From: Steve Navra

Ringing Bells # 1

I am more than a bit concerned that in excess of 30% of the attendees of my April Melbourne course, are DANGEROUSLY OVER-EXPOSED in regard to the numerous ‘Flips’ they have set up. By this I mean that they are unable, now and in the future, even with the assumed capital growth on these projects to obtain the necessary finance to complete (and thus might be ‘FORCED’ to trade, in what could be unfavorable circumstances). This together with an expectation of a series of interest rate hikes, which could well flatten out the capital growth expectation of such projects.

Fortunately, I have been able to help most of these investors with some ‘defensive’ structure planning. I am now receiving an avalanche of requests from investors in a similar position – with some of them becoming very irate that they can’t get into the next Melbourne weekend course (unfortunately booked out).

To alleviate the demand, I will be holding a single evening STRUCTURE TALK on 5th June in Melbourne and will address this topic in some detail, together with my usual ‘Optimised’ use of assets. Please refer to ‘Meeting Point’ for further details.

Ringing Bells # 2

Many clients have entered into purchases that offer a rebate, or cash back amount on settlement, that has been built into the purchase price such as deposit gapping and / or similar type of arrangements. Please be very aware that these practices are UNDER SERIOUS REVIEW, and that such arrangements need to be FULLY DISCLOSED to the lender. This should in fact form part of the contract to purchase. Many vendors, solicitors, agents, finance brokers and purchasers who have been a party to such arrangements are possibly in danger of being prosecuted for such practice. SO PLEASE BE CAREFUL, and get some professional advice in this regard. -Ahem, Rolf and Dale, your comments on this subject should be of interest to us all.


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Reply: 1
From: Duncan M

With Regards to Bells #1, is this predominantly people following a certain
well known Property Spruiker who advocates using Deposit Bonds to secure
multiple off the plan properties?


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Reply: 2
From: Sim' Hampel

On 5/15/02 2:30:00 PM, Steve Navra wrote:
>Ringing Bells # 1
>I am more than a bit concerned
>that in excess of 30% of the
>attendees of my April
>Melbourne course, are
>regard to the numerous ‘Flips’
>they have set up.

I assume you are talking about buying off the plan with the intention of onselling before settlement ? As opposed to simply negotiating well and finding a buyer and taking a fee ?

>Ringing Bells # 2
>Many clients have entered into
>purchases that offer a rebate,
>or cash back amount on
>settlement, that has been
>built into the purchase price

Whilst I agree with the sentiment that obtaining an advantage by deception is simply not on, there is a counter argument that says that there is a reason the lenders insist on having an independant valuation... that is to ensure that the price being paid is a reasonable one, which is why the lenders will usually only lend on the lower of the two prices... valuation or contract price.

So if this works the way they insist, then what is the issue ? If the property is truly worth what is put on the contract, regardless of what that sum is made up of, then surely they should be happy to lend on that amount ? If the bank is happy that they could resell the property tomorrow and recover most if not all of their money, then what is the issue ?

Note that I am not condoning or promoting this practice, simply attempting to generate some discussion.

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Reply: 2.1
From: Steve Navra

Hi Sim,

I think the issue goes beyond just the banks valuation:

The bank makes an assessment on the borrower as well - for example they might want to see 6 months of savings, serviceability and of course the borrowers equity position. They make a risk assessment based on these facts - and one such factor is the borrowers ability to come up with the relevant deposit.

I think what the banks are inferring here is that they do not have all the facts at their disposal to make a fair risk assessment, if there is any form of non-disclosure.

Hmmmmmmmmmm. whether we like the banks or not, ASIC seems to be heading down the path to full transparent disclosure with all that we do.

And rightly so!
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Reply: 2.1.1
From: Mike .


It comes down to the meaning of the word "deception". Is it deceptive to have the cashback stated in the special conditions section of the contract? The bank, if they wish to, can insist on a copy of the entire contract. The argument goes that the cashback appears in the contract and is, therefore, "disclosed". It is not our business to tell the bank how to do their job. The bank should apply Caveat Emptor here and do their due diligence.

