Hi!
Would just like some ideas as we recently met a motivated vendor. He owns a BV 4 bedroom home. He recently built another home behind this first home and is in the process of subdividing it. He wishes to sell the front home as his business is struggling and he is strapped for cash.
The figures are: – he would like $270K. To be fair to him, I believe that the price he is asking is a reasonable price (slightly below market price) – market is about $310K or so.
Putting it into a positive cashflow scenario, one would only be able to offer $180K to at the maximum 200K. The place rents out for approximately $300 per week. Yes, I agree not quite satisfying the 11 seconds rule, but we are willing to accept that in this case.Any ideas, how we could come to an agreement? Any creative solutions to create win-win situations?
From what you say he will not accept an offer of $180K even if he strapped for cash however maybe be interested in you wrapping it from him.
Assume you offered him the 270K although payable on a series of installments over say 25 years he would get the benefit of the cash flow and reduced tax liability (working on the emerging profits rule) and you would get the benefit of the property with deferred payments.
Alternatively you could purchase it for say $270K and take out a loan of say $150K and get him to take a 2nd mortgage for the balance of say 25 years.
This way he gets some cash up front and a regular income from the cash flow.
Richard Taylor
Residential & Commercial Finance Broker
Ph: 07 3720 1888
[email protected]Richard Taylor | Australia's leading private lender
Thanks!
I have considered the second alternative (with the second mortgage over 25 years), ideally, the loan documents for the second mortgage would provide that there is no interest payable and the principal can be repaid in lump sum or instalments at the borrower’s discretion. I need to contact my bank to make sure they will agree to a second mortgage being on title. I appreciate that one would try to get as good a bargain as possible, especially with a motivated vendor etc, but have you had experience where you managed to push through a no interest repayment type scenario?
With the first alternative, WRAPPING! We have always tossed up this one, but have not entered into one yet. With Wrapping, the property does not transfer to you I presume, until after the final instalment is paid? I presume land tax and stamp duty is not payable until final instalment? How about responsibility for the property ? What sort of interest rate repayment would you try for, if he doesn’t agree with nil?
posative cashflow is great and all, but every now and then we need to take a practicle look at things. If you can buy a house for $270k and it would be worth $310k giving you a $40k profit, I couldn’t buy it fast enough. $40k is a years income for some and is hard to save that money from a job. I think you could buy it move in for the reqired period of time and sell it. You could put the money into twice the posative cashflow properties with the tax free profits, or pay off more of your morgage and use the equity. You might want to get a building inspection and check the house has indemnity insurance just to be safe. or you could even flip it (on sell it before it settles) but you’ll be taxed. If you don’t want it, send me the details. Good luck.
Seano
I may be reading this one all wrong, but if the Seller would let it go for 270, and the buyer wants to pick it up for ~ 180 or 200 or whatever, and isn’t prepared to meet the seller at 270…..and no other buyers are around sniffing, then there is absolutely no way in a month of Sunday’s it’s worth 310.
Market value is clearly defined by where a keen but not desparate vendor meets a keen but not desparate buyer. You and the vendor are a mile apart…..I believe the market value by what you have described is as broad as 180 to 270.
I’m probably wrong though.
forget the $40k profit.
bank loan costs & interest
solicitors fees (buying & selling)
stamp duty
real estate agents costs & marketing/advertsing
rates & other minor costs
be lucky to get $10k back after tax IF you get the asking priceOr am i seeing it wrong ?
How about finding out how much cash the Seller needs to address his current financial challenges…. then you may be able to get a starting point so you know where you need to be to solve that part.
What you could do is this….
Offer the seller the cash to solve his problems and then lease option for 5 years or more on the property … offering to look after his re-payments in return for a consistant amount off the house price if (When) you buy it. Get the right to sublet and then rent it out.This way you:
1. Sort out their issues
2. Secure a house and can wait for it to appreciate in value
3. can sublet it out to cover your costs and more
4. could sandwich lease option it to increase the return and end profits.
5. can lease option for a higher price than you purchased for….
6. can find a buyer that will pay $310K or more and then assign them the option to complete transaction in 90 days……
7. You do not have to factore in Stamps duty if you flip it or Lease Option or assign it….
8. potentially get more profits.Cheers
Kiwi[baaa]Wow, some excellent ideas/thoughts here. Full marks to everyone!
Hey there
Regarding……
7. You do not have to factore in Stamps duty if you flip it or Lease Option or assign it….
I have been told the contrary, stamp duty will be payable if you flip the thing….
Some kool ideas, good to think outside the box huh??
Good work all
Maia
Dependant on which State you are there in no Stamp Duty payble on a Call Option Contract in most States. WA maybe an exception.
With a standard Flip you would not take ownership of the property but assign for a fee the right to enter into a contract to a buyer who pays Stamp Duty on the executed Contract price.
Richard Taylor
Residential & Commercial Finance Broker
**Lodoc Commercial loans from 7.19%**
Licensed Financial Planner
http://www.yourstatefinance.com
[email protected]
Ph: 07-3720 1888Richard Taylor | Australia's leading private lender
Thanks for clarifying the situation!
[biggrin]
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