Forum Replies Created
Thanks Red.
E
DIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
Hi Melbear – that’s a good thing. Most contracts in WA are drawn up by the vendor’s real estate agent.
Cheers
ElysiumDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
Hi guys,
Sorry I’ve been away for a long time – work’s been really busy.
I admit I was being a bit flippant with my earlier post.
The point I’m trying to make is that without clear drafting, the effect of the “subject to” clause may be to postpone the existence of a binding contract until the “subject to” condition is satisfied. This means that either party can walk away from the sale before the condition is satisfied.
On the other hand (which is often the case), the effect will be that the contract is intended to be binding on the parties, and that the obligation to settle on the property is postponed until after the condition is fulfilled.
But why take chances with sloppy drafting?
Just a bit more effort will make things clear in your contract. For example, state in the contract that settlement is subject to the condition being fulfilled, and that if the condition is not fulfilled before a certain date, then either party (or just you) can terminate the contract have the deposit refunded.
Also make it clear that settlement is x days after the last condition is fulfilled. Don’t make the calculation of the settlement date indpendent of the fulfilment of the condition. For example, if you want the contract to be subject to finance approval and a building report being done, then say that settlement will be 30 days after both finance approval and a satisfactory building report are obtained.
Mini – you’re probably too experienced and clever to ever allow yourself to sign a contract where you get stuck in a corner, but I’m simply trying to say that there is a risk of things coming undone if the conditions in the contract are not clearly drafted.
And you say that’s why lawyers are involved. I don’t know about New Zealand, but how many people actually go to a lawyer to get the terms of their contract written up in Australia? Most terms are written by your helpful real estate agent, but how many of them are lawyers or have proper legal training (I realise that this question could be controversial, but it’s a statement of fact).
Cheers
Elysium-MDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
hi guys.
Publicly offered property syndicates are typically set up in a unit trust-type structure (even though it’s not called a unit trust), because it allows the tax benefits (ie depreciation, amortisation, etc) to “flow-through” to investors.
Sure you can try to do your own prospectus yourself, but any misleading or deceptive statements, or material omissions from, the prospectus is a strict liability criminal offence. That means that you’ve committed the offence even if you didn’t mean to do so. The penalty (last I checked) is up to $22,000 ($110,000 for companies), 5 years imprisonment, or both. Is it worth the risk? I say no.
A proper due diligence process will reduce the risk of committing an offence, and may also provide a defence to the offence. A good lawyer will be able to implement a proper due diligence process.
In any event, because you (or the company you’re using) will be dealing in a financial product (ie issuing interests in a managed investment scheme for the purpose of raising money to invest in something), you are required to have an Australian financial services licence which allows you to deal in these particular financial products. Getting the licence in itself is going to be an expensive and difficult process.
Cheers
ElysiumDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
Hi John,
Sorry I haven’t been around for a while – work’s been absolutely crazy. Haven’t had much time to breathe.
Anyway, Noel Whitaker had a great little article in the money section of last week’s Sunday Times (WA) on asset protection strategies. Check it out.
I still feel hesitant about telling you what to do. But if I was in your shoes, I’d personally probably not transfer the properties across. Rather, I’d set up a discretionary trust. I’d use the trust to borrow money, which will be lent to me to refinance the existing loans on the property.
The bank would want me to mortgage the properties as collateral for the loans. I would then get the bank’s permission to take out a second mortgage on the properties, in favour of the trust, to secure the money lent by the trust to me. This would mean that the properties are mortgaged all the way to the hilt. If I ever got sued successfully, and went down the financial gurgler, my houses would be relatively safe. Sure, even if the bank forced the sale of the properties, the surplus money would have to be paid to the trust, since it’s a secured debt owing by me to the trust.
You’d have to make sure that you have the sole power under the trust deed to choose the trustee, so that if you (or a corporate trustee) for some reason was unable to or disqualified from acting as trustee, you can choose a friendly person to step in as trustee.
Anyway, it’s only an idea. You’d still need to hire good lawyers and accountants (taxation, trust and involvency specialists) to make sure it’s a watertight arrangement. how much trouble and expense you want to go to obviously depends on how much is at stake.
Cheers
Elysium-MDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
All the best.
Let us know how it goes.
Cheers
Elysium-MDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
Many people love using “subject to”. But that’s uncertain.
Is it your offer that is “subject to” something, or is it the contract, or is it settlement?
If it’s your offer that’s subject to the thing happening, can it be accepted by the vendor when it hasn’t happened yet?
What happens if the thing doesn’t happen? Which party has the right to terminate? Was there ever a contract at all?
A good lawyer could make an absolute meal out of a clause that merely says “subject to”, without explaining what is subject to the event happening, and the consequences that arise when the event doesn’t happen.
Luke – it’s simply an issue of contract law. And the treatment among the States is the same.
Cheers
Elysium-MDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
Start collecting product disclosure statements (they used to be called prospectuses) from all the syndicates currently out there. Have a good read through them, and it’ll give you an idea of what’s involved.
Some of the things you’re going to need are:
1. Australian financial services licence
2. responsible entity (ie trustee) that complies with the Corporations Act and ASIC requirements.
3. a “custodian” to hold the syndicate assets (which can be the responsible entity, but you’re unlikely to get the RE to comply with the requirements at the beginning)The cost of setting all of this up properly is probably going to be in the 6 figures.
