Hi all,
Would appreciate any help – as at the moment I think we've done everything possible for the "how not to invest in Real Estate" manual and this property is a constant worry for us.
We bought a block of land in NthWestern Sydney in 2003 with the aim of on-selling it at a profit, with DA approved architects plans for a large modern house. Unfortunately we didn't expect council to take 18mths to approve the plans, and by the time it went back on the market, the boom had ended and there weren't many interested buyers.
We bought the block in a company name. Our 'silent' partner removed himself, and as he was not legally obliged to contribute to the interest only mortgage repayments, we are shouldering a hefty debt. We have tried using different real estate agents – had a couple of offers, but my husband was not satisfied with them. Anyway the current agent has an offer on the table for $25K less than the mortgage. The agent is also saying that the land is not subject to GST – but as it is owned by a company, surely it is? He is saying that if we don't accept this offer, we should take it to auction. My thinking is that if there will hardly get a better result through auction.
There is no house on the land, and it is a sloping block.
I don't think we have been using the right Accountant or Solicitor. As I understand it, if we sell it for the offer on the table, we'll not only lose the $25K shortfall of the mortgage, but we'll have to come up with the Agent's commission.
If anyone has any suggestions as to how we could minimise the damage, or turn around the situation, we would be very grateful.
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!
HI
Did you buy the block with GST or without ?
Is it under the margin scheme?Often you cannot claim the gst on the land purchase, but you claim it on the construction of the home under the margin scheme. As we build house/ land packages through our company and after thousands of $$$ of advice, structures and speaking with ATO a few times, I think I grasp it all now.
I have found in situations like this you need to ask a specialist in gst/ tax and property transactions and pay their fees- normally $300- 350 per hour- fax them a copy of contract and write down all the questions you need help with.
In NSW we use
NATIONWIDE TAX- Baulkham Hills
Principal is Dino Di Guilio, make an appointment to speak with him, and ask for his charges, he normally times calls, and advice and then bills you.also you can ring ATO- not that they are always the best, but ask to speak to a specialist with gst, land, margin scheme, fax them a copy of the contract, and they can often advise you, and they also notate it in their system and you can prove you have sought advice/ direction or a ruling on the devt.
Have you negotiated with the agent on their commission- sometimes you can outline- look were in a really difficult situation, we do want the offer and to sell, but we are loosing approx – x,y,z – is it possible to make this contract work to lower your fees, or do the sale for x,y,z ? otherwise we cannot make it work
Have you listed it with a really good agent exclusively? and followed the marketing campaign?
Can you build on it? and then sell- what will the figures look like if build on the land and sell? and price it to sell off plan or on completion?
Sometimes it is better to sell and wipe the slate and get rid of the stress, headache, and focus your energy on the next project and learn for it- as there may be other good deals out there that this project is holding up- plus it maybe weighing you down mentally, emotionally.
A few years ago I took a loss of 30k on a house that got infected with termites- strange as we do termite inspection yearly, full brick home, good aeration, no gardens around it, no moisture, had ant capping- but the little devils got in anyway- so I just sold it as is, and got rid of it for land val, took the loss, and forgot about it, then focussed on other oppportunities, within a few good little deals I made up this loss, and didnt let it hold me back.
A few things to think about here, and some clear guidance needed re gst, agent, state of market.
kylieAs 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.
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.
A couple of quick quezzies:
How did your silent partner escape his obligations (are you just kind hearted and let them out? or were they a guarantor for the loan?)Did the company pay GST on the purchase of the land? If not, why would you be trying to pass it on to the purchaser?
Going to auction will only extend the pain for another 4-6 weeks plus the settlement period – can you afford to hang out for another 3 months or so?
If the prospective buyer won't increase their price, can they release the deposit during the settlement period?
Agents only charge 2 or 3% nowadays, so any savings offered by them would be chicken feed – work with the agent to seal the deal and take the hit (if you cut their remuneration do you think they are going to work harder?)
Scott No Mates wrote: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.
Thanks for the clarification Scott No Mates. I was aware that it's more a commercial RE tool used over logner periods and that there would be limited if any demand in the residential market. Just thought I'd throw it out there as a desperate time / desperate measure last throw of the dice thing
Thanks again
Thanks so much for all the advice and suggestions.
Kylie – we'll be calling Nationwide Tax at Baulkham Hills. And thanks for your words of encouragement.
We've just had another offer of $20K short of the mortgage (as opposed to $25K) – and I think the advice given a couple of times of taking a loss and moving on might be the best course of action.
imugli & Scott No Mates – I didn't know about leaseholding, so I've learnt something. Thanks for putting it 'out there'!
IP Freely – the 'silent partner' was a school friend of my husband's who was single at the time and had a bit of spare cash. They sealed the deal on a handshake. To cut a long story short, after a while, this friend found a wife, and his new wife didn't like my husband, or paying the share of the mortgage on what she saw was a risky venture. Love won in the end, and the friendship is no more….
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