Advise on 1st Property Purchase

[EN710]

Hi all,

Would like to hear your opinion on my first IP purchase...
A bit of background:

• House price is at $190-200K mark at postcode 2320 close to shopping centre on a relatively quiet street, gross yield 7.5% (already tenanted)
• I have enough to offset the entire loan for 10 months or so (waiting for our off-the-plan PPOR)
• I have sent the 0.25% holding
• Contract have been signed, but have not been exchanged (currently with my solicitor). Waiting for finance approval (I had pre-approval beforehand) and vendor is willing to wait (they don't want cooling off period)
• property is about 40 years old, original kitchen and everything (so quite old)
• We ordered upfront valuation, result come on the dot of our offering price
• Some of the Pest inspections results concern me and would like to hear your opinion...

The pest inspection results (visual only):

• Moderate to extensive wood rot in several places: Shower recess, window, laundry doors and flooring timbers adjacent to shower recess + potential wall framing timber to have wood rot. The inspector said this can attract termites "the degree of risk of subterranean termite infestation to the overal property is considered extremely high".
• Roof covering: Major defect - material detoriation as concrete tiles lost the glazing due to age. Roof need to be refurbished or reglazed.
• Roof cladding: moderate rust and need to be replaced in the future
• Bedroom 3: walls have moderate damage, according to the inspector, they're due to impact (not sure if accidental or intentional)
• Others: minor defects like rust and gutters that need to be cleaned, broken concrete path

My questions:

1. From experience, how much will it cost to rectify the above? The water recess, wood rots and roof really concern me...
   
2. What do you think about the deal so far? The initial numbers work for me which is why I proceed with the offer and inspection. Though right now I am not sure if it worth the purchase with the current conditions.

Will it be better if I just bite the bullet and cancel the deal? (forgoing the inspection and valuation fees, plus some conveyancer fees)

 

[alexlee]

You've signed the contract and paid the 0.25% holding deposit.

You say the contract has not been exchanged, so that can only mean the vendor hasn't signed.

You say the vendor doesn't want the cooling off period. Does this mean you signed the s66w waiving the cooling off period?

Given the above facts, it looks like the contract will be exchanged without a cooling off period as soon as the vendor signs.

On that basis, how will you cancel the contract if you wanted to?

 

[EN710]

Hi Alex,

The contract is still with my conveyancer (hasn't been sent to vendor's solicitor), so yes, vendor hasn't sign. I assume as this hasn't go to vendor, there's still possibility to put off the deal?

Edit: No, I have not s66w waiving the cooling off period. Or at least not that I know off.

 

[thepeoplesagent]

[*] I have sent the 0.25% holding
[*] Contract have been signed, but have not been exchanged (currently with my solicitor). Waiting for finance approval (I had pre-approval beforehand) and vendor is willing to wait (they don't want cooling off period)

Just so you’re aware, until the owners sign, your 0.25% means nothing. Billy Bob could offer the vendors $1,000 more and you would/could lose the property. Since the contracts have not been dated you would at least get your 0.25% back. But at this point, your deposit is nothing more than “good will”.

We ordered upfront valuation, result come on the dot of our offering price

Ha ha, this is not coincidence. The valuer knows what you paid before they submit their report.

[*] Moderate to extensive wood rot in several places: Shower recess, window, laundry doors and flooring timbers adjacent to shower recess + potential wall framing timber to have wood rot. The inspector said this can attract termites "the degree of risk of subterranean termite infestation to the overal property is considered extremely high".
[*] Roof covering: Major defect - material detoriation as concrete tiles lost the glazing due to age. Roof need to be refurbished or reglazed.
[*] Roof cladding: moderate rust and need to be replaced in the future
[*] Bedroom 3: walls have moderate damage, according to the inspector, they're due to impact (not sure if accidental or intentional)
[*] Others: minor defects like rust and gutters that need to be cleaned, broken concrete path

I would expect nothing less for a home of 40 years. About every home I have ever sold has a leaking shower recess. And your typical inspector defines everything as a “termite risk” these days. Anyway, the home is certainly not going to fall down whilst your asleep.

What do you think about the deal so far? The initial numbers work for me which is why I proceed with the offer and inspection. Though right now I am not sure if it worth the purchase with the current conditions.

What are the current conditions? If I were in your shoes, I would want an actual cooling off period. I give buyers 10 (working) days by default unless they ask for less which is very rare. In all my 9 years of real estate I have never taken a .25% of a buyer without exchanging and dating contracts conditionally (subject to conditions). What’s the point if the vendor can back flip or the buyer can get their deposit back?