They order a valuation which cannot be totally accurate since there are no comparable sales as the development hasn't been built. They probably don't bother getting rent valuations. If the market is on the up and completion is 12 to 18 months away, they probably expect the margin of error to work in their favour by accepting the contract price. In this scenario, have they been deceived or deceived themselves?

It sound like I'm a supporter of cashbacks but I'm not - as it is applied here. In the high stakes world of commercial property development a more rigorous approach is taken by the commercial lenders to risk analysis where they usually expect the developer to put up some "risk money" (deposit). In addition, the relationship between developer and lender is more along the lines of a business partnership. In fact, when negotiating with lenders, a developer's character and reputation is considered more important than their track record or how good the deal stacks up financially. It can be the difference between securing funds or not.

The point is, word gets around, and I'm not prepared to have my reputation jeopardised by using this tactic. You'll get more respect from banks by simply negotiating deals for a positive cashflow outcome and ensure you have a lifelong access to funds. Do you think the seminar promoters of these schemes enjoy the goodwill of banks that have heard about this?

Regards, Mike
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From: W W

Watch out

Some banks, such as Westpac, now specifically ask you (in writing) if you will receive any sort of rebate at settlement.

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Reply: 3
From: Jason Kidd

Hi all,

Just a quick reply to Duncan,

If I am reading between the lines, I know (not personally) the "spruiker" you are referring to... Agree with most of the posts about said person re: high priced seminars and the "hype", but on pg. 25 of (assumed) said person's seminar notes reads...

"Avoid properties within projects where there are flippers:

(a) A flipper is a purchaser who does not have the financial capacity to settle the property, and intends to sell out prior to completion.

(b) If the flipper cannot settle, the property could be liquidated, potentially affecting the price and prestige of your property... especially in the eyes of the valuer"

Said person differentiates between "traders" and "flippers" in this way (traders are prepared to settle in WCS, flippers dont think this far ahead. Said person advises not to attempt to trade properties prior to settlement unless you have the capacity to settle in WCS. Not my thoughts, just responding to Duncan's post...

Must admit, I am in weird position here. Have completed a "high-priced" seminar, and in hindsight overspent, but looking forward, have already made much more than I paid for the course.

However, I agree with what I have perceived as the general sentiment about over priced seminars - theres not much one person can teach you in 4 days that you cant teach yourself in 6 months - at a fraction of the cost.

Sorry about the long (and obtuse) post.

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Reply: 3.1
From: Jason Kidd

Sorry all about above post, would have responded by email but Duncan left no add.

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Reply: 4
From: Rolf Latham

Hi Steve


Bells 1.

My dislike for OTP with settlement greater than 6 months away in an uncertain market is well known. The reasons are as follows:

1. I dont get paid till the thing settles :eek:)
2. If it settles in 2 years time and your serviceability is marginal today and rates increase you will not be able to complete.
3.If 2 occurs it is likely on average that you will have to unload at a loss.

Bells 2.

Rebates are an interesting concept and the QLd market is a sausage factory for them. Most lenders are wise to the issue and react accordingly.

An established property, well bought with a rebate based of "buying costs" is likely to get through even when a valuation is conducted. Where there is a sniff of this any decent broker will force a valuation to cover their butt.

It should be noted that the rebate issue per say is mainly confined to new properties and in this instance the val will usually flush it out except where the new prop is xcolled to the buyers PPOR, then the lender is unlikely to ask for a val.

Legality or ethics ?? Dunno, if you provide the information in a contract and its ignored then its not up to the borrower to expose all their warts. Having said that, it is prudent to keep ones nose clean because if you do practice fraudulent behaviour you will end up on a Crime Circular as I received from the Victorian Fraud Squad - yesterday with a "watch" list. It makes for very interesting reading !


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Reply: 4.1.1
From: Tibor Bode

Hi everyone,

I'd like to bring your attention to this week's BRW magazine. There are some excellent articles about the real estate boom, brokers and immigration. The least to say, they are very interesting and informative for anyone investing.

