"Helping" the overexposed OTP purchasers

[geoffw]

Cat,

I certainly don't think Sunstone's reply was meant as any kind of put down.

It is certainly a very unusual thing you've done, not to raise the rents, when they were, I guess, well and truly due for a raise.

I have chosen to raise rents in my properties when the market has gone that way- but if the market goes down, I'm prepared to drop the rents as well.

I remember the story Peter Spann told of one of his very first tenants, when he was managing his own properties. The tenant was a little old lady- and he never raised the rent because he was sorry for her.

But when she left (voluntarily) the two sons helped her to move- one in a Merc, and one in a Roller.

I'd be interested to know if you had a very particular reason for not raising, or whether it was a very general ethical consideration you had.

 

[Sunstone]

Dear Cat,

Geoff is right. This forum is all about encouraging and helping others along the way.

If it is not seen this way then it may be opportune to read your original reference to AL's post. Everyone is entitled to their own opinions and what they may consider is ethical or otherwise. However it should at the end of the day benefit the forum's community and the members on it. (Although I know a good number of people who would get divorces if they didn't put up the rents on their properties for eight years. )

The world is not black and white. You have to be comfortable with the decisions that you make.

Enjoy the journey.

Cheers,

Sunstone.

 

[asy]

Originally posted by Cat09Tails
I would prefer to buy at firesale prices with a developer. I feel uncomfortable buying from the vulnerable- that's just me.

Cat,

If you are buying from the developer, at firesale prices, this means the original purchaser has already defaulted.

The way it works, as I have mentioned previously, is that the developers have sold their units at HUGELY inflated prices, for various reasons, which have mostly all been discussed.

For example, the developer sold the unit for 400k to an investor.

The investor couldn't settle so loses the deal.

The investor then pays the developer 10% of the purchase price in default, PLUS the developer's costs (of resale and chasing the default monies) PLUS the difference between the initial sale price and the subsequent sale price.

SO...

If the developer sells the property to you, at your firesale, for $200k then the original purchaser will be up for:
$200k price differrence,
$40k as 10% default and
$20k estimate of costs (could be more or less)

So, total of $260k out of the investors pocket and they walk away with NOTHING. They may have just lost their home.

But, if AL goes in and offers the investor a 'deal' even if it looks far too slim on the outset, may just mean that the investor doesn't lose his home.

I can understand your sentiment, and I applaud it. But you must be realistic. You must look at all the angles. Someone's going to end up owning the unit, the developer is going to sell it. He doesn't care whether he resells it for $300k or $50k. He will still make his original purchase price one way or another, plus his 10% default fee.

Sorry Cat, but in this case I think the best and most humane thing you can do for the investor is to go try to help them out before the developer takes the unit back.

Oh, and Jakk!... Some high class lemonade in the bar fridge on the balcony for me, please.

I will bring a nice salad, and some snags for the barbie and we can watch the yachts on the ocean together... (with AL and Kristine, of course!)

asy

 

[Jacque]

Originally posted by asy
Cat,

For example, the developer sold the unit for 400k to an investor.

The investor couldn't settle so loses the deal.

The investor then pays the developer 10% of the purchase price in default, PLUS the developer's costs (of resale and chasing the default monies) PLUS the difference between the initial sale price and the subsequent sale price.

SO...

If the developer sells the property to you, at your firesale, for $200k then the original purchaser will be up for:
$200k price differrence,
$40k as 10% default and
$20k estimate of costs (could be more or less)

So, total of $260k out of the investors pocket and they walk away with NOTHING. They may have just lost their home.

But, if AL goes in and offers the investor a 'deal' even if it looks far too slim on the outset, may just mean that the investor doesn't lose his home.


asy

I didn't know that it worked like this, Asy. I agree with you, in that the lesser of the two evils (so to speak) would definitely be to negotiate with an offer like AL's.
RE can be like that- profit or loss, depending on what and when you buy. All investors should be realistic about this. Especially with OTP's, anyone that is silly enough to buy in the hope of selling out prior to settlement for a gain (because they simply don't have the funds to settle) is silly...

 

[Aceyducey]

Originally posted by Jacque
RE can be like that- profit or loss, depending on what and when you buy. All investors should be realistic about this. Especially with OTP's, anyone that is silly enough to buy in the hope of selling out prior to settlement for a gain (because they simply don't have the funds to settle) is silly...

Cat,

I'm not a big OTP fan either, though it does have it's place.

There are a number of investors who have done well by flipping OTP properties prior to settlement - just as there are investors who have been successful flipping already-existing properties before settlement.

I think that if you want to maximise your investment across changing circumstances you do need to look at and consider all these different investment strategies with open eyes.

Be prepared to consider them in their appropriate places (even if it is an extremely limited place) rather than dismiss them out of hand.

