Elaine Davies is the Founder of New Road Property, a boutique buyers agency based in Sydney. You may remember Elaine from our previous episode, ‘The mistakes most first home buyers make (and how to avoid them!)’.
In this episode, Elaine takes us back to basics, and breaks down everything you need to know about the different kinds of properties you might buy. She’ll explain what all of your options are when it comes to property types and how they’re defined, and share her biggest tips for deciding what kind of property is the best option for your first home.
Get in touch with Elaine Davies
Buyer’s Agent & Founder of the New Road Property
Author of the “Mind, Body, Sold”
Mobile: 0412 362 133
the information contained in this podcast is general in nature and is not to be taken as financial or personal advice.
It does not consider your objectives, financial situation or needs.
You should consider whether this information is suitable for you and your personal circumstances before acting on it.
Hi and welcome to the home Run your guide to buying the first home in Australia.
On the show.
I’ll walk you through the home-buying process from every angle we cover the steps to take the pitfalls to avoid and the answers to all your questions you’ve been dying to ask.
No matter what stage you’re at, you’ll learn everything you need to know about buying your first home.
I’m your host, Michael Nasser, and I’m a mortgage broker at Lendstreet, and I really love helping people buy their first home.
Elaine is the founder of New Road Property, a boutique buyers agency based in Sydney.
You may remember Elaine from the last time she was on the show, where she shared the biggest mistakes many first-home buyers make and how to avoid them.
In this episode, we’re going back to basics and breaking down everything you need to know about the different kinds of properties you might buy.
Elaine will explain what your options are When it comes to property types, she’ll breakdown how to define everything.
Plus, Elaine shares her tips to help you make the best decision for what type of property you should buy for your first home.
I hope you enjoy today’s conversation.
Let’s jump in.
Welcome back to the show.
Thank you, Michael.
It’s an absolute pleasure to be here.
So this is your second appearance on the show.
And I know you know a lot about property in Australia, but I wanna start out with a fun question before we dive into today’s topic.
If you could live anywhere else in the world other than Australia, where would you live?
Oh, I’ve never been to Greece and I’m obsessed with Greece at the moment.
You know those pretty islands where you see the white buildings?
Is it Ozo?
I wanna drink Ozo and eat Greek food and not south of France.
I’d like to live in Spain as well.
We’re going to do something a little bit different today, and something that I think can be really beneficial for our listeners.
We’re gonna talk about all the different kinds of properties that exist, and I really want to go back to basics here.
So we’re answering some seemingly obvious questions, but it will be really valuable if we can get you to explain and define them as well as talking about some of the pros and cons of each.
We’re gonna get in some fundamentals of what type of assets we really deal with.
When it comes to purchasing property, Let’s start off with the most obvious and what people generally think of the most, houses.
So this might sound like a stupid question, but what actually makes a house a house?
What we think of as a house is that it’s torrent title and you own the land it sits on.
So you’re not just buying the bricks and mortar you’re buying the land.
Yeah, that it sits on, and that means you’ve got more freedom to do what you want with it.
Obviously, you have to have cancelled approval to change it, but there’s no and I know we’re gonna go on to strata, but there’s no strata to negotiate with you.
Still got to get your drawings drawn up and get the neighbours and everyone to agree to what you change.
But fundamentally, you can do what you want to it.
So you own the whole lot.
And what are the qualities of a house like?
I mean, when we think of a house, what does it generally comprise of like, what’s a house made of?
So a piece of land, then bricks and mortar that makes up usually a square shape.
It can be one level or two levels, so we have different names for those we can call them bungalows, they all kinds of things.
But it’s a house.
It doesn’t matter if it’s one level two levels or three or four.
If one person owns it and it’s one title sitting on land, it’s a house.
If we’re gonna think then of the pros and cons of purchasing a house, what would be the biggest pros and positives?
And alternatively, what would be the biggest negatives or downsides of buying a house?
So I think emotionally everybody wants to buy a house.
They feel they want to own the land.
So the second you walk in the gate in that picket fence or whatever the fencing is, and you walk up your path and you put your key in the door, you own it all.
So I think there’s a lot of emotional attachment, especially in Australia, about this house.
