"Helping" the overexposed OTP purchasers

[always_learning]

It has been widely reported that many OTP purchasers in Melbourne/Sydney/Brisbane high rise developments will have trouble meeting there commitments.

One high motivational factor for the OTP purchaser may be is to allow such OTP purchasers to "hide" the loss, and push forward dealing with it for a number of years....Is there any profit to be made to enable such a solution. ( Yes, vulture financing)

Can anyone think of a way to work with an OTP purchasers in such a way as to allow them to meet there commitments, but in a few years reap the rewards.

i.e. Lets take a $400K apartmentment OTP, current value $320, I the invester put in $80K with an option to purchase 5 years in the future for $160K?

 

[Cat09Tails]

That's very kind of you, always_learning. vulture financing is a great option. I have no doubt those buyers who are in a desperate situation will appreciate the "help" you are providing them with.

Cat

 

[Sunstone]

Dear Cat,

AL should be encouraged not discouraged.

There are opportunities in all markets but many cannot see them or take the time to look for them. Doing something different that provides a solution to real needs can produce dividends.

John Fitzgerald talks about one of his associates in the early 80's buying units at just 60-65% of their previous values and profiting from doing so. (At the same time pushing the fact that he should have bought houses instead.)

I am sure that there is a dollar to be made somewhere in the mix.

Is buying from a couple going through a divorce the "wrong" thing to do? Is it better that there is no buyers at all?

How is this different to the OTP scenario?

Cheers,

Sunstone.

 

[Gill Bates]

Originally posted by always_learning

i.e. Lets take a $400K apartmentment OTP, current value $320, I the invester put in $80K with an option to purchase 5 years in the future for $160K?

If it was me ( the person selling) , I would want a share of the likely gain , over 5 years . If this was not possible , I would get rid of it , and write it down as a expensive lesson . Probably not likely unit value would drop in value more.
I , in hindsite have made mistakes, but overall , I am ahead by miles.

 

[Cat09Tails]

I don't "encourage" anyone who I think is ripping someone off- call me weird, but that's the way I am...

It was always_learning who used the terms "vulture financing" and put "helping" into quotation commas in his subject header. I just reiterated his thoughts that it was "helping", rather than actual helping...

Life might be all about profit for some people- for me, it's not. We can all go and find the old guy who doesn't know what his property is worth and buy it from him for a song. Making a dollar isn't everything if you sell your soul.

Drought, divorce, death, dumb... yes, I've heard of all these. I will continue to have my perspectives, just as you all will yours. this is a democracy after all.

Does nike "help" people by employing slave labour in poor countries? Well, of course it does! Should i buy someone's house for almost nothing because they are bankrupt? Hell yeah, because I will make a profit from other people's misery just to make a buck... Well, i don;t think that way, and I am not going to "encourage" someone else - that's your job, Sun

Cat

 

[Aceyducey]

Originally posted by Cat09Tails
Should i buy someone's house for almost nothing because they are bankrupt? Hell yeah, because I will make a profit from other people's misery just to make a buck... Well, i don;t think that way, and I am not going to "encourage" someone else - that's your job, Sun

One small thinking point for people on this...

If EVERYONE was ethical in this manner, the bankrupt person would not be able to sell their house at all and therefore be worse off........

Equally, if Nike and all other manufacturers moved to 1st world standards for all production, 3rd world country product would be significantly more expensive & beyond the reach of more people & there would be much higher unemployment as locals do not have the skills and education to manage modern production plants - nor would as many workers be required, meaning higher unemployment, potentially more suffering and enormous strain on administrative & health systems (which would have to be funded to 1st world standards somehow and find the skilled personnel required to operate them).

One of the reasons I am sceptical (not cynical mind you) of certain eco & ethical movements is that there's isn't room for everyone to be ethical or environmentally responsible - there MUST be a bad guy to behave inappropriately or the system breaks down....

Brands of ethics that only work when some of the people practice them surely are unethical. An ethical system must work when EVERYONE practices it to be truly ethical!

Check your assumptions at the door!

