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Fixed price contract, underpriced in a rising market (labour shortages) – not that hard. I'd much rather a slow economy and be able to screw a better price than be screwed the other way.
If there is a contract for perusal, it will pay to flick that past the conveyancer BEFORE you submit an offer. Depending upon what you have offered, the conveyancer may have to sign the waiver of the cooling off period or carry out some of the searches beforehand.
Generally speaking, the above sounds OK (aka "I'm no expert").
The offset is a bank account (same bank as your lender & tied against a P&I (usually) or IO loan (some banks apparently permit this). I am not aware whether you can do this with a LOC (there is no point as this is a constant drawdown facility). Any money in the offset account is treated as a reduction in your principal on the P&I loan thus reducing your interest bill (wether for a few days, weeks or months). As it is a deposit account, you can withdraw to pay your living costs (eg wages in/bills out) – you are not borrowing this money (unlike your LOC). There is no interest recieved as the balance is treated as if it is principal (hence you are getting a reduction in interest payable).
What happens with IP2-IP4? You will need to revalue the IPs so that you mantain the max LVR of 80% by possibly using a LOC on these to finance the deposit on the next IP or increase the LOC on the PPOR to cater for the next deposits/legal costs.
Billy, how much are you looking at making?
House $700k
SD/Legals +/- 4% $30k
Agent selling comm 2.2% say $18k (on $800k sale price)
Legals etc on Sale $2kYou have $50k of costs before you have touched the building.
Basic kitchen/bath say $20k
Painting say $10k
Cosmetic + gardens say $10kWhat do you expect to be your sales price? Are people prepared to pay an extra $100k for work that they could have organised themselves for $30k less than a projected sale at $800k?
If the builder or the developer have gone into liquidation try looking at the ASIC website or VCAT (builders licensing). Better yet, try contacting the builder or developer directly (or their administrator/liquidator).
WW, these are relatively small sales samples. A single project eg new 10 lot subdivision or block of units is enough to skew such a small sample (even the resale of newer property in one area compared to sales of older properties in the other, the sale of a few larger subdivisible blocks etc). Familiarise yourself with what is behind the numbers.
Sarah, a little more information please? Are you dealing directly with the owner or through an agent? & is the house on the market?
The offer letter: best done at your desk, but seriously, the letter should comprise the essential conditions: ie Your name & address (typical letter fashion), Addressee (dear Sir/madam etc), property address.
Offer: $X,XXX,XXX.00
Conditions:
Deposit
Settlement period:
Cooling off period (waiver if required)
Subject to written confirmation of finance approval being recieved by:
Subject to satisfactory pest and building inspection reports being recieved by:
EtcThis offer will terminate if there has been no acceptance and exchange of signed contracts by 17.00 on Friday XX Feb 200X
Please direct all queries to myself on 618 81XX XXXX
Regards
SW
I hope this helps – feel free to add or change your conditions of offer to suit the property/deal.
SNM
Yes, that sums it up.
Is the car lease being salary sacrificed? ie are you paying for the use of the car (rego, ins, fuel, depreciation etc) as part of your package or will you have to pay these costs separately ie reimburse your employer? Will the 'extra' travel to the IP cause you to over run your km allowance on the car hence getting a lower resale?
justgjt wrote:Is it due to be paid before or after settlement date??????Shouldn't make much of a difference justgjt, if there is no recovery/clawback provision. You could still get the purchaser to pay this directly and reduce the amount you get at settlement.
As the zoning is commercial you should be fine for a number of uses (existing use – retail) as well as office use (eg accountants, solicitors etc) but it would be worth checking with council what the zoning allows.
The complex is small – this reduces your risk of too many interests in the centre (ie there are only a handful of owners, not dozens).
What does the lease say about the bond? $1600 may only be 4 weeks (if that is what is prescribed in the lease, there is nothing you can do about it) – just ensure that it is the right amount.
Gross lease – rent has been increased to offset the cost of rates, insurance etc. Just make sure that the tenant is paying for water consumption (install & read your own meter if necessary).
Yes, no and maybe Trakka. As land tax is levied on the owner as at 31/12/0X then the vendor is still the owner of the property (CGT works on the contract date however land tax works on the owner as at that date).
So, if you had marked the contract for sale with a notation that a land tax adjustment was required, then the purchaser would be repaying the balance of the land tax assessed (from the date of settlement). If there is no adjustment, then, you will get an invoice in a couple of months seeking payment.
Linar, contact the St James Ethics Centre and discuss your concerns.
However, I would review all of my own paperwork including the written offers to ensure that I hadn't make a mistake and believed that I was paying more than is shown on the contract.