The other pro is what I just said.
You can do anything that you want to it within reason within council.
But there’s no strata or anybody else within that property telling you what to do.
You can definitely paint your door any colour you want.
There is nothing stopping you doing that.
There’s also nothing stopping the neighbour going to cancel and complaining.
But it’d be very difficult because you own it.
Yeah, it’s your house to do with as you please.
Yeah, And that’s probably a line to the old Aussie dream of, you know we all have aspirations to, and an obsession with property and property for us is generally land.
I guess that’s what we think about and that that is changing.
What are some of the the negatives, perhaps, of owning a house?
Anything that goes wrong, it’s on you, so there’s no one else with you, So if the roof goes, you come up with the money for that roof.
If there’s subsides, you come up with a there’s no you’re on your own, you know, and they don’t come up as much.
People are so caught up in buying houses, they can easily buy the wrong one.
So you always need to think the long term Will this ever turn into an investment?
Maybe it won’t.
But I always think about that.
What am I gonna do with this property in the long term?
The other downside is that they are more expensive.
So if you’re determined to buy a house, your lifestyle might be compromised.
If you’re determined to buy a house, they are more expensive because you’re buying the land as well as the building.
So your lifestyle might be compromised if you’re determined to go down that path with a smaller budget.
Strata Properties so that’s the alternative, and we need to talk a little bit about that.
To put everything into context.
Apartments are probably one of the most common types of properties that fall into a Strada property.
There seems to be a lot of different words for apartments.
What are some of those words and what are the differences between them?
Well, we tend to use unit in Australia and buy a unit.
Well, maybe we use apartments as well.
In the UK, it’s flat.
I live in a flat.
It’s condo in America, isn’t it?
Yeah, and we use apartments, units and flats, I guess, is so it’d be interchangeable.
That word it.
I guess it does it mean the same thing.
It means exactly the same thing.
The only word that’s different is studio, and that’s one room where there’s no separate bedroom.
So that’s a studio one room, so there’s no separate bedroom, living and everything.
Kitchen is all in one space.
One communal space.
Yeah, the bathroom is separate.
There are obviously implications when it comes to loans with those studio apartments, too, because they’re generally a little bit smaller than one bedroom and two bedroom units.
So this word strata we hear about it a lot.
Obviously, it’s related to units and flats and apartments and townhouses, and we didn’t really touch on townhouses.
What’s the difference between a townhouse and an apartment?
It’s a townhouse is a double level unit.
It’s still within a strata complex, so when you buy an apartment, you buy the air inside.
That’s really all you’re buying.
Some are different in that Some you are responsible for the balconies and the doors that some strata companies that you are literally just buying the air inside.
Which is why you can’t do anything to them without going to the strata committee and asking permission.
So in a strata company, if I needed a strata apartment, if I wanted to bring a wall down between my living room and my kitchen, I would need to apply to strata as well as council.
It’s almost like a governing body for that building complex.
Would that be a way to think of it?
And within that complex, you’d have about 6 to 8 people who are the body corporate committee.
You’d have a treasurer and a and, secretary and a chairman, a usual committee, a quorum, and then they would have running them as strata company.
And that strata company makes sure that the body corporate are paying their insurance that the strata fees are up to date.
So with the strata company, you pay strata fees once a quarter, which I really like, because it’s a way of saving, and the thing with having a house you don’t tend to save for that day for that roof going.
So it’s a few levels.
You’ve got a body corporate, which are people from who own in there and then that body.
Corporate is governed by an outside strata company, and it’s the body corporate that chooses that strata company.
There’s lots of them tonnes, so you have to choose which one you’re gonna work to, and you can sack them, employ new ones.
It’s the body corporate that runs that.
And what type of things are they running?
What are the type of activities at a strata company?
Or, if you’re buying, you know, in strata that these individuals or these groups look after for you?
The gardening, the rubbish, whether that place needs painting if there’s a problem with the building, say building has cancer, which is when concrete cancer, which is where a piece of metal has got rusty, and it has affected the concrete inside, and it it starts to kind of peel away starts to make things, flake away.
