on selling

From: Dianne Ferrara


I'm relatively new to the world of investing
but I have recently purchased an off the plan
which settles in May 2002. I believe it is a very good buy and have been offered a 10 yr rental guarantee at 6% which I have taken.

My question is this: there are other properties that have come up in the same development and I would like to buy 1 and sell it prior to settlement for hopefully a good return. How do I go about this technically?
a) organize a deposit bond and then sit on the prop. for a few months,
b) find a buyer and sell
c) do I need to settle or be in a position to settle with the developer and therefore need to go thru a loan process or is it simply a case of letting the buyer go through the process???

Could someone help me out on this. I don't want to make a colossal mistake and would appreciate some/any advice.

Cheers, Dianne
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Reply: 1
From: Rolf Latham

Hi Dianne

Possibly a question for smiley Dave - the OTP specialist >>> DAVE

Yes a bond is probably the easiest from of exchanging on this.

I would also like to be in a position of being able to settle if I cant find a buyer.
Are there any stamp duty implications in this transaction ?


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Reply: 1.1
From: Dianne Ferrara

Hi Rolf,

thanks for your reply! RE stamp duty implications, I am only aware of stamp duty paid on land and the developer absorbs GST costs.

Is this what you meant?

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Reply: 1.1.1
From: Donna Larcos

Not sure of the situation in Victoria. In
NSW both you and your subsequent
purchaser would pay Stamp Duty. As Rolf
says the main thing to watch is that the
market doesn't crumble by the time the
thing is due to settle as you may not be
able to find a buyer if property values have
actually settled back a bit or there is a glut
of investors trying to sell. That said, on my
last OTP I should have bought a second
one and sold it on completion because,
after Stamp Duty, agent's commission
and capital gains tax I would have walked
away with $30k and paid off one of the
home loans - another great miss of the
century from the wonderful perspective of
hindsight. But by holding the property I
would have had $60k growth and could
have done even better with an LOC for
deposit on another property.

Why the 10 year rental guarantee? Is it
unlikely to rent without it? Check with the
local agents to see what the going rental
return and vacancy rate is. Also check to
see whether that's 6% of the value of the
original purchase price or the rising
value. If rental values rise, you may miss
out on it and ten years is a long time.

Also check your contract carefully. Some
developers will not let you onsell before
they have "sold everything they want to
sell in the complex first".

With regard to a buyer, often the agents
who sold it to you will onsell it for you as
the building nears completion and they
are selling the stragglers (basement , no
sun). If you got in early yours should be
one of the better ones in the building and
should sell well in comparison.
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From: Sergey Golovin

Yes it is exactly it - in old days they promised two years rental guaranty now ten (?).

The question is why? Is it means that you will not get any rentals by your self for next 10 years? If not why not, what's wrong?

And that rental guaranty most likely comes out of your pocket (original purchase prise pumped up to the max.) or may be not.

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From: Michael Yardney

A word of caution. The property market has boomed for the last few years allowing investors such as yourself to make money buying off the plan and then onselling.
The question I would ask myself is - will the market still go up enough between now and May for me to cover my costs and make a profit?
Please don't get me wrong - I'm not a pessimist. I'm a realist having traded this market successfully for almost 30 years.
Michael Yardney
Metropole Properties
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Reply: 2
From: Dave :)

Hi there Diana,

Congrats on your recent IP purchase.

You say you are new to property investing. Compared to many of the members
on this forum, so am I. However, I'd be happy to help if I can.

I presume you did quite some research before buying this PI you mentioned.
I don't know where you bought, but 6% return guaranteed for 10 years sounds
great. You're no doubt aware that many rental guarantees are built into the
sale price of an OTP property. Either you paid much higher for your
property, compared to similar one's in the area, or the developer is
confident he has a very unique product which will remain in continual
demand - for both owner occupiers and renters.

To answer your questions with any certainty, you'd need to tell me a bit
more about the development you bought into:
1. Where is it? Is it unique for the area?
2. How many properties in the development?
3. Did you buy one of the first one's, last one's etc?
4. Was the developer willing to negotiate on price?

These are just a start, but answering them would give a clearer indication
of the demand of these properties, and hence it would be worthwhile
exploring doing what you propose. Just because the settlement is a little
way off doesn't mean you'll sell them at a profit that easily.

If you ARE certain that demand is strong, there ARE ways of securing a few -
or many - properties in the development, with very little money (or no money
at all...as I've been doing) and then selling them at a profit . If you
have the buyers lined up...or you know a source of buyers would want them,
you could still achieve your goal...without signing a single contract,
applying for finance/deposit bonds, paying stamp duty, or still being
responsible for settling (in the case of assigning a nominee on a contract)
etc . It's risk free, too. (I like to minimise my risk. OTP strategies,
buy nature, entail many contingencies which are out of our control. Those
that you CAN control, you should).

I'd be happy to discuss this with you...or send you a more detailed
explanation via email, if you like. Let me know.



{Life's short...play hard)
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