Way to go, Celeste!

Tip:  Keep marketing even after you think you have a buyer.  Until they sign on the line, keep marketing.

Cheers

Hi Trude

We are using Rick Otton's contract for this purpose.  I took it to our solicitor in Brisbane.  He said "I hope you didn't pay a lot for this, because it's the same as the ones we use all the time for developers". 

It was part of a pack, and I am very happy with the price we paid BTW, but the point is that if you go to the right lawyer (one who is skilled in property and contract law) you will have little difficulty.
And I get him to fill it out, and create the regular REIQ contract and PAMD stuff (for Qld) that goes with it.  In fact he is sending me a prepared one this very day for our latest Rent-To-Own deal

Lotsa good advice above in those other posts.  Why stress yourself?  A solicitor costs little in comparison to the agro if you make a little mistake.  Build the cost into the deal and get the customer to pay for your solicitor.  We do. 

Cheers

Mr Fair Go

Hi Tuggerwaugh

It appears that you regard these two properties as "keepers" and want to have another one. This is a good goal, but there is a quicker way to get there. Why not use whatever equity you can pull out as a deposit on a cheaper, undervalued property, that you then mark up and sell fairly quickly? If possible also value-adding by getting a DL, do a minor reno like painting or landscaping, or offering 2nd-mortgage carry-back.

Once you sell this third one, make sure you pay back the equity into the loan you got it from, and then use the profit for the deposit on your next "keeper"?

We have been using cheaper deals that turn a quick profit to create deposits on "keepers" for years, and it is a great way to add to that portfolio you are looking to build. Don't want to renovate? Then don't! But still give your buyer a "Fair Go" E.g. one of the best deals we ever did was a damaged house we bought for $41k after cyclone Larry, then sold within 2 weeks for $79k. The guy is fixing it up and it will be worth over 200k after he spends about 35k on it so he's happy. And a month or so ago we picked up a tenant-trashed house for 120k that we now have an unconditional contract on for 155k… selling to a renovator. He will do well, coz it will cost only 20k to fix, and then be worth about 220k.

You see what I am saying here? You don't HAVE to spend a lot of your own effort. Make that equity work harder for you, create a good deal for someone else, put the equity back and then use the profit for your "keepers". Of course, subsequently keep your eyes peeled for another deal, and another…

Hope this opens your thinking to a wider bunch of ideas. This is the "getting Creative" forum after all!

Mr Fair Go

Hi

Technical term, sorry: A second-mortgage carry-back could be your answer.

This is where the vendor lends you the deposit and takes a second mortgage (the bank will have the first – generally for 80%)

Normally you would expect to pay a higher interest, since the 2nd mortgage is not as secure as the 1st.  Actually, our company does this, but when we do, we sell at as high a price as the market will bear so there's room to lend the deposit out of our profit.  Not higher than market price though, because that does the purchaser no favours, and the valuation would probably cause the lender to offer less than 80% of sale price anyway.  The purchaser gets a good deal, because as you say, saving a deposit is hard to do when prices are rising faster than you can save.  At least they start building equity from now, not some undetermined time in the future IF they ever win the savings catchup game.

If you are eligible for FHOG you should be able to do this.

Hope that helped

Mr Fair Go

Hi Gennady

I am certainly not an authority in this area (but Rick Otton is) however for what it's worth I will attempt to answer your questions…

> 1. How do you find somebody to assign a contract to (just ads in the paper?)

That's one way – especially the little local rag, not a metro daily.  Bandit signs, fliers, letter drops, even radio advertising is surprisingly affordable. I have a lot of success with the public notice board outside our local supermarket.

> and how many prospects is it necessary to find?

You can only sell it once, so…  one that buys. (!)

> 2. What happens if the person you are assigning a contract to bails out last minute and more importantly, how can we precent this?

You need a contract with them.  Ask your solicitor.

> 3. How do you chose an area that suits this strategy?

Any area where you can buy a property well under market value to help the seller out of some difficult situation, and you can sell at market value from a potential purchaser.  Easiest and safest is an area where there are a lot of people wanting to buy.

> 4. If you are assigning the contract to a third party before settlement how do you access the property to show it to prospects , you don't own it? What do you tell the vendor and buyer about the process-

Access right should be a condition of purchase.  Try to get at least 30 days unoccupied access to "clean up", otherwise, put something like this in the contract:  "With 24 hours notice, Seller agrees to give purchaser reasonable right to private viewing of property for the purpose of showing potential occupiers"

> they'd both be better off cutting me out and meeting each other half way on the price.

You need a caveat.  See your solicitor.  Should cost less than $200.

> 5. I am in NSW and will incur double stamp duty- given the huge difference between the buying and selling price that is necessary to make a profit, i am inclined to ask if this strategy can still work in NSW and if anyone uses it?

Ask Rick Otton.

If you have a "purchase and sale contract" signed with the vendor, you will be liable for Stamp Duty.  No getting around it.

If you secure the property in some other way (e.g. with an option to purchase for $x in y days, and a then put a caveat on the property to protect your interests so they can't sell it to another in the meantime)  then you can sell your option to a purchaser with no Stamp Duty liability.

There will still be costs of course, but a lot less than Stamp Duty.

Hope this helps… a bit.

