Letter to convince the vendor to sell cheaper

[wylie]

Thanks Wylie. So many options.

Happy to help by putting forward my opinion.

Off subject. How is one supposed to get ahead? I couldn’t get that kind of funding. The bank wouldn’t lend it to me based on my income.

Do you mean the bank would not lend to you to do the development?

Westpac has pre approved me 220k based on a %20 deposit. I have 20k maybe 30K in my existing property which isn’t even 20% of 220K ANZ has the deposit based on equity covered as to avoid cross-colaterization.

I might be having a blond day but if you are pre-approved to $220K doesn't this allow you to buy the house next door, at around $200K maximum?

Even if I did get the land for 160K the deposit required by the bank will still be insufficient and then that is probably the max I could actually afford to hold cutting right down my living expenses to make the payments and we haven’t even thought about building on it yet.

If you can get the place next door at what you consider to be market value (or a little less) then as long as you can hold both properties, it will not matter if you don't develop the blocks for years. The double block we are holding is similar. We were in no position at the time we bought the second block to borrow maybe up to another million to develop the back yards between the existing houses, but one day.......

That was three and a half years ago, and only now we are looking, very loosely, at rearranging things, selling one place in order to free up capital to be in a position to do the development. Slowly..... slowly......

In fact, it is only because the half house we will be selling will be going into a family trust, so will not really be losing the future capital gain. Otherwise, we would be selling it now.

For those three and a half years, we have been fairly heavily negatively geared due to the purchase price (high price, ugly house, great potential) and the increasing interest rates. Just now, we are neutrally geared on our portfolio.

That last purchase really (on paper) was not the best buy for us, but we knew that, and went ahead anyway. We are very glad we did, but we had to hold on, while throwing our own money into the loans to supplement the rent (although that also is not new to us, nor something that concerns us, as the capital gains have been substantial).

Our "worse case" scenario with this double block has always been that the council can approve, without any threat of neighbours being allowed to object, splitting the two blocks into three, and giving us an "almost free" block of land in the middle to build on, or to sell to reduce the loans if they became too difficult to hold.

 

[Evad]

So in essence you are saying that you can't get the finance.

No, just not enough.

So in essence you are saying that you can't get the finance and even if the vendor dropped the price to $160K you still can't get the finance. Even by some miracle if you did then you cannot afford to build on the land anyway. Evad - what's the point?

Again no, just not enough. The point is to engage people that are smarter than I and learn. Even if this whole thing was made up I will still ask. And maybe someone has learnt something from this thread that has been created other than myself.
It’s not that I “can’t” Its “how can I?”

Evad, the prices are what the prices are. Plenty of other people pay these prices - that is why the market sustained at what it is and is not falling 40% or whatever.

Here I agree and maybe my comment was just a ‘Rant” but it is hard. Persistence is what I think you are trying to say.

Anybody who relies on any kind of wage and loses their job is stuffed no matter how much they paid or whether they are young or old. What's your point?

We aren’t all as smart as you propertunity - No offense.

The average wage is $84K odd. It is the average - take the highest paid CEO/Exec on a few $M and the lowest paid on whatever poor people get paid and everything in between and divide by the total = average.

Not to insult your intelligence Propertunity but I am well aware how to work out averages. However I would like to Suggest that the average person in the average job does not earn 84K and further more having a CEO included at the top end tends to skew the result don’t you think considering these people are the minority.

Either find a way to make more than below average, invest in areas where you don't have to pay $230K for a block of land, take on a JV partner who can work with you or lower your expectations. There is no point cursing the darkness.

Aim high and sometimes be a little un-realistic I think.

Sorry if this seems a little harsh but ........a dose of reality is good for the soul.

Apology accepted and honesty is always appreciated, it was a reality check. You had to start somewhere also. Can you remember when it was hard to just get over the line? But truly thanks again Propertunity. EVAD 

 

[Evad]

Wylie
Thanks mate. The whole “give it go “attitude along with Propertunity’s “reality check” has helped. I may have to find some other solutions. But don’t not try eh. Your story sounds similar to the position I’m in at the moment with the exception of the finance I can or can’t currently acquire.

Maybe when not if I get it, in three years I may be able to give similar advice you have given me today.
Thanks again mate, there is hope.

 

[Propertunity]

Not to insult your intelligence Propertunity but I am well aware how to work out averages. However I would like to Suggest that the average person in the average job does not earn 84K and further more having a CEO included at the top end tends to skew the result don’t you think considering these people are the minority.

You are right about averages - it might be better if the statisticians used medians instead - as PIs we are used to dealing with medians. Having said that I think (??) the vast majority of PIs are on very (below) average wages. I'll have to look up the ABS stats. So you're in good company.

But truly thanks again Propertunity. EVAD

Look you're welcome Evad. I did not mean to be condescending but a lot of people contributed to your post about how to get this deal across the line and then after all their efforts you announced that you could not get "quite enough" finance anyway - so it all seemed a bit of a wasted effort on the part of those trying to help.

Hey, we're all trying to get ahead - you, me and the rest of us and I don't knock you for doing so, but the "rant" seemed a little pity party you were having to yourself (but you did apologise for it).