Rather so, concrete cancer is a fairly common problem in an older strata well any building, but they will look at that.
And if there’s not enough money in the pot, they will then have to do a special levy.
So you have normal levies.
But then suddenly, if they say, look, this building really needs painting.
The windows are beginning to flake.
We have to get paint on it, but we haven’t got enough money.
Suddenly you’ll be up for two or $3000 each, or it could be more.
But they will work out how much each apartment or unit there can be.
A townhouse needs to pay, and they will say to unit three, You’re a little apartment.
You’re only one bedroom.
You’re gonna be paying 3000.
Or they might say to the penthouse five-bedroom penthouse at the top.
You’re gonna be paying us 5000.
So that’s how the strata fees are split up.
You mentioned the pot, if there’s not enough money in the pot, then they’re gonna be raising special levies to cover costs that are incurred with communal sections of the building.
What’s the pot?
Is there another word for it?
Yeah, so it’s capital funds is the pot is where the money goes in every month, and that’s what you build up.
And then there’s an admin fund as well.
And that’s for the day-to-day running of the building.
So your strata fees are always split into two capital works and admin.
And then those strata fees get deposited into those particular accounts.
And then, if there is work to be done, then if it’s communal work, then it comes out of those.
And that’s why you were referring to it as savings earlier on, because you’re effectively putting money away in the event of a rainy day that there are funds there to get together so you can complete it and again bringing it back to what you were saying earlier about houses.
If there is something that’s wrong with the communal areas or something needs to be fixed in the roof or painting, then it gets shared amongst the people within the complex, as opposed to in the house you’re looking after it yourself.
Strata is probably, in my experience with first home buyers more often than not, especially in Sydney, and I know we have this in all over Australia, But within Sydney, the first home buyers are more often than not buying in apartment complexes.
So is there anything in particular you think?
If there’s an individual buying in a strata complex, do you approach that differently to buying to a house?
And what would the differences be in?
What would you say are the main take-homes or things to keep in mind if you’re buying in a strata complex?
That takes that strata thing to a third level?
So you’ve got your body corporate.
You’ve got the company that runs the body corporate.
And then there’s when you’re buying.
There are companies that put together strata reports, so the person putting together you can do it yourself.
But, my gosh, it’s fiddly.
It means going through all the files.
So there are companies who do strata reports, and they go into the strata company and go through all the minutes, see what’s been spent on the building and how much has been spent the last few years, how much money they have got saved.
So you have to buy a strata report and you have to read through it line by line, and it’s about reading between the lines as well if the building is old and sad and they they haven’t had it painted in 20 years.
Common Sense says that at some stage soon that building is gonna need to be painted, So there will be a special levy coming up.
And I always say to my clients, Right now, there are no special levies.
However, I always suggest you have money put aside for the upkeep of your property.
And that’s definitely in strata because the thing is with a house say the roof blows off, you can actually choose to live without it.
You can make a decision to put a tap over it and go bugger it.
But with strata, it’s out of your control.
If they say this building is being painted, it is being painted.
Yeah, you can’t object to it, I guess, if if it’s determined that it needs to be done.
So the Strada report when it comes to purchasing.
If you’re a first home buyer in a a unit complex or a townhouse complex, where there is strata involved is critical to obtain information.
Are there any red flags that one should be looking for?
Within that Strata report?
I think It’s really important to read the report properly because they’re big and they’re cumbersome and it’s very easy to go.
Oh, it will be fine.
Never do that and maybe give it to your lawyer and ask them to have a look over as well, like get a second pair of eyes on it.
There are red flags, but there’s also something that you need to get past.
Like if a whole lot of work has been done on the building, it looks scary because it’s like this went wrong.
This work was done.
It’ll all be detailed.
All the invoices from the workers and everything it’s done.
Yeah, you’re better to go into a building where the work is finished than go into something where no work’s ever been done and it looks like a nice, clean strata report.
I mean, and of course, look into it, but it’s better to go in at the tail end.
But the thing to look out for is low strata fees like people go, Oh my God, it’s great.
It’s got low strata fees.
No, that’s not great.
It’s like they a building needs to be looked after and I think even with a a red brick walk-up, you should be paying about 1000 a quarter for sure.
