$15,000 deposit for an IP, leased to DHA

[Lofty]

Hi All

Here’s an opportunity to pick up an IP that's leased to the DHA, for $15,000 deposit.

Leased to the DHA until April 2012
Townhouse - 3 bed, 2 bath, double garage
Current rental set at $340 per week (reviewed annually)
Your current variable, interest only, mortgage payment will be $2,463 per month
Located in beautiful Nelson Bay, NSW (Holiday home later?)
For sale via an Installment Sales Contract
Sale price $440,000
$15,000 deposit payable at exchange of contracts
$435,000 payable 7 years from exchange of contracts
Quantity surveyor's, Depreciation Schedule already done.

I tried to attached a Word document with photos but the file size was too big. However, I'll email it on request.

Thanks.

Cheers, Paul

 

[ziggy2214]

Lofty
Where is the IP
What arrangement is this?
Will I be paying YOUR interest for the next 7 years?

 

[Lofty]

Hi Ziggy

The IP is in Nelson Bay, NSW.

The sale is done with an Instalment Sales Contract. In very simple terms, an Instalment Sales Contract is a standard contract of sale with about 13 pages added. These approx 13 pages have the effect of extending the actual "settlement" day out 20 to 30 years (in this case 7 years), while giving you possession, making you responsible for all outgoings and setting the instalments you will pay and when. These instalments are normally tied to the interest rate of the seller's underlying mortgage. A great information resource on the use of Instalment Sales Contracts in Australia can be found at:
http://www.vendorfinancelawyer.com.au/page28.html

No you won't be paying my interest for the next 7 years. You would be paying either weekly, fortnightly or monthly instalments, under the contract. However the Instalments Sales Contract will stipulate that these payments will be paid into the seller's underlying mortgage. Also the Instalment Sales Contract does give the purchaser under the contract, a Power of Attorney to enforce the contract at completion. Thanks.

Cheers, Paul

 

[Belu]

Sorry but as per your signature how does a 4% gross property become positive?

 

[Welcome]

No you won't be paying my interest for the next 7 years. You would be paying either weekly, fortnightly or monthly instalments, under the contract.

How much are those installments?

 

[ziggy2214]

Lofty
Where in Nelson Bay?
Can you send me a PM with more details?

 

[BayView]

Sorry but as per your signature how does a 4% gross property become positive?

Unless the depreciation is enormous, and you are on the highest tax bracket...it doesn't.

Even with those two factors maximised, the chances are extremely thin.

 

[Simon]

What's the real selling point here Paul?

Maybe it is the opportunity to get into an investment with a low deposit and no bank qualifying problems? Paying a premium on monthly expenses in order to get it.

Will suit some people. Not seasoned investors though.

Reminds me of a favourite truism. "The stockmarket exists to transfer wealth from the impatient to the patient." I think it is easily applied to the real estate market too.

In this current climate there is no real rush. Prices aren't going anywhere and time taken to save a deposit may see the investor in a better situation in the longer run.

I think you might be trying to sell fridges to eskimo's by using this forum. Good luck to you mate.

 

[PrimeCommercial]

From memory DHA leases are either 9years or 12years so if the lease expires in 2012 this townhouse is an absolute minimum 5 years old.

Here's a list of all 14 townhouses in the Nelson Bay area curently for sale

 

[Belu]

Wait, so for a $440k property you require:

$15k upfront
$2,463 per month ($206,892) over the life.
$435k payable in 7 years.

I guess it is better than a normal loan, but it still means you don't own the asset (what happens with deductability here?) and is low yielding.

Happy to adjust if my numbers are wrong?

 

[Aaron Sice]

i'm more interested about the paying money to the sellers underlying mortgage...

is my name on the title if i buy....?

is kind of like an options contract but you pay outgoings in the meantime.

odd.

 

[Lofty]

The property is no longer available.

One of the disadvantages of a transaction like this is the new purchaser has to cover the negative gearing "bit" for the life of the Instalment Sales Contract. However others obviously think that paying $15,000, the negative gearing and the "outgoings" is worth it to get access to, in this case, 7 years of capital gain on the property.

Probably not a great strategy if you were doing this at the beginning of 2004 ;-)

Some of the questions above indicate that it's not generally known how Instalment Sales Contracts work. A great resource to help understanding of these contracts is at:
http://www.vendorfinancelawyer.com.au/page28.html

Cheers, Paul