100% Finance

[WebBoard]

From: Mike .


Creative financing
From: Hiram Ng
Date: 22 Dec 2000
Time: 07:27:10

Hi Guys,

Here's a really interesting concept I came up with on the tram today. I would normally post this on www.creativerealestateinvesting but Andrew's site is shut down at the moment.

OK, let's say I want to obtain 100% finance on an IP. I see one for sale by motivated seller. For the example, it's market value is $100K. He's willing to accept $80K.

I don't want to put on the contract of sale $80K, because then that's what the banks will value it at, and give me loan based on LVR of $80K.

So I put on the front page of the contract of sale $100K. In the special conditions I put this clause : "As a bonus for early settlement, if the purchaser settles this property by xxxx date, the purchase is entitled to a $20,000 discount (or 20%) from the vendor".

When I take my Front Page of contract of sale to the bank (coz they need front page only - see AMP web site - home loan section for example), they lend me 80% of 100K.

I pay the $80K to the vendor on time to get the bonus settlement payment. In effect I paid 20% below market, but the property is valued at $100K.

Thinking further ahead 10 years down the track, the CGT is calculated based on the $100K, because that's what it was purchased for. So I pay less CGT. Yes? No? Not sure about this one.

Of course, if this works, it's subject to rampant abuse: people would be putting ridiculous values on the front page of the contract of sale, and asking for the balance in the special conditions.

But a reasonable amount may work. And depending on the wording of the bonus payment is it calculated as an income payment which must be declared on a tax return? Or is it capital in nature?

Love to hear your thoughts guys!

Cheers

Hiram Ng [email protected] Melbourne

 

[WebBoard]

DR

Reply: 1
From: Mike .


Re: Creative financing
From: DR
Date: 24 Dec 2000
Time: 15:00:01

Why bother going to the trouble?

Why don't you give the NAB a call and go and speak to one of their personal bankers?

If you get a registered val that say's it's worth 100k then they will lend on the registered val not the contract price. So you get to buy a place without having to put in the regulation 20% deposit.

All this said and done, I know this will work for me because I already bank with the NAB and owe them heaps and I am part of the "Professional Package".

I believe AMP will do something similar.

Good Luck, DR

 

[WebBoard]

Michael Yardney

Reply: 1.1
From: Mike .


Re: Creative financing
From: Michael Yardney - Metropole Properties
Date: 22 Dec 2000
Time: 21:58:49

What you suggest is illegal as there are a number of documents ("notices of disposition") on which the vendor must state the sale price as well as having to sign a statuatory declaration. Further, you would pay stamp duty on a higher price than you paid.

Also it is worth considering that if you managed to by the property for $80K than probably that's all it is worth - don't fool yourself. Sure there are bargains around, I find them all the time, but I find that a lot of inexperienced purchasers are buying off the plan or from developers (I'm a developer) and getting a 10% discount and think they are doing really well. They are actually getting 10% off an inflated price and probably paying the real value (or sometimes still an inflated value.)

Do your homework carefully.

Michael Yardney Metropole Properties - [email protected]

 

[WebBoard]

GB

Reply: 1.1.1
From: Mike .


Re: Creative financing
From: GB
Date: 22 Dec 2000
Time: 18:28:39

I think that you will find that there is a criminal offence (as in fines, prison etc )known as "obtain a benefit by deception" (it varies from state to state). On the facts hypothesised it would prove itself. Crime is not creative ;-)

 

[WebBoard]

JohnE

Reply: 1.1.1.1
From: Mike .


Re: Creative financing
From: JohnE
Date: 22 Dec 2000
Time: 11:04:32

Imprudent. Will give rise to false declarations in a variety of places. For instance the bank's own mortgage forms require you to certify the truth of what you have declared to it.

 

[WebBoard]

Pierre

Reply: 1.1.1.1.1
From: Mike .


Re: Creative financing
From: Pierre
Date: 22 Dec 2000
Time: 10:52:13

I discussed this very topic on Andrew Gray's site awhile back. Here's my post ...

http://www.creativerealestateinvesting.com.au/_disc1/00000209.htm

 

[WebBoard]

Ric G

Reply: 1.1.1.1.1.1
From: Mike .


Re: Creative financing
From: Ric G
Date: 22 Dec 2000
Time: 10:26:30

CGT would be based on the actual purchase price of the asset, which in this case would be $100K LESS the discount = $80K. So no probs there.

I guess if the contract was backed by a valuation report supporting the $100K contract price then its not so bad.

However, just trying to "dupe" the bank into lending you more than they normally would seems to me to be unethical (?), and probably not the best way to build a relationship from which you can both benefit in the future.

If the property is that much of a good deal then surely you can present your case to a financier and get the funds for acquisition. No one is going to turn down financing a great deal - as long they are sure that it is a great deal. When you are asking them to take all the risk (none of your money in the deal) then I guess the ball is in your court to convince them that it is a great deal.

 

[WebBoard]

Gary

Reply: 1.1.1.1.1.1.1
From: Mike .


Re: Creative financing
From: Gary
Date: 22 Dec 2000
Time: 10:07:25

I remember an article I read about people doing this a while ago. The banks eventually woke up and started demanding to see the whole contract and getting people to declare that there were no other contracts in place. But if AMP don't want that then I guess it might be OK. Though I would be very careful to read all their documentation to make sure there isn't a special clause in there about this sort of thing.

Gary