What are the biggest pros and cons of buying in strata?
And we can maybe look at apartments and then townhouses because they do fall into the same category.
But I’m sure they’ve got different pros and cons.
So what would be the pros and cons for buying in Australia?
Property In an apartment building?
You get more buck for your money. It’s just much easier living there, a lock up, and go off on holiday or anything like that.
But yeah, they’re safer.
You have a team of people around you helping you because they’re cheaper.
You can usually live in a nicer spot at the beach.
Live somewhere where there’s a cafe.
Yeah, they’re just easier living and cheaper.
And what would some of the downsides be?
If you get stroppy people on the body corporate, it can be annoying.
And the thing is, you can have bad neighbours with houses as well.
So people do say, Oh, what if you get bad people in the block, you can have yucky neighbours anywhere You can live in a little terrace house with paper thin walls and have terrible neighbours next door, so I don’t tend to worry too much about neighbours.
I think neighbours and neighbours have good or bad anyway, so that doesn’t really worry me either way.
But if there’s a finicky person on the body, corporate and maybe they won’t pass stuff, maybe everyone else is like, No, we really have to get work.
And there’s this one person if it’s a small strata, so a lot of people want to buy in a small strata.
But actually, that can be more awkward, because if you’ve got one awkward person and there’s just four of you, that can be quite painful.
So it’s just a matter of again reading that strata report and seeing.
Has there been any problems?
There will also be how many section in there that will say, if any of the neighbours, if there’s been any disputes in them.
Yeah, that strata reports critical, obviously, for a couple of reasons then.
They’re very similar if you’re inside a complex inside a strata complex, you run by the same rules.
You probably pay more strata fees because It’s a townhouse.
Maybe not quite as secure you are, but it’s the same.
There are a lot within a strata.
Even if you’ve got a townhouse and there’s a lawn at the front of your townhouse, then that lawn is still part of the strata.
Generally is it?
It’s the same as a balcony.
It depends whether it’s on title or not.
But if it’s a courtyard, it’s exactly the same as the balconies above you or to the left, to the right.
But it would be worth checking as to who maintains it, because you don’t actually want someone coming onto your lawn to maintain it.
Just like you don’t want someone coming onto your balcony to maintain it.
So that’s always worth asking.
But no, it’s yours.
It’s on title, and it’s for you to maintain.
I guess, shifting away from strata and we spent a bit of time there, and I think it’s important because it is generally the most common type of asset that’s purchased for a first home buyer.
Property asset, vacant lots and off the plan.
It is relatively taboo for lack of a better word.
When we talk about off the plan of just sort of negative media.
And rightly or wrongly, it’s definitely in the spotlight, and there is a reluctance for people to buy off the plan.
What does it actually mean to buy off the plan?
Well, first of all, I’d like to say this story is in my book.
One of my very close friends made a lot of money buying off plan, and she would buy them and sell them again before the dirt was broken.
There is a way of making money off plan.
You’ve just got to be super careful about what you’re buying.
So off plan means you’re buying a piece of paper if you’re buying off the plan.
So you’re looking at a piece of paper with all those blue lines and the developers going, and they will probably have one of those fancy models of the building.
And then you’ll have the real estate agent slash developer walk you around and go.
This is where yours will be, and so you just got to use your imagination a bit.
And it’s not that you never make money off plan.
It’s just that you often don’t.
And why is that? Are there any reasons as to why that’s the case?
So if you buy off plan in Sydney, they’re hugely expensive.
So when you get a a bit of land in Sydney or somebody pulls down an old house, they’re usually in blue chip areas, and then they’re not first homeowners at all.
They’re glamorous, they’re beautiful.
So the things that we can afford off plan are usually high density in not fabulous areas.
Maybe the developer is not particularly fabulous that we’ve.
We’ve had those terrible problems in Sydney.
But oversupply is the biggest problem, and often developments are ahead of the area, so the infrastructure is not there yet.
The the schools are there yet the jobs aren’t there and the developer will sell you, sell, you, sell you and you probably know this.
But there’s a lot of what I call clips when you’re buying offline so the developer will pay the mortgage broker the lawyer.
