Signing contracts with "subject to" clauses..

[Bird Dog]

Morning all...

I've found a property I'm very interested in and want to snap it up quickly..

Obviously want to make the offer, sign the contracts and then use the settlement period to complete my D.D..

Question is, I haven't got the finance approved yet and I'm concerned given it's vacant, finance may be difficult.
Can anyone let me know what sort of clauses I should be including to cover myself and any other areas I should concentrate on..
I know the banks are still a little tight fisted at the moment so can anyone suggest who my broker should be speaking to first (given it's vacant).

Apologies if the questions are a little vague (it's late and I'm tired)..

cheers
B.D

 

[Mick C]

Morning all...

I've found a property I'm very interested in and want to snap it up quickly..

Obviously want to make the offer, sign the contracts and then use the settlement period to complete my D.D..

Question is, I haven't got the finance approved yet and I'm concerned given it's vacant, finance may be difficult.
Can anyone let me know what sort of clauses I should be including to cover myself and any other areas I should concentrate on..
I know the banks are still a little tight fisted at the moment so can anyone suggest who my broker should be speaking to first (given it's vacant).

Apologies if the questions are a little vague (it's late and I'm tired)..

cheers
B.D

Hi B.D

There's a lot of clause you can put into a contract; however your best to speak to your solicitor in regards to such a legal question. The standard clause is the 5 days cooling period subject to finance, but in a way this is useless in YOU SITUATION because it will take more then 5 days to get your finance" unconditionally approved" given you dont have a pre-approval in place.

1. Just remeber the agent is not workgn for you but the vendor! so dont let him influence you to much

2. How long has the place been listed for? it cant be THAT good...

3. Get your finance done first- takes 2-3 days to collect your information depending how fast you can provide them- and 1 days for "conditional pre approval"

You can email me if you want [email protected] or speak to any another broker, there are plenty of good ones on this forum ie PT, Rolf...

Regards
Michael

 

[Mick C]

In regards to "who " your broker should be speaking to for vacant land...IF your broker has no idea or have not dealt with vacant land before- and since time is short ...you be in trouble! find another broker.

But just to answer your question: Most if not 70% of them do vacant land ie CBA....
But each lender have strict and different requirements ( LVR, postcodes, Size, Loan amount, soil test)

regards
Michael

 

[Bird Dog]

Thanks for your comments Mick..

I’m speaking with my broker at the moment and he is preparing a proposal for me today.

My challenges however are no more than the usual acquisition of commercial R/E ....FINANCING!

My situation is as follows and I would welcome any advice on how I can get creative.

• I have two other business partners each of whom are contributing 25% each with the balance of 50% coming from myself.
• Because the premises is vacant, the bank will obviously come back with a lower valuation and all indications from my broker (who has spoken to two local valuer’s) are pretty much on the money.
• Bank are stating a 65% LVR.
• I have spoken with 5 other agents in the area who all gave similar $$$ p'sqm rentals which will more than service 100% of the debt and make the property cash "+".
• The biggest hurdle however is my own serviceability (my other two partners are significantly wealthier than I).
• I will be funding the remaining 35% of the LVR from equity on my PPOR.
• Because of its vacancy, the bank anticipate it may be vacant for a period of 3-6 months.
• My way of combating this is I have saved more than 1 years worth of interest payments just in case it's vacant for a long period. This money is cash and is sitting in a separate bank account.
The bank however state that this is irrelevant and that I need the capacity to service the debt fully 100% of the time. EG I personally have to have the ongoing income to pay for both my personal debt and 100% of the investment property.
• I've been researching the area for 8 months and are well aware of floor and vacancy rates and I'm confident it will be tenanted in under 3 months (it's a factory located within 4Klm's of the CBD of Melb and local vacancy rates are minimal)
• Because my wife is currently on maternity leave and not contributing a wage, we cannot count this towards our serviceability.
• Regarding its status as a “Good Deal”. The agent has been 100% transparent about the following. It’s just been re-listed after the original offer ($40,000 more that we could secure it for) was rescinded. The original purchaser made the contract conditional in securing a permit for the premises to be used as a “place of assembly”. This was not granted in the time allotted (60 days ) so it is now back on the market. The owner is not interested in leasing. He just wants to sell the last of 5 assets (in the same complex) and move on to another development.
I've siged all legitimate paperwork that confirms the above.