Purchase price is based on the 'capitalisation of net income', that is cashflow is analysed over the long term factoring in net rent, rental growth, vacancy factors, risk, interest, inflation etc, with a secondary methodology used as a check measure (most likely either summation or direct comparison).
As the premises is a retail shop in a centre, the lease will be governed by the retail leases act.
Adding to the risk is the premises is a strata shop in a complex. Study these carefully before you put your hand up…..You have no control over the tenancy mix, no real retail strategy inplace, there is generally no central leasing agent, centre management only handles basic issues of security, cleaning, strata issues etc.
The risk being that if a tenant seeks a shop and a number are vacant then the tenant can play off 2 or three shops/agents to get the best deal as opposed to centre management ensuring that a fish shop should sit next to a hair dresser rather than in a properly planned fresh food market precinct. You never know what the owner next door may accept just to lease out their shop (and centre management has no control over it, only the mighty $).
Strata works for industrial or commercial space but definitely not for retail uses.
imugli wrote:This may sound completely out there, but have you considered leaseholding the land? Someone who may want to build but doesn't have the cash for the land up front may purchase a leasehold on the property and develop it. The leasehold could be over say 10 or 20 years.Then make part of your contract that if they wish to sell, you get first right of offer on the buildings.
I'll probably get shot down for the idea but hey, it's completely out of the box and it may just turn things around for you…
Good luck!
Leasehold works for commercial property and is sparingly used as very few tenants want to build their own building, pay for the improvements and be lumbered with the cost of removal at the end (or sale to the owner). It is more common to develop the site with a pre-lease commitment from the tenant (I would not think that this can be done under the NSW residential tenancies act). Leasehold also works for retail where the tenant pays for their fitout but only leases the space occupied (not the entire shopping centre).
FWIW the lease term for commercial leasehold is usually 40yrs + and is viewed by the LTO as a subdivision or sale of the land. Council may not allow further subdivision of the land so it may not be permitted. The tenant usually leases only a portion of the site eg 3000 m2 of a 5 ha site with similar leases to other parties so that the entire site is effectively subdivided (refer to sites such as Bankstown Airport Industrial Estate, lands within National Parks eg Perisher Blue Resort/Thredbo).
Good thinking but not quite practical for a house.
As a residential buyer, I would expect that the price offered by myself would be inclusive of gst regardless of the status of the current owner – it is the market which dictates the price of residential or commercial property not the vendor (if it were the other way around you might be holding onto it for a very long time for the market to rise to your expectations). At least with commercial property it may be sold as a going concern & you get your gst component as gst is claimable by both parties.
The price of land as reported by the OSR, VG etc does not take gst into the equation and as such is included in things like the duty paid on the transfer etc.
Take a capital loss (write that loss off against your next successful deal).
PS – Paying too much, not factoring in a difficult council, interest rate rises or a turn in the market are not of the agent's doing, these are the risks of property investment. Just ask anyone who bought Centro at $2, $3, $5 or $10 and compare that to the current price.
Don't bank on 52 weeks worth of income.
Management fees for agent?
Landlord insurance?
Repairs/Maintenance costs?Was a depreciation schedule provided when you bought the unit (if purchased new)? This will be a good starting point for any QS.
Is the current loan P&I or IO?You will need to make up the shortfall between net income and expenses (it doesn't fall from the heavens in your absence – at least $150 pw).
Pretty well summed up Trakka, although I'd add rent reviews could also include annual CPI, fixed, fixed + %, market and ratchet clauses.
Do your homework especially with regard to what current market rent is, it doesn't always mean that it will increase. I have seen many which have now dropped 15-20% since the expiry of their leases ie below what their commencement rents were 3-5 years ago.
Ensure that the bond/bank guarantee/any security will be transferred into your name (new bank guarantees/personal guarantees etc should be issued)
Confirm that the bond is at the appropriate level (ie has been adjusted with the rent and is inclusive of gst where applicable).
Check out vacancy factors in the area & the average time to relet.
Confirm agency letting and management fees (if required).You can borrow PI or IO for most puposes, it doesn't need to be for investment.
Benefits – lower repayment on IO (based on the same amount borrowed as you are not contributing to the repayment of capital) Disadvantages – you will need to refinance for the same amount at the expiry of the loan/no reduction in the balance owed. Asset value may not increase so your borrowing capacity may decrease, if you borrow for non-investment purposes the cost of loan would most likely be non-tax deductible.
Thx Elkam, rang the OSR this morning, PITA……They will only deal with the owner of the land (a bit hard if you are investigating). However, they levy landtax on the owner as at 31.12.XX ie the vendor. As the vendor has paid/still to pay then the vendor is passing on the cost to ourselves. I now have to negotiate down from this position – based on a single holding it should be nil.
