Offers with conditions to achieve win-win

[htopg]

A fibro house on a 670sqm land with granny flat potential.
The house is in a very bad condition cosmetically.
It has 3 bedrooms, 1 kitchen, 1 living room and 1 bathroom with toilet.

The seller is asking for $390-$410.

I am thinking of making the following offers with conditions (3 of them).

Offer 1 $410,000
contract price 450,000
vendor cuts a cheque of $40,000 to fund renovation
early access to property to me to do renovation
vendor carries back loan of $80,000 at 4%/year, get $3,200 interests per year

Offer 2 $400,000
contract price $440,000
vendor cuts a cheque of $40,000 to fund renovation
early access to property to me to do renovation

Offer 3 $398,000
contract price $440,000
vendor cuts a cheque of $42,000 to me to fund renovation

Offer 4 $390,000
contract price of $390,000

Has anyone of you made this kind of offer before?
Is there anything you can see might be a problem?
Can there be any improvement to my offers?
Any comments will be appreciated.

 

[alexlee]

The seller is asking for $390-$410.

I am thinking of making the following offers with conditions (3 of them).

Offer 1 $410,000
contract price 450,000
vendor cuts a cheque of $40,000 to fund renovation
early access to property to me to do renovation
vendor carries back loan of $80,000 at 4%/year, get $3,200 interests per year

Offer 2 $400,000
contract price $440,000
vendor cuts a cheque of $40,000 to fund renovation
early access to property to me to do renovation

Offer 3 $398,000
contract price $440,000
vendor cuts a cheque of $42,000 to me to fund renovation

Has anyone of you made this kind of offer before?
Is there anything you can see might be a problem?
Can there be any improvement to my offers?
Any comments will be appreciated.

Your lender might consider it fraudulent if you try to get a loan based on a 440k contract price.

 

[HD_ACE]

unless the cheque is a verbal agreement and the valuation will stack up to the higher amount, then it wont work.

also if the house is considered unhabitable then you will need more of a deposit to get finance.

what lvr are you going for?

cheers

 

[D_One]

That looks dodgy to me. Why would a vendor agree to any of those options? Selling at a higher price will mean the vendor paying more CGT if it was an IP. The bank will also take those discounts into consideration when sorting out the finance.

 

[htopg]

That looks dodgy to me. Why would a vendor agree to any of those options? Selling at a higher price will mean the vendor paying more CGT if it was an IP. The bank will also take those discounts into consideration when sorting out the finance.

The vendor is an old lady moving to nursing home so CGT is not any issue.
By agreeing to my terms, the old lady can get $10000 more.

 

[alexlee]

The vendor is an old lady moving to nursing home so CGT is not any issue.
By agreeing to my terms, the old lady can get $10000 more.

And potentially commit mortgage fraud.

 

[htopg]

unless the cheque is a verbal agreement and the valuation will stack up to the higher amount, then it wont work.

also if the house is considered unhabitable then you will need more of a deposit to get finance.

what lvr are you going for?

cheers

The valuation will be the valuation after renovation so it is very like to stack up.
80% valuation is what I am going for.
I have funds from equity of my existing IP so I can settle without additional loan.
The higher amount is to "reimburse" my existing loan.

 

[htopg]

And potentially commit mortgage fraud.

How is this different from that the old lady really spends $30000 on renovation and snap a higher sell price?
How can this be a mortgage fraud if the value of the renovated house actually stacks up?
Think outside the square, think differently, we are in "innovative techniques" forum.

 

[htopg]

Your lender might consider it fraudulent if you try to get a loan based on a 440k contract price.

Lenders aren't stupid. They will have independent valuer to value the renovated the house.
I have done research and found that similar renovated house will cost around 450k-480k.
They do not even needs to look at the contract price and just go for comparable sales because the new loan is to "reimburse" my existing loan used to purchase this unrenovated property.

 

[HD_ACE]

Lenders aren't stupid. They will have independent valuer to value the renovated the house.
I have done research and found that similar renovated house will cost around 450k-480k.
They do not even needs to look at the contract price and just go for comparable sales because the new loan is to "reimburse" my existing loan used to purchase this unrenovated property.

