Deposit Bond

[WebBoard]

From: Mike .


Q's about "Off the plan" & Deposit Bonds
From: Curious Onlooker
Date: 05 Nov 2000
Time: 23:41:51

Curious ... about buying off the plan, and the use of a deposit bond...

Don't OTP purchases require progress payments to be made to the builder, thus requiring a servicable loan within the construction period, essentially negating the advantages of a deposit via bond?

Is it possible to obtain a deposit bond irrespective of construction/purchase purpose?

Does an application for a deposit bond require a simultaneous full loan application?

Who is a better provider of deposit bonds?

Is it traditionally non-banks (ie., brokers)?

I feel I'm missing something here .. what is it?

Is there someone out there, who has done it, who can explain it and provide some details to a beginner, curious about exploring this method?

 

[WebBoard]

Mike

Reply: 1
From: Mike .


Re: Q's about "Off the plan" & Deposit Bonds
From: Mike
Date: 01 Dec 2000
Time: 14:07:57

On 1 April 1998 I exchanged contracts for an investment property at $189,000 to buy Off the Plan. My broker arranged a Deposit Bond with Sun Alliance and Royal Insurance for 5% of the purchase price, ie $9450. This cost me $200. Due to delays, the construction was completed in October 1999 whereupon it was let. Settlement occurred on 1 Jan 2000 by which time the value of the property had increased to approx $220,000. So the $200 Deposit Bond enabled me to accumulate $30,000 of Capital Gain/Equity in less than two years.

 

[WebBoard]

Michael Yardney

Reply: 1.1
From: Mike .


Re: Q's about "Off the plan" & Deposit Bonds
From: Michael Y - Metropole Properties
Date: 06 Nov 2000
Time: 21:21:46

Developers should not take progress payments if you buy off the plan. By law they are not allowed to have access to your deposit for construction or any other purpose -it must be held in trust.

GIO and FAI give deposit bonds, and they cost money and you have to offer some sort of collateral.

Also a final hint - I know most sellers require 10% deposit. I buy and sell many properties each year - I never give more than 5% deposit. Why tie up my money. If the agent says "...but the vendor wants 10%" I tell him how many properties I buy each year and that I never pay more than 5% deposit - take it or leave it." I give them a cheque in their hand and I've never had a refusal, other than at auctions where the terms are not so negotiable.

-- Michael Yardney; Metropole Properties; [email protected]

 

[WebBoard]

Owen

Reply: 1.1.1
From: Mike .


Re: Q's about "Off the plan" & Deposit Bonds
From: Owen
Date: 06 Nov 2000
Time: 11:14:28

I've never heard of developers needing on-going payments before. I recently bought OTP and just payed my 10% until settlement. A deposit bond replaces that 10% cash from your account for a cost. Maybe the size of the developer has something to do with it but I guess they can ask what they like in the contract.

Deposit Bonds Australia advertise in Australian Property Investment Magazine. I think they are underwritten by GIO. I've never contacted them or used them but have read a bit about there use. I guess it depends on your construction lead time vs the cost of the bond vs keeping your cash in the bank. In my case the settlement was only 3 months away so I paid the deposit and hammered the LOC loan to get rid of it before settlement. Worked well.