I would imagine that once the property is tenanted with a new 5 year lease, all my serviceability problems go away and they deal is done which is frustrating to say the very least as I’m sure this could be solved in finding a tenant in under 3 months.

My questions are:
1. Would the bank be more agreeable if I offered to pay 12 months worth of interest payments upfront?
2. What other options are available to me outside of the normal lending criteria?

Cheers..

B.D

 

[Peter_Tersteeg]

Hi BD,

I take it from your most recent post, we're talking about a commercial property here? Your first post came across as if it was a residental property without a tenant or vacant residential land.

If it is commercial, can you give us some details on the nature of the property? What it's primary use would be can make a big difference on how lenders and valuers will look at the property.

 

[Bird Dog]

Hi BD,

I take it from your most recent post, we're talking about a commercial property here? Your first post came across as if it was a residential property without a tenant or vacant residential land.

If it is commercial, can you give us some details on the nature of the property? What it's primary use would be can make a big difference on how lenders and valuers will look at the property.

Sorry Pete,
yes, I should have mentioned that? It is a Commercial factory / warehouse..

I'll PM you the deets as I do not wish to disclose too much on a public forum..

 

[Bird Dog]

double post..

 

[Mick C]

Was starting to wonder why you have so many problem for a "vacant" land....

Warehouse is a different cattle of fish! but just need to be creative and make sure you give what the BANKS wants to HEAR!

Let me think about this, and ill post back- but pm details is you wish ( im sure Pete will be able to help either way)

Regards
Michael

 

[Trogdor]

I'm in the middle of a "subject to finance" period for a CIP we signed a contract of sale for which is vacant.

Interestingly, one lender told us that we passed servicability with zero rent (i.e. from other rents, dividends, and salaries), but nevertheless would not accept the new property as security (and hence could not provide a loan) unless it was tenanted prior to or at settlement.

So we could rent it for $1 and in theory that would have been cool, but we could not hold out for a commercial lease after settlement.

After a week of arguing with them they finally backed down, which is good news.

So in short, vacant is a lot tougher for commercial, even if you don't need the rent to service !! And be prepared to push push push.

 

[wanelad]

I like your web site Mick but that lass nearly scared me out of my seat, volume was a tad loud lols

 

[Dazz]

I'll PM you as I do not wish to disclose too much on a public forum..

That's a shame Bird Dog. It's the details that are valuable to forum members.

What underlines your wish ??

 

[Bird Dog]

That's a shame Bird Dog. It's the details that are valuable to forum members.

What underlines your wish ??

Completely understand Dazz and I promise to share all in due course however there are still elements that are not quite ready for public disclosure.
If it does goes through, I promise to share updates as I believe there are a lot of others forum members in my same situation that would benefit.

One question I do have is one of serviceability and I believe I already know that answer but..

Do I need the capacity to service the debt 100% of the time. EG: The bank are "indicating" that due to it's vacancy and the obvious absence of a lease, they are assessing the repayments as 100% and don't look like considering the potential of rent contributions in the coming months.
At interest only, the rent will more than cover the 65% against the property and 35% against my PPOR (coming from existing equity) which will mitigate any serviceability issues. As mentioned however, I have cash that has been allocated in case finding a tenant takes a longer than expected.

So questions are:
1: If it was leased on say a new 5 year term that covered 100% of the debt, would my current serviceability issues disappear?
2: Are many banks offering interest only and what are the penalty rates over and above say the standard variable (comm rate) at P&I?

cheers
B.D

 

[Mick C]

I like your web site Mick but that lass nearly scared me out of my seat, volume was a tad loud lols

ahah Thankls Wanelad! much appreciated. I have no idea how to adjust the volume... but i shall speak to my webmaster.

Regards
michael

 

[Bird Dog]

ding ding.....

So our offer has been accepted and it looks like we've managed to remain upright for round 1..
Round 2 will involve jumping in the ring with the most feared opponent in the land....Mr Bank Manager..

I'm off to start gathering all my pennies and info as this is where the real work begins...

Will start another thread and post updates as we begin the countdown to settlement....