The problem is the lender will need to value it before it goes unconditional in order to have a contract. Then you will have early access before settlement to do reno and refinance after settlement.

Unless you goto contract without finance and then try to finance before settlement. You will need a longer settlement and thick skin to do it that way imo.

Cheers

 

[neK]

Is this just to avoid mortgage insurance?
Based on your numbers, its borrowing 90%. So why not just do that instead?
Surely mortgage insurance will be less than the $10k "extra" you're prepared to give her.

Besides $352k loan @ current interest rates of 5% = 338 per week.... hardly worth complicating matters over.

 

[D_One]

I read somewhere in this forum, the key to investing is the KISS (Kee It Simple S....D)

 

[chilliblue]

If I was the vendor the only offer I would look at is:

Offer 4 $398K plain and simple

 

[Peter_Tersteeg]

You'll have a lot of trouble getting finance for offers 1-3.

If you disclose what you're doing to the lender the best case is they'll simply subtract the rebate from the valuation. The worse case is probably they'll think something is fishy and look for ways to avoid the deal completely.

If you don't disclose it, you're committing fraud. They will find out, probably about 3 days before settlement when they figure out the funds to complete. At that point they'll investigate for fraud (which could create a world of pain for you) and they definitely won't fund the deal (or anything else for you ever again).

You might get away with it if you don't put anything in writing, but if it's not in writing you'll have a problem getting the cheque from them for $40k. The vendors solicitor will probably advise them not to give pre-settlement access either (especially for the elderly) as it puts them at risk. They won't view it as a win-win. Instead it will be seen as risky because you could take their $40k, ruin the house, then refuse to settle.

Scenario 4 works just fine. Use the funds from your other equity to pay for the renovation, then get the property revalued to get those funds back after the reno is completed.

 

[Belu]

FYI as an agent i would never recommend this to a vendor.

and by the way, if she is a pensioner about to go into a home why do you think she has a handy $40k sitting in the draw?

 

[beachy]

If you presented 4 offers to me as an old lady like that I'd run for cover!! Too confusing for a older lady (or man) to consider who's probably lived in the same house for 20+ years...people just want simple easy transactions...unless the older woman is a seasoned long time investor who understands how this type of transaction would play out, then I'd consider going with option 4 or looking elsewhere.

Obviously there's MORE BENEFIT to you than there is the older lady!

 

[JacM]

The first thing the poor old lady will do when someone offers to buy her house is call her children to tell them how wonderful it is that she got an offer. Even if she has accepted it verbally, by that point her children will hit the brakes on the plan because of course they will see that the plan is dicey for her.

Perhaps instead look at more creative ways of funding the renovation without having to put the vendor in a spot.

 

[greedy2000]

A fibro house on a 670sqm land with granny flat potential.
The house is in a very bad condition cosmetically.
It has 3 bedrooms, 1 kitchen, 1 living room and 1 bathroom with toilet.

The seller is asking for $390-$410.

I am thinking of making the following offers with conditions (3 of them).

Offer 1 $410,000
contract price 450,000
vendor cuts a cheque of $40,000 to fund renovation
early access to property to me to do renovation
vendor carries back loan of $80,000 at 4%/year, get $3,200 interests per year

Offer 2 $400,000
contract price $440,000
vendor cuts a cheque of $40,000 to fund renovation
early access to property to me to do renovation

Offer 3 $398,000
contract price $440,000
vendor cuts a cheque of $42,000 to me to fund renovation

Offer 4 $390,000
contract price of $390,000

Has anyone of you made this kind of offer before?
Is there anything you can see might be a problem?
Can there be any improvement to my offers?
Any comments will be appreciated.

none of those offers appear to be a win-win for the vendor.

It just appears that the vendor has to bend over backwards for you to get some extra finance.

I can see what you are trying to achieve, but it just comes off as dodgy to an outsider.

As the Vendor I'd say no, or accept your higher offer of $450,000 and not actually give you any cash back....