Cheers,

Aceyducey

 

[Jacque]

Originally posted by Aceyducey
Cat,

I'm not a big OTP fan either, though it does have it's place.

There are a number of investors who have done well by flipping OTP properties prior to settlement - just as there are investors who have been successful flipping already-existing properties before settlement.

I think that if you want to maximise your investment across changing circumstances you do need to look at and consider all these different investment strategies with open eyes.

Be prepared to consider them in their appropriate places (even if it is an extremely limited place) rather than dismiss them out of hand.

Cheers,

Aceyducey

Well Acey,
I AM dismissing the technique of buying OTP's with the intention of flipping before settlement. As my post said, it's the ppl who do it WITHOUT HAVING THE FUNDS TO SETTLE whom I view as stupid.
It's no better than gambling. It's a strategy that I will continue to dismiss and, quite simply, that's my perogative.
Others can make up their own mind. All of my comments are merely my opinion- as are everyone's on this forum.
Long live freedom of choice!
But, hey, good luck to those who do it. It's your risk, after all

 

[Cat09Tails]

Folks,

Thanks for all the info about the relationships between developers and investors, and the rest of your opinions

I guess I just feel that with the virtual end of the RE boom, that there will be those who take advantage of others who have gotten in over their heads. If people are genuinely out to assist others who will be in financial pain, then I have no issue with that. I've just heard people talking about "bloodletting" and a number of other words that make me think people just can't wait for the trouble to occur.

Yeah- OTP's are problematic within themselves- and the deposit bond thing was way over as a strategy a few years ago. I recently read about a sydney investor having bought in balmain- overlooking the water- who bought OTP in 1999, and a place above him sold for 50K less than he paid! (the story went something like that). One would have thought, given that he got in early enough, that he would be ok- but obviously not.

Is it true that if one buys an OTP in victoria, there is no stamp duty payable?

Cat

 

[Aceyducey]

Originally posted by Jacque
Well Acey,
I AM dismissing the technique of buying OTP's with the intention of flipping before settlement. As my post said, it's the ppl who do it WITHOUT HAVING THE FUNDS TO SETTLE whom I view as stupid.

Hey Jacque, Cat - sorry my mistake confusing you two.

I'm not paying enough attention as to who's posting the posts this morning

I agree on the not having the funds bit btw, but in my not fully aware state was focusing on the tool (flipping OTP) not the circumstance (insufficient funds to settle).

There is a gray area, however, with people who can afford to settle, based on a pre-approved bank loan at X LVR....but the banks change the rules mid-process so that they have already contracted the OTP (and maybe flipped it) but would not be able to settle based on new bank LVR or other rules.....

There's also a gray area with people who CAN afford to settle, flip the OTP, then due to misfortune, mistake or another mis- lose their income or wealth and are now in the position where they can't settle - through no intention, nor necessarily fault, of their own.

In fact either of these two areas might be why the person was forced to flip it!

Who's fault is it then? no-one's I'd venture

Cheers,

Aceyducey

 

[Aceyducey]

Originally posted by Cat09Tails
I guess I just feel that with the virtual end of the RE boom, that there will be those who take advantage of others who have gotten in over their heads. If people are genuinely out to assist others who will be in financial pain, then I have no issue with that. I've just heard people talking about "bloodletting" and a number of other words that make me think people just can't wait for the trouble to occur.

Is it true that if one buys an OTP in victoria, there is no stamp duty payable?

Cat,

As far as I understand it, in Vic you used to be able to defer some or all Stamp Duty on OTP property to a later time (settlement), but this has been removed & you must pay the stamp duty on an OTP purchase when you sign the purchase contract......

There is no way I know of in VIC to avoid stamp duty on an OTP investment property purchase.

A Melbournite can probably provide some greater certainty on this though.


The taking advantage issue isn't limited to the end of a boom Cat - in fact some of the biggest advantages are taken at the START, when someone knows the market is taking off, but the vendors don't yet realise that their property's value has started increasing....And during the middle of the boom there were plenty of individuals touting investment seminars, marketeering & undertaking other practices which can be considered 'taking advantage'.

It also depends on your definition & what the law is prepared to enforce....after all, aren't all property investors 'taking advantage' by purchasing property based on careful selection to get the CG and profiteering off renters when positive gearing.

My grandfather was down on ALL landlords cause they profited off their tenants - he never saw it as a service. He also was dead agaist the stock market - a true Union son, shaped by the depression.

Ultimately, real estate isn't an efficient market - if it was, there'd be no point investing in it!

Cheers,

Aceyducey

 

[Peter_Tersteeg]

Originally posted by Cat09Tails
Is it true that if one buys an OTP in victoria, there is no stamp duty payable?

What you're probably refering to is that on many OTP developments, the stamp duty is neglegable.