Cheers,

Aceyducey

 

[always_learning]

Helping was put into double quotes because that is indeed what I want "win-win". Vulture funds circle around waiting for the animal to die, or (just before) and swoop down to take some pickings of the dead or near dead animal.

However I wont become a charity, my favorite charity is helping cambonian girls escape the povity trap ( keeping them in school, support their community) and avoid being sold as sex workers to Bangkok! That's helping in a charitable way, and where I choose to spend 2% of my income in a consistently.

What about helping "win-win" in a business sense? Let's face it some OTP could be bankrupted when they cannot meet their commitments. I am asking the question "is there a way for them to escape from this" and for me to profit, OK they probably will take a hit financially but it is not a knock out blow.

 

[geoffw]

I've been in a situation which was a win-win (from my point of view) but may have been seen as taking advantage by some.

A person who owned a business with good cashflow was in poor health, and needed cash quickly to pay for medical bills.

We put in $10K (against a $20K asset to be paid off in 12 months) for a share in the business, which helped him immensely in his state of ppor health. It was very high risk for us (there were a lot of unknowns)- but it's come out well, with $10K income in the first year, paying out the outstanding capital. The business is continuing to go well (even though there were some major probalems in that first year which ate into cashflow).

Now the owner's health has deteriorated again, and he is offering us further opportunities.

Finance from other sources are hard for him to come by. I feel we are in a position to help each other out.

 

[handyandy]

Hi All

Good on you Geoff. I agree that you are taking a big risk but I am sure you have faith in the person you are helping. I would suggest that you ensure that any ownership issues are correctly documented to ensure your valid stake in the business, as in the unlikely event that the unmentionable happens you still need to ensure that your 'investment' is secure.

Getting back to the OTP. I was speaking to a friend who works with one of the big high rise developers and he mentioned that this developer is simpy letting OTP prurchaser who can't settle walk away from the deal loosing only the 10% deposit. The reason is that they don't want to attract attention to the substantial problem they face with many investors not being able to proceed through to settlement.

So maybe there is a massive decline in the market that is being covered up.

CHeers

 

[geoffw]

Thanks HandyAndy.

Documentation is a sticking point, and one we are actively pursuing. We're getting close to a resolution.

If companies are letting people walk away with losing only 10%, will they face a much bigger probalem further down the track? Does that mean that the dam waters are rising, just adding more pressure for the majority who are coming later, but who are optimists just waiting for a turnaround?

 

[Jakk]

Originally posted by Cat09Tails
That's very kind of you, always_learning. vulture financing is a great option. I have no doubt those buyers who are in a desperate situation will appreciate the "help" you are providing them with.

Cat

Dearest Cat,

You are looking at the situation from where you sit but not from the position of the OTP Purchaser who is unable to complete the transaction and who may face greater financial loss than just the 10% deposit that they have paid.
A contract is a contract and as such if there is a huge amount of defaulters on a development, the vendor looking for quick realisation of the unit stocks, conducts a sort of clearance auction to sell "at the best price on the day".
In this sort of situation, prices could possibly be up to 40% below original sale prices.
Now you do the calculation, 40% of a $400,000 apartment = $160,000, add to this the advertising, auction & agents costs and this amount of shortfall could exceed $180,000.

A lot of OTP purchasers in recent times have bought with a view of benefitting from the capital gain they felt would be created between the time of purchasing and the time of settlement, NEVER even considering that there could be a chance that the apartment at settlement time, would be worth less than original purchase price.
In some cases these OTP Purchasers have had no cash at their disposal and have used equity in their own family home to fund the deposit, figuring that a $40K top up on their mortgage presents no problems regarding repayments.
Now turn around and ask them to double or triple that amount in order to have the equity required to obtain the financing on their OTP Purchase and alarm bells start to sound.
So their options are all of a sudden not so bright.
What started off as a great idea, has turned terribly sour.

This is now a nightmare, and all they want is out, if only somebody would come along and give them their $40K back and they could walk away. But realistically, nobody will, so now they have to look at loss minimisation and at the same time protect themselves from the legal repercussions should the apartment be sold at a fire sale price as i've indicated above.

