contract with long settlement date

[belleran]

My tenant would like to purchase my unit.
I would like a contract now which I can present to the back to enable me to get finance for another project. The tenant says they are able to put a deposit on the unit but couldn't settle until late in the year or even early next year.
Is this a fairly straightforward procedure with the contrat just specifying a long settlement date and am I correct in thinking that the bank will lend on the basis of such a contract?

 

[DaveM]

You can set the settlement as whatever you like, eg settlement is 365 days or earlier upon agreement by both parties so they can settle earlier.

Will it be an unconditional contract or will there still be subject to finance clauses so you dont really have surety of a sale?

Maybe a purchase by option where the buyer puts in 2% non refundable deposit.

 

[RPI]

Hi

Just don't make it a deposit over 10% or it may be classed as an installment contract.

Darryl

 

[Peter_Tersteeg]

Just a couple of things to consider for the other project finance...

If the sale to your tenant is conditional in any way (such as it has an ongoing finance clause), the lender for your other project will probably want the sale to become unconditional before they give it consideration (ie, the debit is paid off, the funds are available, etc).

If affordability or funds for your new project are a problem now, this won't change until the sale to your tenant is completed. The lender for your new project may want to know how you'll put your contribution in or how you'll afford it in the meantime (of course the tenant pays a deposit, but is it enough).

 

[belleran]

So are you saying that even if the contract was unconditional it will hold little sway with the bank in terms of securing funds for the next project until settlement has occured?

 

[Peter_Tersteeg]

So are you saying that even if the contract was unconditional it will hold little sway with the bank in terms of securing funds for the next project until settlement has occured?

Let's say that you can't afford the next project if you hold your existing IP. If you hold the existing IP for another 12 months, but your next project is starting next month, the bank should be asking how you'll be able to afford the next project until your IP actually sells.

It's a little hypothetical, but you need to look at the different angles.

 

[belleran]

I want to secure the land now with construction loan but I am not intending to build until my current project is finished later in the year. I could get a loan for the land but wanted a loan for the whole package. Being a triplex the lender options are more limited. I am using one lender for current project but they won't lend for the next so needing to look at another lender but any lender needs to be comfortable and I don't think they would contemplate providing finance unless I can provide them with a more solid proposal.

 

[RPI]

Hi Belleran

Can you secure the land with an option instead of a contract?

 

[belleran]

For some reason the broker wanted to submit the whole package to the bank ie. land and construction.
I should be able to purchase land only no problem so will head in that direction.
thanks for everyone's input.

 

[tobe]

For some reason the broker wanted to submit the whole package to the bank ie. land and construction.
I should be able to purchase land only no problem so will head in that direction.
thanks for everyone's input.

Not enough info, but there are lots of good reasons to do both together, from a finance perspective, and a risk perspective.

 

[belleran]

So what generally what are the benefits of doing land & construction together?

 

[HLE]

Hi Belleran,

Most lenders generally accept extended settlements as long as the borrower is not purchasing off the plan. In some cases though lender's approvals do lapse after 180 days if loan has not been advanced. In this scenario the borrower would just need to re-apply for loan with updated documents.

So what generally what are the benefits of doing land & construction together?

Benefits include:

• Not having to pay interest on the land loan that was accrued in the period between the purchase of the land & construction.
• Achieving formal approval by a lender before purchasing the land. Worst case scenario is that after purchasing land, you can not find a lender who will finance your the construction loan. This could be due to your construction proposal, financial position, borrowing capacity etc.
• Obtaining council approval of your plans or approval of subdivision before purchasing the land.

Cheers