest in an area whereit is likely to grow in the future. so again, that is onproperty.com.au/suburb.until next time guys, stay positive.
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