Hi all
I'm currently looking at purchasing a property but the vendor has a 6 month settlement period. The reason being the new house the vendor has purchased is currently tenanted and they will move in once the lease expires. According to the real estate agent a number of potential buyers have been put off due to this settlement period.
As a first time buyer, I'm trying to figure out the pro and in particular on cons of having a long settlement period. In particular, what factors should I be considering before deciding whether or not to purchase.
For me the two main issue appear to be:
1. Significant drop in property value during the settlement period whilst we've locked in the price.
2. Uncertainty regarding mortgage finance terms, in particular interest rates movement.
I'd appreciate any of your views or thoughts on this.
Thank you in advance.
J
I would say this presents you, as a first time buyer, with a nice opportunity. Firstly, prices may rise in the 6 months from contract date to settlement date, so you have some capital gains made before you have settled.
Interest rate movements would be an issue whether you have settled or not. What you could do, is put some money away in the 6 months before you settle as if you were paying the mortgage. In effect the 6 months could provide you an opportunity to save some more money before settlement.
Long settlements will put off a section of the buyers, so as a first time buyer with flexibility on settlement (I assume) you should have less competition for this house, and hopefully that may reduce the price in your favour.
One other thing to consider is a clause in the contract to allow you to inspect the property prior to settlement, and void the contract if it has been damaged etc. A lot can happen in 6 months.
Hi Dan42
Timing certaintly isn't a issue from my perspective, in fact it works out well given I'm currental tied to a rental lease.
Thanks for your advice, a few thing to consider and I like the point regarding adding an additional clause to the contract.
Hi Martin,
I was offerred a property last week with a long settlement and declined it due to the uncertainty and possible downturn in the market. If there was market growth I would have considered taking it on.
The way I handle those situations where tenants are involved in the success of the transaction, is we approach the tenant and offer to buy them out of their lease. $1,200 to $1,800 in my experience is enough for a tenant to terminate their lease and find somewhere else to live. Therefore resulting in a normal purchasing period. Win-win deal alround.
All the best with your property purchase.
Property Trader | Boston West Pty Ltd
http://bostonwest.com.au
Email Me | Phone MePrivate money lending opportunities available paying upto 12%, secured by bricks and mortar!
I'd add to Dan's statement. The delayed settlement also allows you to save any additional moneys that you may need eg Stamp Duty, repainting, new kitchen/bath etc so that you can avoid mortgage insurance. So it can work to your advantage esp if you don't require immediate access.
Ask lender for a 6 month rate lock for settlement period
http://www.investorwords.com/4034/rate_lock.htmlI love extended settlement periods, it allows you to be more flexible with your portfolio… Never have any problems with market trends/variations if you buy right to start with!
duckster wrote:Ask lender for a 6 month rate lock for settlement period
http://www.investorwords.com/4034/rate_lock.htmlDuckster, do you reckon you would get a 6 month one?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I don't find it wise to purchase something that still have issues on their property. If you really wanted something I guess its good and less hassle to get something that's ready enough to be purchase.
Hi all
I’m currently looking to purchase a property but the vendor has a 6 month settlement period. The reason is they are building another house which will take six months to complete.
I am not in hurry to move in and I can wait 6 months. Can the vendor change their mind to not sell the property after 6 months. Looking forward to hear from you guys.Cheers
Once the contracts are signed by both parties – they’re locked in.
I’ve got a property on a bit over 90 day settlement at the moment – and have a few clients with ~ 6 month settlement dates for their projects, it’s not *that* uncommon and can quite effective for both parties.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Hi Mah
Just make sure that the bank you’re dealing with will offer a loan approval for a 6 month period.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Thanks everyone for the information ..
Read the contract carefully – not necessarily locked in as many things can happen such as death and bankruptcy, more problems with the building can arise too, others can also make claims on the property and take priority. The longer the settlement the more the risk of these things happening.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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