I wish you well in your investment endeavours and if you can put up with my directness I'm happy to contribute to your Q's (otherwise add me to your ignore list). Cheers.

 

[Evad]

I do apologise if I have wasted anyone’s time

 

[rugrat]

Evad - maybe you just need to rethink your approach. DH and I would love to build a set of units on a nice block of land, but that is jut not a possibility for us at the moment. Instead we look at IP that bring in a rental income, that income is used to cover the mortgage - leaving us to sustain the holding costs (ie, LL insurance, etc). Basically we are looking at properties that will pay themselves off or at least help out significantly. Once we have a couple of these under our belt - developing a set of units should be affordable and realistic, because we have extra income supporing us.

The banks take this rental income into account when assessing your borrowing power.

I have had to sit back and pass up many fantastic oppertunities, because we are just not in the financial situation to 'borrow' enough from the banks, even though some of these would be more then self supporting and would bring in a reasonable income even after mortgage repayments and holding costs. Just one of life's little quirks.

 

[the7]

Have a good think about the holding costs and affordability before you go too much further. the holding costs for the land are going to be upwards of $200 a week with no extra income coming in to help service it. that is the big difference between your situation and wylie's. at least he is getting an income whilst waiting for the development opportunity.

 

[wylie]

I assumed the land had a house on it? Is that not so? If not, then no rent coming in would be a deal breaker for us.

Added comment: Just re-read the original post and realised itlooks like vacant land with no house. Sorry, I was basing my comments on buying a block with a house that you could rent until you were ready to develop.

 

[josko]

Personally id tear it up when i received it..

I have had far better luck making personal contact with the owners face to face...............throw on a little charm, sus them out, get a feel what their situation is, they maybe desperate, they not not be.......

i wouldn't waste my time with letters, they are too easily ignored and deservedly so in my opinion.

approach them face to face, be friendly, open and honest, keep your cards close to you until you find out what their situation is then go in hard, especially if you have cash......

if your wanting to use the land for units, do not mention that at all cause you never know how that will go down...

good luck

I agree.

I have a friend that did just that and to her suprise the offer was accepted.

When you start listing all the negative qualities of the property, it is more than likely just going to make the Vendor agitated and less likely to agree with your terms.

Regards JO

 

[Evad]

Hey The7. What would the holding cost be exactly? I’ve got the Loan, rates and maybe liability insurance. Anything else?

And Thanks Rugrat. I see what u mean. I may have to start elsewhere. There will always be another opportunity. 1 step at a time eh?

And thanks everyone for their input to my original question. Even though I may not be able to actually finance this that was the bases of my original question about trying to get the price down through a letter or sorts.

I’m going to see how much 180k will cost me per month and put in a new offer starting at 170k subject to finance and see if he bites. I can fund 100k and I may have an option of someone else to fund the 70k. My mind just goes crazy with a frustrated “how can I do this” and I don’t want to accept that I may not be able too. I’ll learn and have already thanks to all your great replies.

Is there a simple equation to work out repayments?
IE 100k @ 5% PI 25 year term
100k @ 7% IO 30 year term
Thanks again all

 

[Propertunity]

Is there a simple equation to work out repayments?
100k @ 7% IO 30 year term

100,000 x 7 / 1200 = $583.33 per month.

(you base IO on forever not 30 years as you never repay principal)

Vendor finance might be a way forward for you, especially if the vendor wants to sell but can't find a buyer at the right price. Generally though you'd pay asking price for the privilege and seek to pay the vendor out after a period of 2 - 5 years? (either thru P&I or a refinace after CG has produced sufficient equity). But there are no rules - whatever you can reach agreement on. All the best with the negotiations.

 

[willair]

The vendor wants 200k + for 800 sq metres. Maybe worth around 180k I’m willing to pay between 150k and 170k, however I want to put in writing an offer that is valid for 1 week (or something) explaining (justifying or convincing) the vendor that my offer is realistic. Never done this before but something like this maybe.

I Would like to make a formal written offer on the vacant land located on the corner of blahblah and blahblah streets for $155,000.

The bases of my offer is as follows.
1. The property would require full fencing
2. The ground is uneven and would require levelling before a structure may be built or placed on the land.
3. Substantial growth and a number of quite large trees would have to be cleared and removed.

And then maybe something about how bad the economic climate is and where property is expected to go, first homes buyers... I don’t know..
Anyone ever done this before and is it plausible or rude – I don’t want to be rude. Any Ideas?
Please help
Thanks in advance
EVAD

Evad,i get about 7 letters a month like the one you intend to use most go in the bin,i have rang a few back just to see what sort of person is behind those letters,most start off with a 3-9 month settlement clause,no cash down and want use of the property prior too the long settlement and various other US based soap box speakers crap that they are taught in some 3 day 5k plus boot camp on how to buy property undervalued, maybe just be upfront it's only natural to think everything has a price, you think the vacant land is worth 155k,i would not say anything about the problems that come with this block,it's very easy
to find out who owns the property,then a simple phone during the day
and ask the question,that way they know your offer-and you also find out what they want,and if you intend to develop the block then a least you have a number to work from,most people i deal with are upfront and most times i can make up my mind within 30 seconds,and there is only one persons name on the title,and it's not the buyers..good luck willair..