I'm sure that faced with this sort of dilemma?, They would be only too happy to have someone like AL come along who is at least prepared to do a deal which might get them off the hook with a reduced loss, and at the same time benefit himself, than nobody at all.

By the way, I was down at Southbank last week and was quite impressed at some of the developments and the way the area is now coming along, so impressed in fact I made a couple of offers on some apartments, I was laughed at, but i will revisit again in a couple of months and then again a couple of months after that etc.
I WILL own a Southbank apartment within 12 months, but I aint gonna be paying anything like the prices that they are asking today.

Regards

 

[michaelg]

Hi,

I think the best way to come up with options, is if we created a hypothetical problem.

Always Learning, would you mind creating some figures you think would reflect a typical (or possible) situation, then the talent that is available on this forum will have something tangible to generate solutions from.

In my experience, each deal is unique and requires different solutions for different people to meet their individual needs.

I guess info like;

- Why is this person selling?
- Why is their financial position (equity/cashflow)
- Do they need out immediately
- What was their purchase price?
- What is the current value?
- How long before settlement?
- Who's the lender?
- What's the current LVR?
- What deposit is at risk?
- Who's the Developer? (big, small, etc)
- How many units in the complex (will there be a cascading effect)
- Will the other units face the same problem?
- Was a desposit bond involved?
- etc

I think given 1 specific example may help people "crunch the numbers"

Maybe it would be possible to have the bank "short sell" the loan. They haven't actually given out the money yet. Maybe if you were to talk to the bank and the developer, both would conclude it is far better to get some money (without selling below cost) than not get anything at all.

Michael

 

[Cat09Tails]

Jakk,

Good luck in getting an apartment in southbank- I was looking at the area last time i go to melbourne- it's quite attractive. Lots of social problems there though - apparently- hoons etc. but i wouldn't knock back an apartment there

I would prefer to buy at firesale prices with a developer. I feel uncomfortable buying from the vulnerable- that's just me.

Cat

 

[always_learning]

Michaelg basically saying give me the facts (just the facts) and with that we can make some suggestions. Well honestly I dont know, I am assuming that plenty of OTP are in real trouble or soon will be.

My basic aim as an investor is to control the most possible real estate that is expected to show capital gains after the dust has settled.

Now one possibility is to wait until the fire sales start and just buy then. Or is there another way? working with the OTP purchaser who is probably in a world of pain? Naturally I want to obtain the most possible reward for the lest possible money whilst exposing myself to the least amount of risk. Now if I am more attractive than dealing with the devil then so be it.

What about this:

Jakk, when you make your deal for the southbank appartment, just say here's the name of my mate in Tokyo, he will take one more off your hands for for the same price"

 

[Sunstone]

Dear Cat,

I would prefer to buy at firesale prices with a developer. I feel uncomfortable buying from the vulnerable- that's just me.

Is that the same reason that on your Wollongong unit -

I haven't put the rent up for 8 years!

??

Charity and giving back to the community is important. However property investing should always be run like a business and kept separate. (Unless it is a clear marketing decision and the cost factored in eg Crazy John Ilhan's purchase of one of the units in "The Block".) When they are mixed emotional and not rational and financially prudent business decisions are made.

Cheers,

Sunstone.

 

[Aceyducey]

I agree with Sunstone here.

Your capacity to give back to the community is magnified by business success.

Bill Gates can, and does, give billions away to various causes. COuld he do that if he gave Windows away for free?

And developers can be just people too and equally vulnerable as individuals (there are several dedicated developers on this forum and many who have done a development here and there.

Why is it OK to buy from a struggling developer in a firesale if it's not OK to buy from a naive investor with dollar signs in their eyes?

Cheers,

Aceyducey

 

[always_learning]

Originally posted by Aceyducey
I agree with Sunstone here.

Your capacity to give back to the community is magnified by business success.