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Reply: 4.1.2
From: Mike .

Hi Rolf,

You said: "Rebates are an interesting concept and the QLd market is a sausage factory for them."

I came across a post on another forum recently that suggested that the discount for early settlement phrase is illegal in Qld. Furthermore a seminar group advocating this scheme were currently under investigation by ASIC. Looks like QLD sausages are contraband.

If anyone here advocates cashbacks/rebates etc then you'd fit right in with Enron's smoke and mirrors way of operating.

I found this in Letters to the Editor.

Capitalism as Seen at Enron

Traditional Capitalism:

You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income.

Enron Capitalism:

You have two cows. You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt-equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows.

The milk rights of the six cows are transferred through an intermediary to a Cayman Island company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company. The Enron annual report says the company owns eight cows, with an option on one more.

Regards, Mike
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Reply: 5
From: Dale Gatherum-Goss

Hi Steve!

I'm not sure of the "prosecution" of commissions, kickbacks etc when they're kept secret. It's an area of the law that I just don't keep up with . . . I don't need to!

However, I personally believe that the so called advisors should be prosecuted where they do not make a full and complete disclosure. Or, do not act in the best interest of their client, even at their own detriment.

When I started my career, it was as an auditor, and the rules were very strict about receiving any form of benefits whatsoever. So, as a ridiculous example, if we were given chocolates, we had to note who, what, where and when - just in case something else arose later on.

The rules were very strict, perhaps even too strict, BUT, the issue was that we were professionals, and as such, we had to act like professionals and be responsible for our actions and our thoughts.

One by one, the professionals (such as accountants, bank managers, doctors and lawyers) have had their image and status within society eroded away because they failed to act with the level of respect, trust and professionalism expected of their status.

Sad, very sad.


(Who no longer feels like Quasimodo but still walks away muttering "the bells, the bells") Have fun!
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Reply: 5.1
From: Tibor Bode


I loved your posting. What is really funny in it (only today 20 years after the event)
that in the ex communist countries this was for real!

Anyway, thanks you made my day

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Reply: 6
From: Mike TheBloodyIdiot


Guys, I am dumb. I am really dumb.

I do not get this bells#2 stuff at all. What you are talking about?

Ok, "Some banks, such as Westpac, now specifically ask you (in writing) if you will receive any sort of rebate at settlement." So what is the big deal?

You: "No, Mr Westwank Bank, I am not receiving any kind of a rebate on settlement. Should I disclose to you the fact that the vendor really likes my dog and wants to buy it?"

WB: "No. It is not relevant to the contract".

You: "May be you want me to disclose that we are having BBQ with the vendor after settlement?"

WB: "No. It is not relevant to the contract. I have got no time for your nonsenses. Please go away".

You(outside the office): "They certainly do not want to know that vendor wishes to pay $50K for the dog and wishes to contribute another $50K towards BBQ. They certainly would not want to know that because vendor does not have enough cash , they instructed their solicitor to accept final cheque from my solicitor on settlement for $100K less. They are right. Those are separate deals irrelevant to the contract for sale of the property. I am a bastard who tries to steal precious time from those nice busy people."
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Reply: 6.1
From: W W

Mr Thebloodyidiot

Thanks for your post. I used to really enjoy your posts from the old CRI forum. You really think outside the square and get me thinking!


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Reply: 6.2
From: Always Learning

Why go to all that fuss? if they are separate ( totally independent) legal contracts, why even get a solicitor involved?
Why not just do what the do in Japan, handshake agreement and then the passing of brown paper bag under the coffee shop table after settlement? Then you be 100% clear and understand what you are really doing. Anything else and you are just putting lipstick on a pig!
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Reply: 6.2.1
From: Mike TheBloodyIdiot

Thanks AL,

I really love you Japanese people, you are so nice obviously...

But... Lets imagine you are purchaser and I am vendor, we agreed to do the deal, we have settled OK. I need couple of days (or hours) to clear the cheque to fill this paper bag for you.

