Holy Cow Batman, I think we may be about to buy our first IP.
Last week we viewed a place north of Adelaide that went to auction today. My husband was snooping in the kitchen and 'happened upon' the paperwork that said suggested reserve $180 000. There was only one non vendor bid which was 165000 and it was passed in. This property is under 'instruction from the bank'.
We heard the other registered bidders (2 obvious builders that wanted the land only and said they weren't interested in being contacted, the other a friend of neighbour who bid that didn't look interested in negotiating either) fob off the agent and we left our details. He is going to call us after getting instruction from the bank.
My question is… would it be wrong to start with a offer subject to finance/building inspection of $160000, ie less than highest bid.
With some TLC and about 5 – 10k we can rent this out for about $240 – 260pw which will make it CF+. We will also look to split off rear of block and sell on to release money for next IP.
We are seeing our accountant tomorrow to whip up a company/trust structure. I have researched and Steve McKnight and Dymphnoa Boholt both advise using this structure, but our accountant says he doesn't think that the company is a necessary expense. Do you agree?
Borrowing deposit and splitting fees as LOC from mortgage via broker. Remaining mortgage with another bank so as to not cross collateralise.
Does this look like a reasonable plan and good buy to you more experienced investors? Any suggestions?
We appreciate all advice offered. Look forward to hearing what you have to say.
With thanks,
Michelle and Ade.
I've noticed houses repossesed by banks don't budge on reserve price at auction.
Not sure if this is due to legal issues if the house sells for less then it's worth and the ex owner can sue.Do you know which bank it's with? Maybe setup finance with them if an good offer can be made
I don't know the rules in your state but in NSW auction conditions still apply after the auction (7 days?) so i doubt they will take your offer with conditions.
They usually list for sale with a price attached after the property is passed in. It will be higher than the reserve.
You will have more competition now that it's on the open market. Why didn't you bid if the price was what you wanted.Good luck.
Newby23 wrote:Holy Cow Batman, I think we may be about to buy our first IP.Last week we viewed a place north of Adelaide that went to auction today. My husband was snooping in the kitchen and 'happened upon' the paperwork that said suggested reserve $180 000. There was only one non vendor bid which was 165000 and it was passed in. This property is under 'instruction from the bank'.
We heard the other registered bidders (2 obvious builders that wanted the land only and said they weren't interested in being contacted, the other a friend of neighbour who bid that didn't look interested in negotiating either) fob off the agent and we left our details. He is going to call us after getting instruction from the bank.
My question is… would it be wrong to start with a offer subject to finance/building inspection of $160000, ie less than highest bid.
With some TLC and about 5 – 10k we can rent this out for about $240 – 260pw which will make it CF+. We will also look to split off rear of block and sell on to release money for next IP.
We are seeing our accountant tomorrow to whip up a company/trust structure. I have researched and Steve McKnight and Dymphnoa Boholt both advise using this structure, but our accountant says he doesn't think that the company is a necessary expense. Do you agree?
Borrowing deposit and splitting fees as LOC from mortgage via broker. Remaining mortgage with another bank so as to not cross collateralise.
Does this look like a reasonable plan and good buy to you more experienced investors? Any suggestions?
We appreciate all advice offered. Look forward to hearing what you have to say.
With thanks,
Michelle and Ade.
Hi, go ahead put in an offer, it might be the best they've had all day. Put the offer in writing stating your terms building inspection and finance etc. I would only do a building inspection after signing the contract and during cooling off.
You can't know if your offer is good or for that matter the only one.
Agents/vendors may say that the price you offered is too low and you need to raise it to be in the ball park or may say, is this your last and final offer because we have other offers coming in now. You really need to pre determine your final price if you are even prepared to change your first offer, or make the offer and hold your nerve, don't budge.While agents will tell you it's under the vendors reserve and they won't let it go any less it's not always the case. As a vendor at one of my auctions the last bid was well below the reserve and the agent came in and puts you on the spot and tells you this is what the market is saying it's worth by this time most vendors are trying to figure where will they get all the money to pay agents fees if I don't sell now after all If he's right the marketing costs are just going to keep increasing. Often vebdors will crack in the heat of the moment and you can get a better deal. I didn't, i said your sacked gave him some marketing costs, sent him on his way and sold 8 weeks down the track for $40k more.
Unfortunately you didn't have an emotional vendor there but nonetheless, your offer is conveying to the bank, what the market is saying. Who can know the reserve, give it a shot, the bank or the agent don't really care for another $5k, the agent only wants a sale and the bank only want to be seen to be doing the right thing by offering it to auction to see what the market says. the sooner it's out of their hair the better.
Hi Catalyst & Ryan!
Thanks for your comments
We must confess to being unprepared. We hadn't sorted out our LOC and didn't have building inspection etc done. We only spotted it on the weekend. We also didn't have our trust/company in place.
I have been reading books and listening to information and we really have just been trying to familiarise ourselves with the area and didn't think we would act so fast. This place seemed like a good idea as the numbers added up and so we decided to rock up to the auction for experience if nothing else.
