How can I overcome Stamp duty and legals?

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From: Matthew Campbell


Hi everyone.. I would like to thank the contributors especially the more experienced investors in freely giving us newbies of your experiences.

I would like to know if this technique is plausible, if it is used and how easily it is to implement, if not, is there other ways to eventuate the same outcome?

Of course, often a major part of the acquisition costs are legals and stamp duties. Considering that many valuers take the FMV as the contract price, would it be feasible that, during negotiation with the vendor, encouraging him/her to pay the legals and stamp duties for you, yet adding a comparable amount into the contract price so as the bank will be lending ON the house+legals+stamp duties and therefor increasing the what I guess you could call the net LVR.

How could this be applied to a normal terms contract or a lease-option?

Does anybody use this?
How do they motivate the seller to agree to this?


Regards

Matthew
 
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Reply: 1
From: Rolf Latham


Hi Matthew

This comes under the concept of vendors rebates and while commonly practiced by some to get 100 % + finance.

I suspect you wont get too many people piping up about this one because it basically amounts to fraud - indeed some lenders now require you to disclose directly if any of the loan proceeds are to be repais to anyone.

Epexct this practice to become a lot harder in the near future as lenders start clamping down on "no hurt money" deals

Ta

Rolf
 
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Reply: 1.1
From: Tom Cleary


Hi Matthew
Under this scenario you would also be paying extra stamp duty i.e paying stamp duty on legals and the "correct stamp duty"
Regards
Tom
 
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Reply: 1.2
From: Anonymous


I carnt see how it is fraud, as if the rebate is used it is written in black & white for all to see under the special conditions !

Its the banks problem if they only require a copy of the front page of the contract and do not request the whole contract.
 
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Reply: 1.2.1
From: Michael G


Hi,

What if in the bank's special conditions (the fine print in the mortgage document) they require you to disclose all your special conditions and attach this to the cover sheet which is all they want and if you don't it's your problem?

Michael
 
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Reply: 1.2.1.1
From: Anonymous


Find another bank, 90% of them dont have this
requirement in their contract.

Its their problem !
Just think how much the banks are shafting all of us, so its nice to turn things around.
 
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Reply: 1.2.1.1.1
From: The Wife


May I suggest,

If you wanna play push and shove,

You should at LEAST be able to knock your opponent down for the quick get away.

If not, you have what I see is 2 options.

1. Focus on your growth so you are able to play push and shove

2. DONT play push and shove, try a different game that will give you similar results.


TW
~Looking for the light at the end of the tunnel? Stride down there and light the damn thing yourself~
 
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Reply: 1.2.2
From: Rolf Latham


To each their own, I can understand how you can see it that way.

My attitude comes from a theory that is based on full disclosure - the lender is required to fully dislose terms and conditions by law, and under any legit business relationship so should the borrower.

Goes both ways.



Rolf
 
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Reply: 2
From: Dale Gatherum-Goss


Hi

What state do you live and invest in?

I ask because in Victoria you used to be able to avoid stamp duty by not having a written contract.

I saw some of the "Rich 200" use this quite successfully about 12 years ago now. One such property was a $20m shopping centre back then. The savings were huge!!!

There was, a formal affidavit that witnessed the verbal agreement to buy/sell the property and this was enough.

I would ask your legal people about this idea and see what they say. And, if we're lucky our friendly legal people on this forum will give us a hint or two where to look now.

I hope that this helps.

Dale
 
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Reply: 2.1
From: Paul Zagoridis


Hi Dale

Something similar was also the case in NSW until 3 years ago.

Any system to avoid stamp duty today is strictly in the realm of multi-million dollar transfers. Too much money in it for the professionals to give away in order to save some residential investor $15K-$20K.

By the time any current techniques filter down it will be just before the Government changes the rules to close the loophole. So be ready to move quickly when it does trickle down.

Yes, this is cynical. But I'm hearing too many newbies trying to do ultra creative tricks first time out. These tricks aren't supposed to make marginal deals good, but good deals great.

Many newbies could and should buy a good first property. Some want to know how to avoid deposits and stamp duty and legals and disbursements and accounting before they even find a suburb to research.