Cheers
Elysium-MDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
Hang on – if you’re earning a salary in the highest tax bracket, it means you’re making money!
Why are you getting buried? You’re only ([
] paying tax on every dollar you earn over $60,000 at 48.5%. That means you get 51.5 cents in the dollar back in your pocket.Someone who’s in a lower tax bracket will be taking home less money that you are?
Focus on getting more passive income, rather than worrying about reducing your tax. If you’re paying tax, it means you’re making money!
Cheers
Elysium-MDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
I think it’s deemed to have been sold to the company at market value, for CGT purposes.
Cheers
Elysium-MDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
When a company is deregistered, all its assets automatically become owned by ASIC.
It takes quite a while to get ASIC approval to reinstate the company or to approve the transfer of the property to you.
I’d suggest you get your hands on the relevant ASIC fact sheets on deregistered companies.
The other thing is – was the company already deregistered when the vendor purported to accept your offer? If so, the contract may be void. You can find this out from an ASIC search.
If you’re dealing with a solicitor, I think you had better go and hire a good solicitor yourself. It’s foolishness to try to get into argy bargy with a solicitor if you don’t have a sufficient legal or business background.
Cheers
Elysium-MDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
Just remember that your deposit sitting in the agent’s trust account earns zero interest, unless you specifically request for it to be put into an interest bearing account (this should be specified in your offer). Not a big deal with small deposits, but something to think about when you’re putting down 3-10% of the purchase price.
Cheers
Elysium-MDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
It’s the love of money that’s the root of all evil. Money in itself is merely a neutral thing, neither evil nor good.
I think the concept “money” in the saying refers to the measure of wealth, whether it be of houses, material things, or how many goats, cows or sheep you have.
Cheers
Elysium-MDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
Yep – Chan’s post reminded me of something that I always do – my offers will be on the basis that I only pay the deposit (whatever it ends up being) 7 days after I’m told that the vendor has accepted my offer. That way, I don’t have money tied up when there’s no binding contract, and have to wait for a few days to get the money back from the agent, and another 3 days for the cheque to clear in my bank account.
Cheers
Elysium-MDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
Hi john, I have to admit I’m a bit reluctant to say yay or nay, because I don’t know your circumstances. For example, what’s your risk profile? Does your work expose you to personal liability? Are you involved in business? Are you a civil servant?
Also, what do you stand to lose? How much would you actually have left over if you sold all the properties and paid off your bank loans?
There’re just so many factors.
Cheers
Elysium-MDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
Hi taleisha,
In my view, it’s a try-on by the vendor’s agent. As Simon said, it’s in the vendor’s and the agent’s interests to get 10% deposit. That way, the agent knows he’s got his commission payment sitting in his trust account, which he can get his hands on immediately at settlement; and the vendor knows that he doesn’t have to chase you for the 10% if you default.
However, there’s absolutely no law in any State or Territory of Australia which requires you to put down a minimum deposit of any sort.
Theoretically, you could put in an offer with $1 deposit, and if the vendor accepts that offer, it’s a binding contract!
In the end, it all comes down to negotiating something that’s fair and reasonable.
In all my property deals, I’ve put down between $500 to $1,000 deposits, and the vendors have never had a problem with that – the haggling has always been over the purchase price.
All the best, and let us know how it turns out.
Cheers
Elysium-MDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
Or offer it for sale on this forum…
Oops that would be spam, wouldn’t it? [
]Cheers
Elysium-MDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
Land tax is unavoidable, unfortunately.
It’s payable on all properties that you own and don’t live in (at least that’s the case here in WA). Putting it into a trust or a company is not going to change things.
Cheers
Elysium-MDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
Dan, sorry to break the bad news to you – cash advances drawn from your credit card immediately accrue interest at the high credit card rate.
If you find any “high interest” term deposits that will earn you a higher rate of interest than what your credit card is charging you, let me know!
You might also want to do the sums on whether it’s all worth the trouble. Most term deposits have a minimum 30 day term, with further short terms in multiples of 30 days (ie 60, 90 etc). Even if your credit card gives you an interest free period on cash advances (once again, let me know which card so I can get one!), you’ll usually have to pay it back within 28 to 45 days. That means you can only invest in a 30 day term deposit.
Let’s assume that your credit card gives you interest free periods on cash advances. You find a 30 day term deposit of 7%. You draw down $5,000 and plonk it in the term deposit, and take it out at the end of the 30 day period to pay off the credit card. You make a grand fortune of $25 in interest. Is it really worth the effort? I’m not saying it’s not. I’m just asking you to consider the question.
Cheers
Elysium-MDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
Sorry john – you’re going to have to cop the stamp duty.
You’re just going to have to do the sums and weigh up all the pros and cons of keeping the properties in your name or transferring them into the trust, and decide whether it’s worth it to incur the stamp duty expense in order to transfer the properties – eg why do you want to transfer them into the trust? how much in tax savings are you going to have from putting them into the trust? etc.
Keep in mind that stamp duty will be assessed on the market price of the properties, so the longer you wait, the higher the duty will be (on the assumption that property prices will keep going up – whether they go up a lot or a little is a different issue).
Cheers
Elysium-MDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
] paying tax on every dollar you earn over $60,000 at 48.5%. That means you get 51.5 cents in the dollar back in your pocket.
]