The agent has called. It is back on the market at $190 000 (Catalyst, you are correct) and he said he would put all offers forward. In the meantime, we are arranging the trust with our accountant in the morning. We have a surveyor looking into feasability of subdivision and have heard back from 2 agents confirming rent at 250 – 260pw. They also both advised not to bother with reno for now as it won't be tax deductable until it is already rented out. They also said it wouldn't yield much more in rent anyway.
We will act once we have heard back from the surveyor.
So…. company… or not? That is the question…
Thanks again…. Michelle and Ade
Ah Property Monopoly!
Just spotted your response, thank you.
I think we'll do it… but just waiting to see about the subdivision. That may determine what we are willing to pay.
I can't even tell you how many phone calls we have made today!
This could get addictive
Cheers… M & A
When a auction I went to (WA) got passed it was 10% deposit, no building or finance clauses in contract and 30 days settlement.
After it got passed in they had open deposit offer, finance clause allowed but didn't ask about settlement.
Make sure you got your finances sorted 100% and check ya credit file in case of any problems!
Can you not just call the council and ask if the land is sub dividable? Can do that in W.A.Hmmm it seems like such a good deal postive cash flow property, why has it not sold yet if its such a good deal?
Jpcashflow | JP Financial Group
http://www.jpfinancialgroup.com.au
Email Me | Phone MeYour first port of call in finance :)
Catalyst,
Just to clear up the auction conditions in nsw.
Auction conditions last until midnight of the day of the auction only, the day after the auction the property becomes what is called a private treaty. Under auction conditions there is no cooling off period and a deposit usually 10% must be paid and contracts signed.
under private treaty you have the option to negotiate the deposit amount and if you choose sign the contract with a 5 day cooling off period.Wow! What a couple of crazy days.
Thank you all for your advice. We have heard back from the surveyor and it doesn't look like it would be an easy subdivision unless you knock the old house down and have 2 long blocks side by side. Once you've done that tho, there wouldn't be much profit in it….especially if you didn't get asking price. So we are holding off on that one, even tho it can be CF+ if bought at the right price.
It has been a great experience though. we are getting our act together so that next time we can jump on it. Our Company and Trust are being set up as we speak and we are organising our finances too. We now know more of what to look for when looking at properties, and have made some excellent contacts. We have our names in with some real estate agents to hear about properties as soon as they go on the market.
It's funny how making just a few phone enquiries can turn into real tangible progress. We will continue to look and learn until we find the right place to pounce on!
Regards, M & A.
Yes, as you might have seen- RyanJD is correct – you just cant work on emotion with the banks. “Repossessions” always seem like a good deal but in my experience- and have had a few as an agent- they banks just don’t budge. They don’t care. They will wait for their price. We had properties for sale and they asked what seemed like outrageous prices and they wont settle for less. A homeowner as a vendor on the other hand is more emotive and motivated to sell – so more negotiation on the price.
You can try offering less but I would walk away unless you are prepared to pay what the bank asks.
As jpcashflow says- if it IS such a good deal – it would have sold by now.Hi Michelle and Ade
I'd also suggest you get another accountant's opinion regarding the Trust structure. As a Trust is not a legal entity under the law, a clever solicitor that wants to 'have a go' at a Trust will attack the Trustee. If the Trustee is you, ouch. If the Trustee is a $2 company, I'd be feeling much more comfortable.
I believe the extra cost for a Corporate Trustee is well worth it.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Newby23 – we were new players once too. You need to weigh up all of the pro’s and cons of a company structure. We set one up and I did not fully understand how this would work. Paul Dobson is right on the Trustee issue so you need to weigh up do you need protection or do you need the tax offset against your income.
Remember that losses if any – are contained in the trust structure- if you think you are going to make a killing on this deal- then a company might be worth the effort.
Find an accountant who KNOWS and deals in property. Most often – accountants dont deal in property. If you need one – I can recommend one to you who can go over the pro’s and cons.
Have all the information ready.Thank's Paul and W.I.P.
We had decided to set up the company also as the experts in the field that we researched had recommended it. I am glad we did now, especially after your comments. He was happy to set up the company as well as a trust, he just didn't think we needed it. I went to the appointment armed with Steve McKnight's book and my notes from Boholt's video podcasts on the subject ready to debate it out.
Very glad we have a good surveyor contact as he has looked into potential for subdivision. We are not going to make a killing on that deal, and hence we are leaving that one alone.
I believe you are correct about the banks and a couple of you have now said the same about the banks not budging. We will find the right place sometime, just to keep looking for now.
We really appreciate all the suggestions on this post! What a great resource for beginners!
Thanks all!Michelle & Ade.
There is always another property around the corner- if you have the mind set that this is NOT going to be the last opportunity on earth and be prepared to walk away- then you will be fine.
Too true WIP, it has been said the perfect property comes up every few weeks, i believe this to be true. No point getting too attached to one property if it doesn't stack up, another will come shortly.
Thanks!
I am doing my best to avoid any emotional decisions. I can't wait for the next one in a couple of weeks the WIP &Solomon.
Michelle….
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