Paul Zag
Dreamspinner
Oz Film Biz is at
http://www.healey.com.au/~paulz
 
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Reply: 2.1.1
From: Rolf Latham


Hi Paul

Are you suggesting that some are too busy:

"Organising the deck chairs on the Titanic"

Meanwhile, heading in the wrong direction ......


Rolf
 
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Reply: 2.1.1.1
From: Juzz O'K


Some of us already know the way to go
for Reducing Stamp duty on multiple
buy situations.
PUT & CALL OPTIONS!!
The solicitors friends.

You can reduce your Stamp duty using them
but it then increases your legal fees.

As Dale put it, I'd like to add something
to not having a written contract.
Avoid signing the contracts & the ability
to replace contracts with a new buyer
for trading.

Juzz
 
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Reply: 2.1.1.1.1
From: Michael G


Hi,

Having mentioned a technique it might be helpful just to explain the concept to people.

Geez, that's just as bad as saying I know something and you don't :p

First thing though - you will need legal assistance to write it up. Yes I'm sorry but you are going to have to pay money to make money.

Ok a PUT is a document, a contract say, that you sell to someone to earn a fee (premium). That contract gives the person who buys it the RIGHT to buy what ever the PUT says they can buy, but they are NOT obligated to buy it. If they don't want to buy, that let the contract expire (that is the contract is time constrained) and all they lose is the fee which you keep as an income.

But if they exercise their RIGHT which is outlined in the contract, you are OBLIGATED to sell the item described in the contract.

Ok a CALL option is the opposite. Basically you have the right to BUY something, but are NOT obligated to buy. The cost of this RIGHT is a fee (premium) which you give to the other party.

So with a put/call deal. You have a PUT option drawn up between you and a developer who is selling off the plan, the time frame of the contract is the building time (say 18months). If you don't buy the unit before then the develop can exercise the PUT contract and force you to buy it (because you're obligated to buy under the put contract). But there also exist a CALL option which gives you the RIGHT to buy the unit off them.

This CALL option is not a sales contract and is a saleable item, so you can sell your RIGHT TO BUY to someone else before the PUT option expires.

So just before settlement of the property you sell you CALL option to another buyer, they exercise the right to buy. The developer then sells the unit to them, making the put contract void (this needs to be outlined in the contracts).

Because they sign the contract of sale and you didnt there's no stamp duty.

You're money is made by selling the CALL option to the other buyer, usually for a sum that is the difference between your purchase price and the final sale price.

Ta Dah!

It's 6am, and now I'm off to work! bye!

Regards
Michael Gruber
 
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Sim

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Reply: 2.1.1.1.1.1
From: Sim' Hampel


Well done MG !

 
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Reply: 2.1.1.1.1.2
From: Paul Zagoridis


Oops Michael

You got the example right - but the definition skewed. Must be the 6am thing.

A Put is the right but not the obligation for the put holder to sell to the put writer at a specified price. So if you have a put and it's you doing the buying you have no control over the transaction.

A call is where the person doing the buying decides whether to exercise to buy or not.

On 7/31/01 6:04:00 AM, Michael G wrote:
>Ok a PUT is a document, a
>contract say, that you sell to
>someone to earn a fee
>(premium). That contract gives
>the person who buys it the
>RIGHT to buy what ever the PUT
>says they can buy, but they
>are NOT obligated to buy it.
>If they don't want to buy,
>that let the contract expire
>(that is the contract is time
>constrained) and all they lose
>is the fee which you keep as
>an income.

This is actually a Call option.

>But if they exercise their
>RIGHT which is outlined in the
>contract, you are OBLIGATED to
>sell the item described in the
>contract.

Again you've written a call.

[snip]

The rest is perfect.

>It's 6am, and now I'm off to
>work! bye!

Paul Zag
Dreamspinner
Oz Film Biz is at
http://www.healey.com.au/~paulz
 
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Reply: 2.1.1.1.1.2.1
From: Michael G


Bugger,

I knew I was losing, doesn't say much for the rest of the day huh?

Michael
 
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