Deposit down on OTP property - difficulty obtaining finance. Options?

Hi all,

Back in late 2009 I put a 10% deposit of $37k for an off-the-plan purchase of a $370k 1 bedroom apartment in Hamilton, Brisbane. The apartment was intended to be an IP and rented out once built to assist with loan repayments.

Since 2009 my financial situation has drastically changed and I have had a significant reduction in income. I have also entered into a debt agreement to manage my financial affairs meaning that my credit history is poor.

Settlement on the property is coming up in September and I have had trouble securing finance due to my ability to service a $370k loan and my bad credit rating.

Fortunately my father has been very supportive and is willing to help me with my situation and can provide financial assistance if need be. I would like to keep the property if possible (for the capital gains) but realistically, it looks difficult.

Put simply - What options do I have and what would be the best course of action?

From my research I have concluded that I have three options:

  • Option 1 - Father to act as guarantor on the loan and also supplement initial deposit with another $30k, reducing my borrowing value to $303k. (Will this be enough?)
  • Option 2 - Flip/sell the apartment to my father and put the loan under his name and contribute to the payment of the loan. (Through a formal contract)
  • Option 3 - Try 'flip' the property by finding a buyer before settlement is due. (Hopefully not make a loss)

Any further information/suggestions would be greatly appreciated. If any further information is required please let me know.

Thanks again,
JE
 
[*]Option 1 - Father to act as guarantor on the loan and also supplement initial deposit with another $30k, reducing my borrowing value to $303k. (Will this be enough?)
No-one, including me, would advise anyone to go guarantor for anybody but especially one (even though it is his offspring) who has run ito financial difficulties. :(

[*]Option 2 - Flip/sell the apartment to my father and put the loan under his name and contribute to the payment of the loan. (Through a formal contract)
ONLY if your father thinks it is a good investment (which it almost certainly isn't - being 1brm & OTP, in a falling / flat market in Brissy)....and let him do it on his own without your contributions.

[*]Option 3 - Try 'flip' the property by finding a buyer before settlement is due. (Hopefully not make a loss)
[/LIST]
Probably the BEST option you have.

Any further information/suggestions would be greatly appreciated.
Option4. Forfeit your 10% deposit and walk away. Hopefully the developer will not sue you (although he may) for the difference between what you agreed to pay and his eventual selling price to another purchaser. Probably the 2nd best option you have, in my opinion.
 
I agree - cut your losses and sell it before you settle. Even if you are taking a loss on the sale (hopefully not more than the deposit you have already put in) it will be better to get out now.

That is of course assuming that the contract allows you to on-sell prior to settlement.

The other issue you will face if you settle, is that when the bank value the apartment at settlement the valuation will almost certainly be lower than the purchase price, most likely resulting in additional costs such as LMI unless you can come up with additional funds.
 
Resinding the contract sounds nice if you can do it. Otherwise I agree with the others that option 2 or 3 will be the solution. Your chances of securing finance with low income and credit issues are not good at all.
 
Option4. Forfeit your 10% deposit and walk away. Hopefully the developer will not sue you (although he may) for the difference between what you agreed to pay and his eventual selling price to another purchaser. Probably the 2nd best option you have, in my opinion.

is it the op's first and only asset? developer can't get blood out of a stone.

try to on sell it like a mad man. although i doubt you will be able to, given the huge amount of new apartment supply coming on the market in Brisbane.
 
Thanks for all the responses, looks like selling the property to either my father or third party is the best option. I am now researching how to flip a property off the plan but still considering option 1.

ONLY if your father thinks it is a good investment (which it almost certainly isn't - being 1brm & OTP, in a falling / flat market in Brissy)....and let him do it on his own without your contributions.

Probably the BEST option you have.

Option4. Forfeit your 10% deposit and walk away. Hopefully the developer will not sue you (although he may) for the difference between what you agreed to pay and his eventual selling price to another purchaser. Probably the 2nd best option you have, in my opinion.

He does believe it's a good investment. I did not mention it but he has also put a deposit down on another apartment in the same development, off-the-plan. He is happy to take on both loans if need be although this is obviously easier said than done.

Option 4 I would like to try avoid at all costs but yes this may end up happening.

I agree - cut your losses and sell it before you settle. Even if you are taking a loss on the sale (hopefully not more than the deposit you have already put in) it will be better to get out now.

That is of course assuming that the contract allows you to on-sell prior to settlement.

The other issue you will face if you settle, is that when the bank value the apartment at settlement the valuation will almost certainly be lower than the purchase price, most likely resulting in additional costs such as LMI unless you can come up with additional funds.

I will be looking at the contracts in detail tonight to see if I can on-sell. Could you please clarify what LMI means (Loan Mortgage Insurance??).

is it the op's first and only asset? developer can't get blood out of a stone.

try to on sell it like a mad man. although i doubt you will be able to, given the huge amount of new apartment supply coming on the market in Brisbane.

That is in the back of my mind - Hamilton has a lot of new high-rise apartments going up.

Resinding the contract sounds nice if you can do it. Otherwise I agree with the others that option 2 or 3 will be the solution. Your chances of securing finance with low income and credit issues are not good at all.

There may be a chance to rescind the contract too.

on what grounds would s/he rescind?

Would delays in construction be a possible avenue to rescind the contract? Development stalled for months and the only communication I received was that there would be a delay with no further detail or updates.
 
Would delays in construction be a possible avenue to rescind the contract? Development stalled for months and the only communication I received was that there would be a delay with no further detail or updates.

Yes, possibly.

You should look through the contract and look for a sunset clause. This will state, if it is there, that either party may terminate the contract if the construction is not complete by xxx.
 
Thanks for all the responses, looks like selling the property to either my father or third party is the best option. I am now researching how to flip a property off the plan but still considering option 1.



He does believe it's a good investment. I did not mention it but he has also put a deposit down on another apartment in the same development, off-the-plan. He is happy to take on both loans if need be although this is obviously easier said than done.

Option 4 I would like to try avoid at all costs but yes this may end up happening.



I will be looking at the contracts in detail tonight to see if I can on-sell. Could you please clarify what LMI means (Loan Mortgage Insurance??).



That is in the back of my mind - Hamilton has a lot of new high-rise apartments going up.







Would delays in construction be a possible avenue to rescind the contract? Development stalled for months and the only communication I received was that there would be a delay with no further detail or updates.


LMI is Lenders Mortgage Insurance. In a lot of instances where people purchase apartments off the plan the value is not close to the purchase price when the purchaser settles. Therefore the Loan to Value Ratio is greater than the banks will accept so insurance is often required or a higher deposit to bring the ratio down.
 
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