Will it be better if I just bite the bullet and cancel the deal? (forgoing the inspection and valuation fees, plus some conveyancer fees)

Personally, I wouldn’t be rescinding due to the pest & building. You’re not buying a brand new home; you need to expect these issues. I guess it’s easier for me to say this as I see hundred of these reports. Keep in mind they are nothing but a default report. Its purpose is to define how bad the home is, not how good it is. The home could be made of titanium, but the report wouldn’t mention it.

If you are still concerned I would suggest this. Contact a reputable builder who is totally independent of the building inspector. Show him the report and have him view the home. A builder can advise you on costs better than anyone on this forum. You will also receive advice which is not based on litigation (pest & building insurers are a highly sued industry).

You've signed the contract and paid the 0.25% holding deposit.

Buyers need to realise that there is no such thing as a “holding deposit”. A deposit does not legally hold the property until contracts are signed and dated.

It’s one of the biggest myths in real estate. I have had several buyers in the past wanting to put down a deposit without signing. I tell them you rather as well give me a piece of string, because that’s what your deposit means- nothing.

 

[EN710]

Ha ha, this is not coincidence. The valuer knows what you paid before they submit their report.

Yes, I figure

I would expect nothing less for a home of 40 years. About every home I have ever sold has a leaking shower recess. And your typical inspector defines everything as a “termite risk” these days. Anyway, the home is certainly not going to fall down whilst your asleep.

Haha... I might have been overreacting as it's my first time reading P&B and the report says "highly risky".
Thank you, it feels less scary after thinking about it for a while (and the fact its not going to fall down anytime soon!).

What are the current conditions? If I were in your shoes, I would want an actual cooling off period. I give buyers 10 (working) days by default unless they ask for less which is very rare. In all my 9 years of real estate I have never taken a .25% of a buyer without exchanging and dating contracts conditionally (subject to conditions). What’s the point if the vendor can back flip or the buyer can get their deposit back?

I am not sure why the vendor solicitor don't want a cooling off period. My conveyancer had a discussion and they agree to wait until my finance is approved. Probably due to seasonality (one week before holiday) or they need to sell asap or there are other issues?

Personally, I wouldn’t be rescinding due to the pest & building. You’re not buying a brand new home; you need to expect these issues. I guess it’s easier for me to say this as I see hundred of these reports. Keep in mind they are nothing but a default report. Its purpose is to define how bad the home is, not how good it is. The home could be made of titanium, but the report wouldn’t mention it.

If you are still concerned I would suggest this. Contact a reputable builder who is totally independent of the building inspector. Show him the report and have him view the home. A builder can advise you on costs better than anyone on this forum. You will also receive advice which is not based on litigation (pest & building insurers are a highly sued industry).

Good point... One reason I freaked out is because the inspector said it can cost $10-$15K to fix and this is 'fixing', not improving

I will ask other opinions..

 

[Shahin_Afarin]

It sates that the roof tiles need refurbishing. Have you checked if there are any leakage issues?

BTW excellent post from thepeoplesagent.

 

[Robstar]

BTW excellent post from thepeoplesagent.

Agreed

 

[EN710]

It sates that the roof tiles need refurbishing. Have you checked if there are any leakage issues?

BTW excellent post from thepeoplesagent.

The report says it will lead to leakage if not fixed - so I take it by the time of inspection, there's no sign of leakage (or not yet...).

Ditto re post from thepeoplesagent

Thank you guys

 

[Ace in the Hole]

Sounds like you'll be pouring in lots of money into that house for repairs and maintenence if you proceed.

Potential for good growth would be required to make it worthwhile, to counter the constant drain on cashflow.

 

[thepeoplesagent]

Potential for good growth would be required to make it worthwhile, to counter the constant drain on cashflow.

The constant drain on cashflow?

I dont think they’re buying a failing video store…

 

[EN710]

Sounds like you'll be pouring in lots of money into that house for repairs and maintenence if you proceed.

Potential for good growth would be required to make it worthwhile, to counter the constant drain on cashflow.

The median price of the suburb is on $300K mark and house around is about $230-$240K, so there are a bit of room to move (the property is $190K if he deal goes through)

Since I will have the loan fully offset for about a year, I thought of fixing the critical parts so it won't need that much attention after. Or am I a bit to naive

The constant drain on cashflow?

I dont think they’re buying a failing video store…

 

[Shahin_Afarin]

As thepeoplesagent said - I would get a builder to give me a quote and add 20% on his quote.

 

[DaveM]

I would expect nothing less for a home of 40 years. About every home I have ever sold has a leaking shower recess. And your typical inspector defines everything as a “termite risk” these days. Anyway, the home is certainly not going to fall down whilst your asleep.