There’s a there’s a whole team of them that are paying each other and who pays for all that for the buyer, and you must never get caught up with rent guarantee because when you work out how much that rent is it’s only about 25 grand or something.
That is a bit of an illusion.
And I actually was speaking to someone during the week about this particular topic about the rental guarantee, and they, unfortunately did take the bait.
And for me it’s a bit of a red flag.
The property should be good enough in its own right to sell itself.
You don’t need any incentive or further incentive beyond the property itself to purchase.
So that’s definitely a good tip and something to be sceptical of, if that is being promoted as part of that sales strategy.
But I think, yeah, there’s definitely a lot more premiums that are factored into the cost of the planned purchase that you’ve got to be mindful of and not always good against the lack of scarcity that you’ve mentioned, too. I think it’s a great point.
This happened in Chatswood.
If one tower has been built and you’ve got lovely views, in fact, it’s happening in Little Bay right now.
You’ve got lovely views and lovely light.
Why can’t they build another tower in front of you?
Just be really super careful.
If there’s other lots around you, be careful of those empty lots.
Yeah, and ultimately you like you say you’re buying a bit of paper and there are also, I’m sure in your contract there probably could be the option for them to vary and change from what you have purchased at, I think there’s a variation clause where they can change to a certain percentage.
And so be mindful of that.
So you you don’t actually know what you’re getting necessarily.
It’s just the paper at this point in time, with the view of it being built by a certain point of time.
And I guess there are a lot of, ifs and buts and and maybe when it comes to that, would you agree?
Too many for me. Too many for my little brain.
I’m in the same boat.
I know people who’ve bought.
And I’m sure you did do 15 years ago, and that property has not come up because it felt like good buying.
And had they bought the tiniest little thing in Sydney like a tiny little one bedroom in Bondi or somewhere 15 years ago that you know their portfolio, their whole financial future would be completely different.
But that leads us to benefits and the pros and the cons of the plan.
And I guess if you were to list a few positives, what would they be?
Well, they’re new, They’re sexy, they have, they’re everything’s the washing machines and everything’s brand new.
You know, you walk in and it’s beautiful and light and if it ever gets finished, But you know, that’s the idea that it is like buying a brand new car.
But just like buying a brand new car the second you drive it off the lot, it goes down 10%.
In the best case scenario, Usually, it goes down more so you know, they knew.
I think that’s the only plus, to be honest.
Yeah, the downsides are list will be a little bit longer than the pros list.
So what would be some of the main downs?
And we’ve already mentioned a few of them, but one of them main ones that stick out for you.
The uncertainty, as you said, Are you actually getting what you’re buying?
How good is the developer?
Like the anxiety around it?
There’s so much to think about.
Will it ever complete?
Are you paying the right price or are you paying all the will it come up in value?
You don’t know what you’re buying like.
That’s why I love second hand so much because you know what you’re buying.
With the lack of scarcity and the lack of certainty, it definitely isn’t something that we’d be directing first time off the bat.
I think you’d be looking at more established and knowing what you’re getting into kind of properties a little bit more manageable and also from the finance point of view, depending on when it’s going to be finished.
You don’t need the finance when you leave your deposit.
It could be a couple of years down the track and what your situation is.
Looks like then.
Oh my God, that’s such a good point.
So when you’re exchanging and sometimes there’s a tiny deposit and then you pay, you know there’s extra money as you got.
There are lumps of money to pay, like when when the slab goes down there.
But the main settlement is when the building finishes.
And who knows, maybe a baby has come along and you’re on maternity leave.
Maybe you’ve lost your job completely.
Maybe your partner died.
Maybe you were in a car crash.
So life is linear. Yeah.
Totally So, Yeah.
Lack of scarcity lack lack of uncertainty.
Probably not the preferred method, but everyone’s got their own motives.
And it could be something that someone decides is the right thing for them.
If you’re looking for yield and a lot of people say I bought this is a different end of the scale.
I bought them in my super fund and I just needed yield and needed something for my money to go through.
Then I guess there’s a place for them.
But I would hate to see them being bored as a first as a foundation for the rest of your life.