Bill Gates can, and does, give billions away to various causes. COuld he do that if he gave Windows away for free?

And developers can be just people too and equally vulnerable as individuals (there are several dedicated developers on this forum and many who have done a development here and there.

Why is it OK to buy from a struggling developer in a firesale if it's not OK to buy from a naive investor with dollar signs in their eyes?

Cheers,

Aceyducey

Peter Drucker the management guru says that institutions have only one purpose, and that that is to benefit the community. A business (one type of institution) whilst should be focused on the generating economic results ie profits.

Naturally some companies seem to focus on driving each other into the ground rather than creating increasing the value of the products and services they deliver.

 

[Jakk]

Originally posted by always_learning
What about this:

Jakk, when you make your deal for the southbank appartment, just say here's the name of my mate in Tokyo, he will take one more off your hands for for the same price"

Will do A.L. , amazing how things do a full circle sometimes, we were practically neighbours (when you were in Koo Wee), and maybe soon to be neighbours again....
as in Penthouse A...& Penthouse B. .........
Ahhh......Stubboirs on the balcony.

regards

 

[Jakk]

Originally posted by Cat09Tails
Jakk,

Good luck in getting an apartment in southbank- I was looking at the area last time i go to melbourne- it's quite attractive. Lots of social problems there though - apparently- hoons etc.
Cat

hoons huh?? sorry folks, I'll tone it down a bit next time I visit.

Regards

 

[Kristine..]

G'day

Well, as you all know I am genetically programmed to be an extreme optimist.

If I was out in the lifeboat, watching the Titanic assume a 45 degree angle prior to sliding backwards, gracefully, into the sea, I would be saying 'What a lovely starry night!'.

So I have been reading this thread with great interest.

If the discussion is centred primarily around the Docklands area and equivalent high density apartment developments in other capital cities, then yes, I too would love to have an apartment overlooking the water. The holiday house for those who have an aversion to sand, mosquitos and sunburn.

And the kind offers to purchase these apartments from the even-more-optimistic-than-I-am people who bought one, two or even (gasp) three apartments off the plan (a broker mate of mine had a call from a chap, earns $35,000 gross per annum, signed up for 3 @ $350,000 each, used insurance bonds as deposit, due for settlement late March. Work that one out!).

However, the Mrs Hyde side of my personality (or is that Ms Jekkyl?) would like to know how you, too, are going to pay for this bargain purchase?

To the best of my knowledge, there is currently only one lender willing to take Docklands or Postcode 3004 as prime security.

So don't think you can use your new waterfront apartment as security. Nope. This one will be funded from equity in other property.

Which means, as history has shown us from the fall of the Roman Empire through the Depression until today:

If you don't have to borrow, the opportunities are endless.

In modern terms, if you don't have to borrow against the new property, the opportunities are endless.

To be really blunt, as with sailing, if you have to ask you can't afford it.

The people at the Melbournian sitting out there on their balconies sipping their chardonnay without a care in the world couldn't care less what LVR or % rate applies, and I would lay odds on that despite the publicity, the great majority of purchasers at Docklands couldn't care less, either.

But for the anxious minority, there will undoubtedly be a few who would really appreciate a little timely assistance from someone who will actually buy the apartment at a price that doesn't let too much blood.

Always & Jakk, when you've bought yours let us know what else is available. A beachside property not made of asbestos cement sheet would make a nice change!

All jokes aside, the whole river and harbour side precinct is a most beautiful and dramatic development. Having been in some of the penthouses in and around town from Spring Street to Southbank and along the river, there are some spectacular apartments with the most breathtaking and mesmeric views.

Remember the 'Simon, the Bahamas, please' Cussons soap ads? My favourite property was the two storey, 50 square sub-penthouse in South Melbourne, looking north east, taking in the whole view from the Domain, across the city and west towards the docks, with the marble spa bath set in a glass cockpit almost overhanging the flank of the building. Believe me, anyone considering buying that would not have the slightest concern about LVRs or interest rates or what the body corporate fees are.

Oh well, back to the sailing catalogues!

Kristine