Personally, I wouldn’t be rescinding due to the pest & building. You’re not buying a brand new home; you need to expect these issues. I guess it’s easier for me to say this as I see hundred of these reports. Keep in mind they are nothing but a default report. Its purpose is to define how bad the home is, not how good it is. The home could be made of titanium, but the report wouldn’t mention it.

Yep, many B&P reports are written so they sound like the place is about to implode in a cloud of termite infested rotting asbestos. The reports are generally a pro-forma they tick boxes/dropdown pre-written responses to.

Generally you read the report then give the inspector a call for an over the phone assessment, he will tell you off the record what the go is.

My questions...

1) Why is there rusting roof cladding if its a tile roof? Is there a metal skillion roof area as well?

2) Bedroom 3 walls damage - internal or external? Easy to fix either with patching or plasterboard sheeting replacment internally, or fibro sheet replacement externally (assume its fibro at that price?)

3) Roof tiles needing reglazing... I am always dubious about these claims, so long as your tiles are not cracked the water will run off and the roof will be waterproof, glazing is really for aesthetics and a moderate amount of heat reflection.

 

[EN710]

Yep, many B&P reports are written so they sound like the place is about to implode in a cloud of termite infested rotting asbestos. The reports are generally a pro-forma they tick boxes/dropdown pre-written responses to.

Generally you read the report then give the inspector a call for an over the phone assessment, he will tell you off the record what the go is.

He said the roof is a bit worse general, others are average.

1) Why is there rusting roof cladding if its a tile roof? Is there a metal skillion roof area as well?

I wasn't being clear. For Roof Cladding "Cappings have moderate rusts and will need to be replaced in the future"
Pretty sure it's just tile roof.

2) Bedroom 3 walls damage - internal or external? Easy to fix either with patching or plasterboard sheeting replacement internally, or fibro sheet replacement externally (assume its fibro at that price?)

It's internal damage - the inspector said it's due to impact, and of course, can't tell if it is on purpose or accident.
As for outside, it's brick/weatherboard walls.

3) Roof tiles needing reglazing... I am always dubious about these claims, so long as your tiles are not cracked the water will run off and the roof will be waterproof, glazing is really for aesthetics and a moderate amount of heat reflection.

Even if the roof noted as porous? Several tiles also slipped and need maintenance, so I reckon the roof need to be done sooner or later.

As thepeoplesagent said - I would get a builder to give me a quote and add 20% on his quote.

And stupid noob question - Any builder? or does this need to be specific trades people?

 

[Shahin_Afarin]

Any builder/carpenter but a good one. Search the forum for a few names and if you have no luck then you can PM me for the details of my guy.

 

[thepeoplesagent]

As thepeoplesagent said - I would get a builder to give me a quote and add 20% on his quote.

Just to be clear, I never said add 20%

 

[Shahin_Afarin]

Builder's either underquote or there is something that pops up that you never planned for so it always good to have a buffer.

 

[datto]

More inclined to add 10 % rather than 20% to cover pop ups.

I once had a girl sit on my lap and ask me what I wanted to talk about. I said how about the first thing that pops up!

 

[EN710]

Builder's either underquote or there is something that pops up that you never planned for so it always good to have a buffer.

The builders quote come out on ball park range of $1500-$3000, which I think is reasonably affordable ... still far far away from the $10K mentioned by the inspector . Have asked last minute discount from agent (hoping to get about $1000 off) - owner said no, so will try to approach the solicitor. If lucky, I will get the repair money back.

Bottom line is, I will proceed with the purchase with the plan:

• Tenancy contract end in March 2013 and they seem to want to stay, so probably will get things repaired 1-2 months after settlement.
• When they vacate, then will do a bit more reno ($5K mark). The old bathroom and kitchen give too much of a nostalgic feeling.

A bit of question, bank valuation says $150K insurance for building replacement, are they usually accurate?

 

[Shahin_Afarin]

The builders quote come out on ball park range of $1500-$3000, which I think is reasonably affordable ... still far far away from the $10K mentioned by the inspector . Have asked last minute discount from agent (hoping to get about $1000 off) - owner said no, so will try to approach the solicitor. If lucky, I will get the repair money back.

Bottom line is, I will proceed with the purchase with the plan:

• Tenancy contract end in March 2013 and they seem to want to stay, so probably will get things repaired 1-2 months after settlement.
• When they vacate, then will do a bit more reno ($5K mark). The old bathroom and kitchen give too much of a nostalgic feeling.

A bit of question, bank valuation says $150K insurance for building replacement, are they usually accurate?

Its taken from the valuation report.