But... A minute before the anticipated exchange sudden amnesia attack strikes me (not an unusual thing for bloody idiots like me). So for all your questions I would have a stereotype answer, namely "What bag?".

What you supposed to do in this case? (Please forget karate, kungfu and other stuff - I have got a crow bar ;-))
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Reply: 6.1.1
From: Mike TheBloodyIdiot

Thanks Mr WW,

I guess you would not mind if I take a liberty to remind you of my reasons of posting to REI forums. I do not like praises, but I do like people to get cheesed off with me so we create some kind of brainstorming.

In other words, I need ideas. Unfortunately, on this forum people mainly discussing something which is not worth discussing. This thread is a good example - instead of discussing how to force banks into generating more profits for their shareholders (by the way of lending more to property investors) people are discussing how to help lousy bank bureaucrats to do the damage to their organisations by lending less than 80% of what is property is worth, and most of all to the borrowers which represent much less risk than traditional owner occupiers.

I have a great doubt that anyone who is mucking around this forum is unable to negotiate less 20% discount off the real property value. Then, most of the investors would renovate property within days from the purchase, lifting its value by another 20%.

So, allowing bloody bank clerk to lend you 80% of 60% of real property value is an act of hostility towards the bank and constitutes act of sabotage against Australian economy. Bloody serious crime.

Ok, lets see if we can put this discussion on the right track.

Who really is doing the most damage to our belowed bank? Yes, it is the bloody valuer.

Is not it complete nonsense that all bank valuations on purchase come exactly at purchase price?

What kind of "professional work" it is to copy purchase price from one box in the contract to another box in the valuation sheet? Isn't it an operation that you can train a monkey to do?

Why they need to know the price before the valuation at all? Aren't they supposed to estimate the real value of the property?

Is not it a fraud to charge you hundreds of dollars for this type of work?

What the hell is "drive-by valuation"? If it is not a fraud, what is a fraud?

If valuer does this kind of thing to owner occupier, this is all right, no damage has been done - owner gets smaller loan, pays less interest, so he is better off.

Sorry, this really cheeses me off. Valuer does you a damage by undervaluing your property. For every dollar he undervalues it, you are loosing 4 dollars of your borrowing power.
In other words, if you PROP is undervalued $50K, you thus are deprived from purchasing $200K worth of property.

Given 8% average capital growth in Australia and say 50 years you would hold this property valuer deprived you from purchasing... Makes a LOT of money.

Unfortunately, I can not shoot the bastard, but can I sue him (like bank would in case he grossly overvalues the property and bank looses money)?

If I am shareholder of the bank (i.e. co-owner) can I sue him for profits bank has lost as a result of a undervaluation?

Has anyone (apart from a bank) sued a valuer for undervaluing and won?
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From: Always Learning

Let's imagine that I am the vendor, you are the buyer and Westpak the financier.


Step 1. Lets make a deal.

Property is fair market value of 200K, I agree to sell it to you for 240K. I agree to buy your Cavalier King Charles spaniel for 40K after settlement.


Step 2. You get finance for 200K

Dear Mr Westpak

I "her-buy" declare


I have not and will not received any sort of rebate/cash-back/subsidy financial or otherwise, nor have I entered into any other legal contract ("side contract" ) with the vendor or vendor's representative that is binding on the completion of this purchase.

Signed in blood, in the face of God and the Queen of England

Mr. Idiot


Step 3. We settle the property

Me: Thanks for the 240K

You: No problems, here is the banks 200K and my 40K, remember the Mr Westpak is in the room at settlement, the money must be on the table.


Step 4. (Few days latter) We settle the spaniel

You: Here's your dog, where's my $40K

Me: Don't want it now, this dog is not the same dog, the dog I contracted for was more playful and intelligent.

You: I will sue.

Me: Suck it up you idiot, na-ni-na-na-na

You: I mean it, I will sue your arse!

Me: Opp's I forgot; I'm filing for bankruptcy tomorrow! I bought one too many dogs for $40K, call my liquidators if you want.
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