It could have gone horribly wrong ……

Hi guys,

Now, I'm sure some of you have done a flip on an "off-the-plan" unit.
However, I hope none of you were as naive as I had been recently as not get my own finance for the deal (just in case), and simply rely on the on-buyer to come up with the funds for settlement day.
The settlement just finished on Tuesday (3rd February), and boy am I relieved!!!!

My wife and I signed the contract to buy the unit in Dec 2005.
The on-sale of the unit went under contract on July 2007, cash offer (no finance approval required).

On this basis, we just waited … and waited … and waited for the construction to finish, and for our nice cheque to come through at settlement.
Like most of these developments, completion was about 6 months later than originally planned, and titles were released a few weeks ago.
So, settlement date was set — 29th January.

I couldn't be happier about the situation.
A number of our profits turned to losses in 2008, similar to most people.
But this deal was secure — a sure thing. That's what I thought.
It was a cash offer. No worries.
Would I need to get my own finance? No way.

1.
If the on-buyer couldn't get his money together for settlement date, settlement would be delayed of course.
But whatever penalty interest I got charged by the developer, I would also charge the on-buyer.
And in fact he would have to pay me more because of the higher purchase price.

2.
And if the on-buyer didn't have the funds at all for settlement, and defaulted, I didn't see that would be a problem either.
Yes, I would default to the developer as a result, but I could also sue the on-buyer for damages, because his defaulting to me resulted in my defaulting to the developer.

….. or so I thought …..

AND MY SETTLEMENT AGENT TOLD ME I WOULDN'T NEED FINANCE EITHER ….

Anyway, the day before scheduled settlement, I got an email from the on-buyer's settlement agent to say the buyers were "short some funds", and won't be able to settle until they come up with them.
I then discussed the implications and various scenarios with my settlement agent.
I very quickly became very, very, very stressed …..

It only then became apparent to me that my contract to the on-buyer was conditional on me first settling with the developer.
And, that the on-buyer not being able to settle with me on a particular day, was not sufficient reason for me to delay settling with the developer.
I know this is elementary, but I really hadn't seen it that way before this.

In short, if the on-buyer couldn't come up with the right funds, I could be slapped with a default notice by the developer and potentially be in default if I couldn't settle in 14 days — meaning losing my $73,000 deposit as well as any losses the developer incurred by selling the unit again (if he couldn't get the same price as I bought it from him for).
And, as if I couldn't settle with the developer, the conditions of my contract with the on-buyer cannot be satisfied.
As such, I wouldn't be able to charge the on-buyer with a default notice, nor sue for my losses incurred to the developer.

What was getting me more worried was that the unit had dropped in value from July 2007, so it was worth maybe 5% less than what the on-buyers were buying it from me for.
If they got "cold feet", they could just walk away. And I'd be in the "poo".
But thank God (He is so awesome), the on-buyers were willing through the whole process to complete settlement and take possession of the unit.
When they were short of those funds, they even sold some shares at a loss to make up the difference.
All we had to do was wait the three days for the funds to clear.

That 3 days' wait was so long … maybe the longest 3 days of my life. I was going through my head all the things that could possibly happen.
I spoke to my mortgage broker about getting urgent finance — could take up to 6 weeks to get final mortgage documents ready for settlement.
I spoke to PropertyInvestingFinance.com — could take 3 weeks to get final mortgage documents ready for settlement.
Both of them longer than the 14 day period I may get enforced on me by the developer.

Okay, three days were up and the on-buyers' money from selling the shares should have arrived.
I rang the settlement agent —- no funds came through.
Now, I was more stressed.

So, I thought through it all again …. prayed and asked God for wisdom.
And, I tried to think about what I could to take control of the situation. Which was difficult, because I felt for the last few days that the situation was out of my control.

I asked the settlement agent how much the on-buyers were short — it was about $26,000.
I decided I would put in that $26,000 myself that day to the settlement agent in order that the damn thing could just settle.
I told the agent to let the on-buyer know that the funds were a "loan" and for them to re-pay me following settlement.
I knew this was a risk, and there was every chance I wouldn't see that $26,000 again.
However, I knew it was much smaller than the costs to me of defaulting, and a lot more manageable.

Thankfully, the unit did settle later that day, and my profit in the "flip" was put into my bank account.
And, even better, when I saw the on-buyer at the unit the following day, she was so happy an appreciative of me lending her the $26,000.
She was under the impression she would have to pay penalty interest to me if she was anymore delayed in settling.
And, she gave me a cheque for the exact amount I lent her.

Little did she know that I was incredibly more relieved than she was …….

NEVER AGAIN WILL I GET INTO A "FLIP DEAL" AND NOT ORGANISE MY OWN FINANCE !!!!!!!!!!!!!!!