4 unit site - selling OTP

[MTR]

This is just a hypothetical, if I sold OTP perhaps 1 or 2, buyer places 10% deposit, market stalls, buyer pulls out prior to settlement.. what happens besides the buyer losing deposit??

The bank funds the deal/development, conditional to OTP pre-sales, what next. I know seems simple question, but I have no clue, whether the banks get heavy, you must refinance, anyone know or been in this scenario, place something in the contract to cover your ar$e.
I am sure this would be very common scenario in boom/bust cycle



Cheers
MTR

 

[starter]

In addition to the 10%, I think Buyer would also be liable for the difference between the contract price and the price you can now get.

 

[Colin Rice]

In addition to the 10%, I think Buyer would also be liable for the difference between the contract price and the price you can now get.

This is correct ^^^^^

 

[Ausprop]

you are left high and dry and would need to look for a new buyer - note that the bank wouldn't be really interested in the story and the intricacies of whether the defaulting buyer can actually cover any losses or your prospects of success at trial... they would just want the debt cleared

 

[imbi3]

The bank will ask you to come with alternative arrangement such as refinance the development loan into investment loans if your income allows, otherwise may end up in foreclosure if there is no other wayout. However this will involve a long process and you would be better off to sell the units yourselves and take a hit on your profits (or loss)

 

[MTR]

The bank will ask you to come with alternative arrangement such as refinance the development loan into investment loans if your income allows, otherwise may end up in foreclosure if there is no other wayout. However this will involve a long process and you would be better off to sell the units yourselves and take a hit on your profits (or loss)

Thanks.
Good to know how it works.

 

[RightValue]

Yep,

You put the units to sale by Auction, subject to settlement when individual titles are issued.

The recalcitrant buyer has to make up any negative difference between their contracted price, less deposit and the sale price.

You get the titles, settle then launch court action against the borrower.

If they have lots of assets you should win and get costs.

If they are financially stretched then you spend $30,000 on legal fees and they file for bankruptcy, so you eat your legal costs as well as the shortfall.

I am a great believer in the following.

When you get lawyers involved you loose.

Otherwise you just keep the deposit, less the agents commission.

 

[Telejazzer]

The bank will ask you to come with alternative arrangement such as refinance the development loan into investment loans if your income allows, otherwise may end up in foreclosure if there is no other wayout. However this will involve a long process and you would be better off to sell the units yourselves and take a hit on your profits (or loss)

On another note, if you can keep as investment and then keep it. If you've done your due diligence and allow at least 20% margin then more likely than not, you'll be in break even or maybe even positive gearing or cashflow.

Unless you're developing in a volatile market area where a 20% plus swing is a possibility, then that's another story.

 

[MTR]

If going commercial I believe the bank requires OTP.

However, my MB has advised that there may now be a resi lender we can use, which means we do not need pre sales and also the banks fees including establishment will be less.

The rents would cover the mortgage but I do not want to hold everything, I would like to reduce debt and increase cash flow, then again I could change my mind on completion

 

[sanj]

If going commercial I believe the bank requires OTP.

However, my MB has advised that there may now be a resi lender we can use, which means we do not need pre sales and also the banks fees including establishment will be less.

The rents would cover the mortgage but I do not want to hold everything, I would like to reduce debt and increase cash flow, then again I could change my mind on completion

some lenders will look at doing no presales for smaller commercial projects but rates can be higher

 

[MTR]

Hi Sanj
Have heard of one particular commercial lender who does not require OTP sales, however the deposit required was I think 30%+.

I would do what it takes to get the deal over the line, however if I can secure resi finance at 80% LVR it would be the way to go. My understanding is commercial loan set up is also very expensive $5000+.

Cheers
MTR

 

[westminster]

Hi Sanj
Have heard of one particular commercial lender who does not require OTP sales, however the deposit required was I think 30%+.

I would do what it takes to get the deal over the line, however if I can secure resi finance at 80% LVR it would be the way to go. My understanding is commercial loan set up is also very expensive $5000+.

Cheers
MTR

yes establishment can be high, which has put me off in the past, but the ability to capitalise interest to reduce holding costs (ie coming out of your pocket) is nothing to be sneezed at. So $5000 hurts but the $20k that the bank is willing to roll over rather than you pay can be handy.

 

[Colin Rice]

Bankwest will do four in a line at 80% under resi.

 

[MTR]

Bankwest will do four in a line at 80% under resi.

Thanks, think we are looking at Bank of Adelaide.