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JBC
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@jbenjamin
Join Date: 2014
Post Count: 34
January 21, 2015 - 12:29 pm
I asked a question about how to calculate sale price on lease options recently. Not quite the same issue but you might find something useful in it. I had some pretty helpful responses from a few people and they were quick to correct me when what I proposed sounded unreasonable.
https://www.propertyinvesting.com/topic/4998273-lease-options-increasing-sale-price-for-long-option-period/
What conditions is the developer seeking in the contract? When do they expire? What deposit is it paying? If you can’t get it to agree to the option setup then at least you could tighten up the conditions and get a large enough deposit to make sure that it does not have the ability to simply walk away in 8 months time because it changes its mind.
JBC
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@jbenjamin
Join Date: 2014
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January 14, 2015 - 11:58 am
@property-trader Jason thanks for your thoughts. I have heard time and again in relation to these structures that they have to be win-win deals and it’s about the people first and foremost. I’m not out to screw anyone over but this is going to be my first lease option deal so I probably do need to make some corrections as I go.
When I said 25% over market value that was not really accurate. It’s 25% over what I think it’s currently worth but am planning some renos before putting anyone in it. Once the work’s done I don’t think the value will be too far from the proposed sale price. However, you make some good points and I will have it revalued after the work and will put careful consideration into the real value of it before setting a price. Also it’s a cheap area so I think it’s currently worth $200,000 but if I was to mark it at $250,000 after the work is done that 25% would only represent $50k. There are properties in the area at $300,000 or so and they’re not that much different from how mine will be after the work.
I have already spoken to potential buyers who expressed interest in the setup because as they said they earn enough, but spend their money on holidays unless they have a rigid obligation to deposit the money somewhere else. I think there are people out there who these deals suit because it gives them the structure they need to save a deposit. It also gives them a house they can call their own three years before they have a deposit saved.
But I really do appreciate your input and am glad to be confronted if my thought process needs adjustment. Much better to hear it from you than end up in court in a few years’ time!
- This reply was modified 9 years, 10 months ago by JBC.
JBC
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@jbenjamin
Join Date: 2014
Post Count: 34
January 14, 2015 - 8:42 am
I’d add to what @jason_staggers has said.
If you’re making multiple offers and not sure which ones you’ll go ahead with then a ‘get out’ clause, or cooling off period will help you. It doesn’t take that long to plug your details into a contract either so you may even prefer to just give the vendors contracts rather than the letters you’re talking about. You could have a chat to the conveyancer about standard terms you will include in every contract and then just adjust the price for each property you make an offer for, if that works for you.
On the other hand, if you’re certain that you want to go forward with a particular contract then there’s no reason to include a ‘get out’ clause. All it does is weaken your offer as far as the vendor is concerned. Therefore by excluding the ‘get out’ clause’ you may be able to offer a bit less money and still get the contract over the line.
- This reply was modified 9 years, 10 months ago by JBC.
JBC
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@jbenjamin
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January 12, 2015 - 2:00 pm
Thanks guys – both very helpful posts (I gave you thumbs ups too).
To add to this, do you guys use any type of formula when working out what the relevant figures will be? My property is in a pretty low growth but high cashflow area. I was planning to price it at about 25% above its current value for a 3 year option (or a bit higher for 4 or 5 years). However this would still be a pretty reasonable price for the area I think. The option fees would be calculated so that they amount to a 20% deposit, spread over that option period. Therefore, if the purchaser exercises the option at the end of the option period, they have a full deposit ready to go. Is that all you guys do or are there other things I should be considering?
Cheers,
Jeremy.
JBC
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@jbenjamin
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January 3, 2015 - 7:34 pm
I don’t know the Victorian process, but if that’s what your solicitor’s telling you to do then don’t waste too much time or energy second guessing it, and don’t take your friend’s advice over the advice of your solicitor. Settlements are very standard procedure for solicitors. Your solicitor also has a duty to look after you here, and you are entitled to rely on his/her advice. If they tell you to do something and it causes you a loss, you can complain to the firm and then the Law Society, and as a last resort you could sue the firm. The solicitor would be liable to compensate you for whatever loss he/she causes you.
JBC
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@jbenjamin
Join Date: 2014
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December 23, 2014 - 11:28 pm
“30 days notice. If at any time of termination of this agreement the property is subject to a fixed term lease, then the owner agrees to pay agent 5% of the balance of rent payable till expiry of lease.”
So if i give them notice and get someone else on board do i have to wait 30 days before they start advertising ?
Firstly, I agree with the other posts above that your current agent may not be the issue. To address this question though – it is not possible to say without seeing the other terms of your agency contract. This term just says you need to give 30 days’ notice, so if you terminate the agreement you still have to pay them for another 30 days. There may be other terms that prevent you from using other agents, or that say you have to pay them a commission if you find a tenant while you have a contract with them, even if they don’t find the tenant for you.
If you aren’t happy with the agent though, then it may be worth terminating the agreement. Check the terms about what sort of notice you have to give (whether it has to be in writing, letter, fax or email etc, what sorts of details have to be included in the notice). If nothing else, by taking these steps it may prompt them to work a bit harder for you. And if you’re thinking about it, then give them notice ASAP so that time starts ticking on the 30 days.
- This reply was modified 9 years, 11 months ago by JBC.
- This reply was modified 9 years, 11 months ago by JBC.
- This reply was modified 9 years, 11 months ago by JBC.
- This reply was modified 9 years, 11 months ago by JBC.
JBC
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@jbenjamin
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December 23, 2014 - 1:31 pm
That’s a great book, first real estate book I read.
JBC
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@jbenjamin
Join Date: 2014
Post Count: 34
December 11, 2014 - 1:22 pm
My preference, although it may not suit your circumstances, is to go for cashflow first, and try to find properties where you can manufacture capital growth (eg the granny flat idea). Waiting for capital growth in the market is speculation, there is no guarantee. You can manufacture capital more cheaply too, eg a coat of paint, a new kitchen etc.
I don’t know the areas around Western Sydney so I can’t tell you specifically where to look. It also depends how comfortable you are with investing in places a long way from where you live. But, smaller urban centres can give better yields. Look for places that have multiple industries driving the economy, reasonable employment, schools, infrastructure…
JBC
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@jbenjamin
Join Date: 2014
Post Count: 34
December 11, 2014 - 12:03 pm
Stamp duty’s not necessarily payable at the date of settlement. In Tas it’s payable within 3 months of settlement. You could check on that for the areas you’ll be operating. Also, you don’t have to be the one that pays it – as long as it’s paid the State Revenue Office doesn’t care. So you could agree that the final buyer pays it. However, I guess there would have to be enough profit in the deal to allow for this. Also, if Terry is talking about being hit twice with stamp duty then this would be something to avoid.
- This reply was modified 9 years, 11 months ago by JBC.
JBC
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@jbenjamin
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December 10, 2014 - 6:01 pm
Thanks Catalyst, that’s helpful and makes good sense.
The relevance of the lease option is you’d be looking to place tenants for a longer period (or for good if they buy the place), so realistically I guess you’d have to wait until renos are done to commence a lease option. So it’d be 12 months of a normal lease, then renos, then lease option v renos then lease option.