 

[LynnH]

Is there a simple equation to work out repayments?
IE 100k @ 5% PI 25 year term

Don't know about a 'simple equation' but, according to my trusty Sharp Financial Calculator, the repayments would be about $584.59 per month - this figure is approximate, and Bank calculators may arrive at different amounts depending on the formulae used. Most Bank websites have on-line calculators available.

... 100k @ 7% IO 30 year term
Thanks again all

Simple ... $7000 per annum or $583.33 per month. However you would be unlikely to get a 30 year term - the maximum is usually 5 - 10 years.

Cheers
LynnH

 

[Perp]

Is there a simple equation to work out repayments?
IE 100k @ 5% PI 25 year term
100k @ 7% IO 30 year term
Thanks again all

Learn how to use the formulas in Excel. Otherwise google "loan repayment calculator" and you'll find heaps of links enabling you to do that. (And by the way, if you're interest only, it's easy - 7% of $100K is $7K pa )

 

[Reality Cheque]

I would be really insulted as a vendor, and would probably not deal with you again. I think when you go in really low, you risk getting the vendor totally offside.

Would rather insult and walk away than to impress and pay too much.

Insulted vendors occasionally eat humble pie.



RC

 

[RumpledElf]

Vendors in my experience do not give a fig as to a purchasers reasons used to justify an offer. The block will probably sell for what comparable sales indicate it should sell for - other things being equal. Give it your best shot and save your letter writing!

The figures he's using and what he's thinking of doing aare sounding very similar to a house I ran into the other day ... I probably shouldn't have gone to have a look at the inside (it didn't look as big from outside) as now I'm thinking it would be an ideal house for us. Like evad, its an overpriced one but its hard to show similar sales as blocks that size with poor houses on don't come up very often, the blocks on their own do ($60-70k), houses that condition do ($150-180k), but not the pair together. This one is priced at $265k and if I was in a position to buy I'd offer them $190 direct in a letter like evad is thinking of, as the place would be out of sole agency by now. 5 months for sale and some interest but no offers, and I'm in no position to offer, I have enough equity to buy the place outright at $190k but can't release the equity any way. Same reason, income problems. I don't think the owners are in any rush to sell, they house looks like its had continuous owners for a Very Long time judging by the condition of the place, and they've moved to Roxby.

Unless someone would like to buy the other half (or heck, both halves - although this half needs a new roof and some minor landscaping work) of my pending-subdivision block for market value in advance or something. You could build a brand spanking newie on there for $140k inclusive of pretty much everything (including the land) and rent it for $200 a week in the fastest growing town in SA with a truly dismal rental vacancy rate - rentals get snapped up in nanoseconds. We have the house quotes, subdivision paperwork (with pricing) and the quote for the pre-subdivision plumbing sitting here to back it up and getting a market valuation on the land would be trivial. Anyone? Anyone?

 

[BayView]

I must be going mad..... I have just read this thread again trying to find what I was looking for, but cannot find it. I thought you put on the land size of where you live (next door), but perhaps I am thinking of another thread.

If you do live next door, and the two blocks together would enable you to put on more townhouses (or whatever you wish to develop down the track) then I would not be taking the risk of insulting the vendor with lowball offers. If this corner block itself can be developed, it will be attractive to someone who may want to develop it. You risk having townhouses plonked next door with no control over their design or the loss of your privacy.

Therefore, I reckon that makes you an "over-anxious buyer" in the eyes of the agent. If the agent knows you live next door, he probably will let the vendor know that (maybe not).

Anyway, if the two blocks together are able to developed and the larger size means you can put a bigger development on down the track, I would be trying to get the deal together, and that may mean paying close to market price.

When the house over the back fence to one we already hold came on the market, it was priced at $650K. It was worth probably mid $400K. I looked at it, but even though it would have meant a big double block with two street access, we were not prepared to pay $200K over the odds for it.

A year later, it was with a different agent and I went through again, not really thinking it was a goer. There was one offer that had been presented to the vendor for $450K. Vendor had countersigned at $470K but the purchasers were having a think about it.

We slipped in a cash unconditional offer of $460K and they accepted it. They were motivated due to the owner going into a nursing home and they wanted it done and dusted.

Even though we cannot move either of the existing houses (which is rather a detraction) we still have a large block with two street access. The block next door will be having another house put in the back yard, but with us having the double block, we should be able to put in three townhouses.

Sometimes it is worth paying market value because for YOU there is a better use for the two blocks together.

If you miss out on this development opportunity over trying to lowball the vendor, you may regret it.

Just my thoughts.

I'm with Wylie here;

If you live next door, your potential for profit from a larger investment is pretty good with both blocks joined into one.

He wants $230k, you reckon it's worth $180k, and the first response at auction by the agent was to up your $100k bid to $150k.

Do you really think he'll drop below $180k? I doubt it.

Offer him what you think it's worth, and in a situation like this, you may even want to offer him a little more as a premium to get the block.