Hi Cath

Sounds interesting – especially in cases where the rise is rapid.  I am smarting at the moment over a property we are about to go to contract on for 128k, but the house is really worth over 190k.  I don't mind the lessee getting a slice, even half, but that much is ridiculous!  Especially when they should have gone to contract over a year ago but have been messing us about.

What percentage of the equity increase was suggested ?  50/50, or more in favour of the lessee or lessor?
Was mention made of the situation where the property loses value?

Thanks

Well said, Steve!

And the FHOG legislation itself says the FHOG has to be repaid if the contract does not proceed so the applicant eventually owns the home.

You can read it yourself, starting at http://www.austlii.edu.au/cgi-bin/sinosrch.cgi?method=boolean&query=First+Home+Owner+Grant&meta=%2Fau&mask_path=

The NSW version includes this:
"Recovery of amounts from third parties
At present, the Act gives the Chief Commissioner of State Revenue power to recover certain amounts that are paid under the Act (such as amounts paid in error) and power to recover penalties in certain circumstances (such as where an amount is paid as a result of an applicant’s dishonesty). The amendments will authorise the Chief Commissioner to recover those amounts from certain third parties, such as third parties who owe money to the person from whom the amount is recoverable or who hold money on account of that person. The powers are similar to the powers conferred on the Chief Commissioner in relation to the recovery of unpaid tax under section 46 of the Taxation Administration Act 1996."

“Caveat Lending”? Is there a post somewhere that explains this one?

Thanks

Lance

.
Fair Go Homes
http://fairgohomes.com.au

Rapt with Wrapping!
1300 666 247
[email protected]

Real-life experience from November 2005:

We just refinanced a property up to what the wrap purchaser owes us. The original loan was with another bank: the refinancer is CBA. They wanted to give us 80% but we said no, just what the purchaser owes us please (60% of valuation).

CBA know it is wrapped. They even asked why there is a caveat on the property (showed up on their title search I guess) and immediately accepted our explanation that it is because the instalment purchaser was encouraged to put a caveat on for their own protection.

Of course, the fact that we have 14 loans (all at 80% or less LVR) with CBA and we are dealing with Premium Banking might have something to do with it. They take an overall view of your portfolio and how you conduct it.

We have been very pleased with CBA Premium Banking – the guys and gals are employed by the bank, but they really bend over backward to make things happen for the client.

Cheers

Lance

.
Fair Go Homes
http://fairgohomes.com.au

Rapt with Wrapping!
1300 666 247
[email protected]

Hi

So, I revist and read (again) most of this thread.

Interesting that I had a call from one of our wrap clients this week. he is “cashing us out” (refinancing) within three weeks.

Those who believe that wrapping is always immoral may be interested to see how this worked for our client…

We bought the house for 73k, and rented it for a year. The valuation at that time was 120k. We sold it on a wrap to the client for 115k (we are not greedy!) He wanted it as an investment, so we instructed our solicitor to add a few clauses to the instalment contract so he was allowed to rent it out.

He gave us 3k deposit, and his legal and stamp duty costs would have brought that up to about a 5k investment. The property was slightly negatively geared (He says he has been putting in about $50/month to make up the difference between his rent receipts and his instalment payments to us). So add 50/mo (2 years, that’s $1200) and his investment has totalled 6200. He put up some fences and painted it himself. Add another 5k. Total investment for our client was about 11k. He has put the property on the market now for $199k. He probably won’t get that, but he will probably get about 180k.

So, he started with 5k, and turned turned 11k into 65k in 2 years.

We, on the other hand, put down hard cash deposit of 14.8k, plus our costs, and so we invested close to 19k UP FRONT. Our payout profit (after costs) will be 115-74-2= 39k (less tax!)

This is a better profit for us than usual, because we rented the property while the market rose. The more normal situation for us would have been to sell the property to him for 94k, raising his profit by 20k and decreasing ours by 20k.

For us, it’s so far been true that in EVERY case where a client has refinanced or sold, they have made more profit on the property than we have, and with much less initial investment.

And in one case, the client rented from us for a year before we set up the instalment contract. The property had risen to 101k in value, but we still sold it to them for the initially-agreed 81k. They could have refinanced the very next day and would have made the same as us out of it. (BTW we did learn from this, and now have a “final” date by which they need to have the deposit saved to buy the property at the initially agreed price)

We’ve never had a complaint from any of our clients, and only once has a client walked away without a house. (He also lost his wife and his best mate, who ran off together, taking the TV but leaving him with 3 or 4 little kids. He had to move closer to his mum for baby-sitting help so he could continue to work. He was nevertheless very happy with the arrangement he had with us, and paid the “rent” up to the final day) We believe our low “problem” rate reflects the care with which we select wrapees. We don’t mind leaving a house sit for a month or two if it means we get the “right” occupier. A couple month’s mortgage is less than the agro of a bad wrapee decision in our view.

Seems to me, the “morality” of wraps is entirely dependent on the business ethics of the wrapper. Like every other business, really.

Wrapping for us is a lifestyle decision. Do we push to the max for every last dollar from every deal? Nope. We get what’s reasonable, our clients benefit too, we have a fine living based on cashflow, we go to the beach 3-4 times a week, and we sleep calmly.

Cheers

Lance

.
Fair Go Homes
http://fairgohomes.com.au

Rapt with Wrapping!
1300 666 247
[email protected]