The thing which appears to have been overlooked in the above posts is the fact that one virtually boxes oneself into a corner when taking a long term loan with interest fixed for the life of the loan.

Forty years is sure a long time and if ever one’s circumstances change and one wants to (or needs to) dispose of the property one may be in for a rude shock !!

If, at the time when you want to pay out the loan prematurely, the fixed rates are below the rate which you yourself are locked into then the lender would be looking to charge you compensation for what they term ‘economic loss’ i.e. the difference between the fixed rate at the time and the rate you are locked into.

Imagine the penalty you would have to pay if you are locked into a 40 year loan and five years later you want to sell the property.

If you are locked into a 7.5% rate and the rate at the time is say 6.5% the bank will be looking to recoup from you the economic loss i.e. 35 years X 1.0%= 35 % of the loan amount.

The average life of a home loan is about seven years so I seriously doubt that a 40 year loan would be advantageous for most people.

The idea that a 40 year Line of Credit would solve the problem is absurd as well for three reasons :

1. a Line of Credit would defeat the purpose of trying to lock in a rate. The L.O.C. rate changes from time to time in line with the general market.

2. a lender may require you to update on say a yearly basis the financial data they have on you. Imagine that you happened to be out of work that moment. The L.O.C. would be called up like a flash.

3. Even worse, the Line of Credit can be called up at anyonetime by the lender for whatever reason so where lies one’s security ?

Yes, going into a 40 year loan arrangement does provide stability as far as the loan is concerned. But at what price ? Remember the possible ‘economic loss’ penalty ?

Who of us can predict what happens in one’s future ?
There are many reasons which may force one to to dispose of the property.

Pisces133
Auspacific Finance Pty Ltd

That was an interesting contribution Julia.

Ever so slightly diverging from the subject, does anyone has any idea what the situation is as far as CGT is concerned in the following scenario ?

Two partners (not necessarily husband and wife, I am talking about two business partners) own several properties jointly.

It is possible for partner A to tranfer to his or her partner B B the share A owns in property K and in return for which partner B transfers his or her share in property L to partner A.

All this can be done without attracting transfer duty (stampduty) provided the respective shares are of equal value (as attested by a valuer). In the event where the parts being respectively transferred are not of equal value a small adjustment in stampduty is payable.

What however is the situation there as far as CGT is concerned ?

Has anyone any idea about this ? Julia ?

Thanks,

Pisces133

What council does your house come under Matthew ?

I have been involved in many of these.

Pisces133

>>I’m sure SIS wouldn’t employ such tactics to buy at 50% below…<<

Well you may well be wrong there Richmond.
Let me explain.

There isn’t anything that I can see inherently wrong with buying a house at a reduced value from elderly people and having an arrangement whereby they can stay in their present home at either no rent or a reduced rent.

(To be involved in) The possible scenario which I painted in an earlier post (leaving the end buyer in a lurch and possibly the pensioners with rent they cannot afford) is wrong, for sure.

But as long as all the involved parties are protected there isn’t anything inherently wrong with such a scheme.

A number of years ago (10 years ?) someone came up with an idea (he called it ‘SellStay’) and I can see that it suits elderly people who are asset rich by virtue of their house and yet didn’t have quite enough income to have an enjoyable lifestyle.

The guy who ran with the scheme was a real estate agent and the selling price (or, rather the deposit) was determined by both the value of the house and the vendors life expectancy.

That Sellstay idea consisted of exchanging on a deposit which was released to the vendor with settlement to take place (at a selling price lower than the value of the property at the time of exchange) on their demise.

I don’t think it ever took off.

In such a case the only (selfish) people who would object are the couple’s children who see their inheritance being eaten up by their parents freeing
up some money which until then locked up in their house asset.

There is a definite niche for this kind of thing.

During the last six months both the ANZ and St George have come up with a scheme whereby they lend money to elderly people which doesn’t have to be repaid (with interest capitalised) until they pass away to greener (?) pastures.

The conditions are unattractive however (low LVR – then again, I guess that is done to avoid having to force them out of their house).

In my opinion, having one or more such an investment in one’s portfolio is an attractive idea as one doesn’t receive income fom this investment and thus one avoids paying tax for the moment.

Pisces133

Well S.I.S., if Vic Ollis is able to buy properties at 50% below the proper market value then so can S.I.S. []

The thread on Somerset didn’t however go into a lot of detail so a trip to say Parkes to speak to some local agents may well be a good idea.

I would think however that they wouldn’t be open on Sundays so a second trip to Parkes may well be necessary S.I.S. (your car or Kay’s car ?). []

If not all is above board about the proposition (the real estate proposition that is of course) then the following could well be a real situation :

The dealer looks for elderly people who own a house yet they are absolutely stone broke. No money in the bank, they just barely manage to make ends meet.

Here comes along a developer offering to buy their house at half the value.
However, as part of the deal the pensioner gets a long term lease as security (longer than their life expectancy so they cannot find themselves out on the street at some stage – at least that is what they think), the pensioner is suddenly ‘rich’, he/she all of a sudden has money to spend. A really attractive proposition.

Now what if the rent they are paying is actually heavily subsidised by the dealer ?

And what about if they were told that they will be allowed to stay in the property rent free for life ?

Remember, the dealer can afford to subsidise the rent for some time as he may have made a $ 50K profit on a $ 100K sale.

However, who knows whether the dealer isn’t subsidising the rent until such time as he has accumulated sufficient money out of the deals to enable him/her to live in the manner he would like to get accustomed to whereupon he moves to the Bahamas ?

The investor is left with a property which may be or may not be worth $ 100 K but which certainly (under the above circumstances) is unlikely to be able to continue producing the same kind of rent as the investor had been enjoying until then (i.e. 10% of the purchase price).

Now I am not privy to the full facts and the above is merely one of many scenarios and may well turn out to be completely wrong and we may do Mr Ollis a great wrong if we jump to the wrong conclusion.

I am just trying to understand how someone can buy a property at half its value. Doing a deal as described above is indeed possible.

Pisces133

Well Kay, you mentioned the obvious things to check for.

Now what about the other items guys ?

BTW Kay, checking the Body Corporate notes of meetings
is a good way to discover some pretty nasty possible problems. I wonder how many people have done that or are actually doing this.

Admin., I wonder whether it is possible to run a thread where people can vote rather than commenting. If that is possible I would suggest that we run such a voting thread where people can register via a ‘yes’ or a ‘No’ vote whether, the last time they bought a unit (or attempted to buy a unit) they, as a matter of course, went to the Body Corporate’s office to inspect the notes of meetings before they purchased the unit.

Pisces133

Sorry, I have just discovered the location of the tan envelope.

I also posted yesterday (and thence deleted the post once I discovered I was too hasty and plain impatient) about not being signed in.

I have now discovered there is a facility in the top right hand corner of the page. I guess one could say that I was just shooting off my lip.

Overall I think the site is a BIG improvement. Especially the facility for one to email the writer of a particular post. And the speed, unbelievable.

Congratulations Steve and staff.
(I bet it has cost you a bundle Steve []

I have only one real complaint really and that is that the Smilie with the big smug grin is no longer available !!?? []

Pisces133

Georgisj, as I take it that you have followed this road yourself may I ask you what you mean by ‘minimal cost’ ?

If one wanted to approach the owners of say 200 units how much would that information cost ?

Pisces133

One of us must be colour blind as I cannot see a tan envelope at all. []

Pisces133