Hi Everyone,
I'm looking at acquiring a property which is under some mortgage stress and mid way through renovations. My goal would be to cover the mortgage payments to provide relief to the vendor along with a small upfront payment, complete the renovations in a few weeks and then resell the property with my profit margin (either traditional cash sale or a lease option, whichever comes first). My question is really what is the best way to for me to accomplish this – I'm thinking something along the lines of a lease option to cover their repayments with an agreed purchase price and then after I'm ready to sell we can then sell our option to gain our profit. We obviously will be trying to avoid all the initial purchase and setup costs (stamp duty, mortgage setup costs etc).
Hopefully that makes sense and you can understand what we're after. I've heard mention of a blind option, and from what I understand this is so the next purchaser/leasee can take over the option without seeing the original numbers. I'm thinking this sounds the best but would love to hear any other thoughts. Also is there anything in particular we need to know about when selling the property afterwards for a traditional cash buy?
Any thoughts much appreciated.
Cheers,
Jason
Very dangerous.
Make sure you get legal advice otherwise you would be just one of many unsecured creditors down the track.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Terry,
Any suggestions as the safest way to setup this type of transaction?
I agree with Terry, you wouldn't want to do all the hard work and let the creditors enjoy the profits. I wouldn't even bother attempting
Into_property wrote:Hi Terry, Any suggestions as the safest way to setup this type of transaction?Not really.
You may think you are helping the owner etc but you may not know the full extent of their financial problems. If they do down the bank is going to get first take on their property. Then other secured creditors and then the non-secured creditors.
So if you want to proceed you will have to do a title search and see if there are any other mortgages, caveats or writs etc. Do a valuation too. Then you have to get a contract drawn up and make sure you take a charge and maybe lodge a 2nd mortgage or a caveat showing your interest in the property. Consider they may have other non registered mortgages too and then consider if these would take priority over yours. Very complex and legals would be lots of money to do properly.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hmmm, so from the sound of it this would be pretty much be the case with any lease option type situation ( be it sandwich or just standard ). Obviously the risk being heightened in this scenario due to the pre existing mortgage stress. Is this the case Terry?
Into_property wrote:Hmmm, so from the sound of it this would be pretty much be the case with any lease option type situation ( be it sandwich or just standard ). Obviously the risk being heightened in this scenario due to the pre existing mortgage stress. Is this the case Terry?Well, any situation in which you are taking an option to purchase someone else's property you would have to consider who else has an interest in the property and is this interest will take priority over your interest.
For example someone may sell you a property, and then before settlement someone else may lodge a writ over the property to secure a debt and this may occur before settlement. In this case who would take priority? According to a recent NSW case it would be whoever had registered their interest first. So if you exchange contracts and don't lodge a caveat someone else could take the property before settlement to satisfy a debt – a debt that you may not know anything about.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Jason
We have been doing what we call Assumptive Joint Ventures since 2006, i.e.. we have been putting paperwork in place to assume control of the owners mortgage and the property. As Terry says, it's probably the most dangerous technique we use in our business. The amount of due diligence we now undertake on the owners situation is quite daunting. Along with the other paperwork we use to secure control of the property, it's a technique I'd definitely warn newbies away from.
There is a VF educator out their suggesting that you go in and take control of distressed properties with a 4 page JV agreement. Frankly, if you rely on this agreement to cover your position and the thousands you've invested in the arrears and the property itself, you would have rocks in your head
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Hi Paul, appreciate the info there, I'm quite sure I know of the educator you are referring to and it is from this educator that I had the impression it wouldn't be so difficult. Obviously they are using this strategy all be it a dangerous one….
Thanks for the info.
Cheers,
Jason
Terryw wrote:Very dangerous.Make sure you get legal advice otherwise you would be just one of many unsecured creditors down the track.
If you're in Syd then I'd be approaching this guy (Terry). He knows a thing or two about IPs and the law.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Into_property wrote:Hi Terry, Any suggestions as the safest way to setup this type of transaction?Safest way would be to pay market value and transfer title.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Jamie M wrote:Terryw wrote:Very dangerous.Make sure you get legal advice otherwise you would be just one of many unsecured creditors down the track.
If you're in Syd then I'd be approaching this guy (Terry). He knows a thing or two about IPs and the law.
Cheers
Jamie
If I was to ever get sued one day, I’d pray It’s anyone but Terry. Otherwise I’m screwed!
Hi Jason
Yes you don't hear about the failures from these quarters
and I could point you to one that's in the courts right now. When we are conducting these transactions the JV agreement is a tiny fraction of the paperwork involved. To rely on the JV agreement alone, in my opinion, is madness.Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Hi Jason,
If its just for a few weeks/months, wouldn't a delayed settlement do the trick but have a clause you could release some of the deposit to the bank to stop the bank foreclosing whilst you renovate and sell? But still do it with a contract of sale.
There is sandwhich lease options and theres plenty of solicitors out there specialised in this that aren't as expensive as you'd think.. a quick google would find them or you can provide your state and we could list a few.
Cheers
Sheree
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