You only pay stamp duty on the value of the property at the signing of the contract. Thus if you sign before it has been built, there is only stamp duty on the land value.

In the case of high rise developments, the land value might be very small because your share might only be 1/200 of the land (assuming thare are 200 units in the development).

Rest assured, you DO have to pay stamp duty, but it's very small because the value of the asset at the signing of the contract is also very small. I'm not aware of any way to get around paying stamp duty, but I believe it's only payable at settlement.

 

[ocean view]

dismissing!

Jacque

Dismissing anything in real estate can be a mistake .
There are always(last 20 years anyway) some a1 deals to be purchased somewhere.

One needs to understand the meaning of OTP!

It is simply locking in a sale price before settlement. Thats all!
U can do this many ways.. I try to do it every time/ .

1)Firstly why would someone buy a property that they did not expect a gain on...

Then after getting the first part right what is wrong with delaying paying for it for a year or two?

To me it is the best way to provide a safe way of best results..

My opinion

ocean

 

[Sunstone]

Dear guys,

A new development in OTP sales/settlements.

Cheers,

Sunstone.


Mirvac off-the-plan sales on shaky ground
Melbourne's off-the-plan-fuelled residential building boom is under attack after a prospective buyer of a Mirvac docklands apartment used a legal loophole to temporarily avoid settling the sale of a $950,000 apartment. By Nicole Lindsay (Mar 12) » Full report

http://afr.com/property/index.html

 

[Garry K]

Just catching up on this post.

Jakk

"Ahhh......Stubboirs on the balcony."

A client of mine installs the commercial aircon in many of the developments down at docklands etc.
He says you need to tie yourself down on some of those upper level balconies, as the wind really whistles through.
Bit like going up to the outside viewing platform of the Rialto.

and Acey

"Canberra has a lake"

For other Victorians, and Werribee has a. . . . . . . . . . .


GarryK

 

[Corsa]

Hi All

I saw the following article in the Fin Review today and thought that it was interesting and related well to Always Learning original post.

Cheers

Corsa

Source AFR April 8-12 2004.

Apartments teeter on the brink

Recently Dennis Kalofons of Sydney PRoperty Finders was contacted by a woman who had bought an apartment off the plan in Alexandrai for $560,000 but could no longer obtain finance. She had three days to go before settlement and was hoping to sell for exactly what she had paid in order not to lose her deposit. "By today she would have lost her $56,000" Mr Kalofonos said on Wednesday. "We definately didnt have anyone. We wouldnt put anyone into a unit in Alexandria". Mr Kalofonos siad he regurarly got calls from people who had bought apartments off the plan in south Sydney hoping he had a buyer to take their investment off their hands. At best, Mr Kalofonos believed a brand new two bedroom unit in the area would be worth in the "mid $400,000's". The situation was the same in Zetland. A typical scenario was apartments in the area purchased off the plan for $450,000, revalued last year to $650,000 by the abnk in order to obtain finance and now looking for a buyer, he said. "You cant sell them and you cant get a teant for them because there are not amenities [in the area] yet" he said. But the story insnt limited to South Sydny. In Sydneys inner western suburb of Balmain, agent Peter O'Malley of Harris Partners, said apartments were particularly under stress. Mr O'Mally recently handled the sale of a ground floor two-bedroom flat in Louisa Raod, Birchgrove, which last year had been lsted by another agent at $545,000. It sold for $400,000. He said that because of the plunging clearance rates - especially in the inner west - the apartment market seemed "poised at the edge of a cliff". With about 60 per cent of properties passed in at auction it would be only a matter of weeks before there was another price correction, he said. On Tuesday, sentiment in the market plunged even more when the NSW government announced a 2.25 per cent stamp duty slug on investment property at the same time of sale, plus a land tax on investment property worth less than $400,000 in land value. "The market was hanging on by a thread when it was hit by the interest rate rises and now it has been hit by something far worse" Mr O'Malley said. According to the Domain website there are 5102 apartments listed for sale in the key areas of the city, the eastern suburbs, inner west and the Lower North Shore. Compare that with sales results from the Home Price Guide and a scary picture starts to crystallise: in the four months to date only 2231 have been sold in these key areas. Last year 23,056 apartments were sold. From any angle the tally shows a market hopelessly lagging last years results. According to Domain advertisments, there are 869 apartments for sale in the CBD, the eastern suburbs has 1872, the inner west 1330 and the Lower North Shore 1031. Home Price Guide sales records show that last year there were 11,585 sales in the CBD and eastern sububrs (17,937 were advertised), 7213 in the inner west (8432 were advertised) and on the Lower North Shore 4258 (6553 were advertised). While everyone has been watching the inner city, the northern beaches have been overlooked. Last year, 5060 apartments were listed for sale and 3537 were sold. In the first four months of this year, 2029 apartments were advertised and only 285 found buyers.