And you mentioned your friend that has made some money out of this, and perhaps to the seasoned investor or somebody that’s got a bit of experience and knows what they’re doing.
And they’ve got a particular game plan.
It might work.
Or if there is a bit of a tax incentive or a tax play with negative gearing or whatever it may be that somebody is looking at doing.
That’s obviously a particular situation, and it may work but for the concept and for the notion of first home buyers in particular.
Probably luckily again, a little bit too uncertain in terms of what’s happening and and then, obviously the stress and everything else that’s related to that.
This is what you get sold.
I always got to appreciate, you know, you’ll have to.
For years we’ve got rent back.
They make it sound so sexy.
But when you work out how much that money is, how much you will make a year from a depreciation schedule and the rent bag, you just need to work out your sums.
It’s not that much.
That’s been great.
We’ve obviously discussed many, many things and different types of properties between House strata and vacant lots and off plan.
What would be your number one tip, you know, in the current market and that currently stand for first home buyers to get into the market?
What would your number one tip at the moment be?
Absolutely 100% know what your budget is?
Don’t go shopping for anything, be it a car, a pair of jeans or a property until you know what your budget is, So get your finances sorted know what you’re gonna have to pay in stamp duty.
It’s all in my book.
So there’s a lists and lists and lists of things, and my book is called Mind Body so you can get it on Amazon.
There’s lists and lists of things that you can work out right.
Where exactly is my budget?
Everything that you need to take out of it.
So once you know your budget, understand that in big cities I don’t know about the country that, under quoting, is a given.
So don’t start looking at properties that the real estate agent is saying this is what we’re looking for.
If they’re saying 700,000, it’s 771 for 10%.
It could be 20% in a hot market.
And that’s not necessarily the real estate agents fault that buyer demand but work with 10%.
So if your budget is seven, you need to be looking at properties of 650.
If your budget is eight, you need to be looking at properties of, say, 750 or a little bit below.
Otherwise you’re gonna get very jaded very quickly.
It’s gonna go from that excitement of having your mortgage approved to just being sad and upset.
And the worst thing you can do is not buy, but you need to buy the right thing.
Obviously, buying the wrong property is wrong, too, but people tend to give up.
They do all this work getting pre-approved and they’re so excited.
And then they go out into the Realty of Realty And yeah, they just get overwhelmed and upset because there’s a saying in real estate.
Quote it high, Watch it die, Quote it low, Watch it go It is a given Under quoting is a given.
It’s that expectation management that’s got to be addressed.
Your own expectation management but you just have to accept that under quoting is a given because that’s what we’ve done for years.
And if a real estate agent quotes actually what they want, they kind of blow the listing because people expect under quoting now, So they’re stuck between a rock and a hard place, too.
I’ve known agents that have gone right.
We are quoting what we want and people add 10% to go or what I thought you wanted more was like, No, I didn’t.
This is what I wanted, so they’re kind of stuck between a rock and a hard place, too.
So we just have to accept that, under quoting is part of the industry.
Agreed. Where can our listeners find you if they want to learn more about what you have to offer?
So my email is email@example.com.
I’m on Instagram as newroadproperty.
I’m on Facebook as New Road Property and Elaine Davies on Facebook.
So maybe that’s a good way to find me.
Just Elaine Davies on Facebook.
My website is new road property.
My book is Mind body sold on Amazon, which is great for first time.
I give away every single secret about buying properties.
Everything I know is in that book, and I think it’s like something like $18.
And those things will also be in the show notes, too.
So if everyone wants to check them out, feel free to jump on and and that way you can get the links there to find out, Elaine’s work and get in touch with her if you want to.
But Elaine, thank you so much for joining me today.
I hope you had a good time.
And, as always, thank you for your insights.
It’s been really great having you on the show today.
Thank you so much.
And please do reach out.
I know how tough it is out there on your and I’m here to help.
I’d love to help.
And Michael, it’s been a pleasure.
I love talking to you.
Well, thank you very much again.
You’ve been listening to the home run your guide for buying your first home in Australia.
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I’m Michael Nasser, and we’ll be back next episode, covering another step on the journey to owning your first home.