special contract conditions- purchase price

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From: Ian Douglas


Hello,
I have a question for anyone , with experience in this area, accountant/solicitor knowledge, or just ANY ideas or experience at all in contracts.

I recently worked as a Car sales man for a month, pretty scary stuff ! Any way , it was good experience, I noticed when signing some contracts when the buyer was able to haggle the price down, Say from 25000 down to 22000, when the contract was written it did not say the purchase price was 22000.
It went something like this:
Purchase price : 25000
Onroads : 600
extras : ?
Discount : 3000
Balance owing : 22600
Just a very short example, Now I should have asked, but, I'm thinking to myself, does the car dealer write off the discount as a tax deduction ? I don't know.
Now I will relate this to property investing,

Say your trying to get a property from a private seller for a certain price which is below what they want.
For the purpose of loans it seems that what ever you purchase the property for, is what most lenders call the fair market value.
You pay stamp duty on that price etc...

Now what if ?
You could get the lender/vendor to agree to a contract that has the purchase price set out like this
Purchase price :$ 200,000
(vendor) Discount: $ 20,000
Balance owing : $ 180,000
The purchase price is $200K as far as the stamp duty goes, and records etc and as far as the lender goes. But you are only paying $180K
Does anybody know if this is possible , and if so, can you tell the vendor that the
$20,000 discount can be claimed as a loss and a tax deduction? as a motivation to sell?

I always write these long winded posts, but am I just grasping at straws or does anybody think I have a good negotiating idea/leverage with this line of thought.

Once again, if I have absolutely no idea, and off in fairy land, could you please replace any insulting comments with , "better luck next time"

Thanks !
Ian
 
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Reply: 1
From: Paul Zagoridis


Hi Ian

You need to watch out for fraud (gaining a benefit via deceit). It is always best to disclose to your financier.

Also your financier will want to see the contract for sale. So it will show the $20K discount and work your loan on the purchase price.

Secondly the vendor is selling to you at $200K. They could deduct the $20K but that is just like selling it at $180K. They are in the same position as if they'd accepted an offer for $180K, but there is now a complicated contract.

Having said all that...

Yes there are people who have done it in the past (it was easier in the 1980's to do this). Some people manage to do it now as well. But to avoid getting into legally dicey areas it is a lot more complicated than your example.

Also you need to find a lawyer comfortable with doing it.

Private sale vendors in Australia are notoriously un-creative, so these deals are often put together by very good Real Estate Agents who can massage their clients fears.

If you want this sort of deal I'd be talking to the agent about stucturing it this way, but you'd probably have to put extra dollors on the line for the vendor.

Better to spend you energy finding really good bargains that don't need this type of transaction. There are financiers who will lend on valuation.

Dreamspinner
 
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Reply: 1.1
From: David Vernon


Hello Dreamspinner,

I wonder if you may be able to recommend anyone who is willing to lend to valuation.

I attended the Henry Kay introductory seminar and it seemed to me that his concept of attaining wealth through property relied heavily on obtaining finance upon valuation & not contract price.
A Henry Kay representative rang me a few days after the seminar & asked if i was interested to know more. I asked that person this same question,"who will lend to valuation." Their reply was "we do." When i suggested that may be a conflict of interest, could they refer me to someone else independent of Henry Kay, (after all he has my best interest at heart)I was told someone would get back to me. That was a few months ago & I haven't had a reply.

I am relatively new to property,(have collected 3 in 3 years)but I'm really keen to learn. If the Dreamspinner or anyone else can help me in finding a lender to valuation, I would be very great full.

Thanks, David Vernon
 
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Reply: 1.1.1
From: Michael Yardney


David
You are correct that most lenders will only lend you on the purchase price or the valuation whichever is lower. Even if you bought well, they figure that's what you paid for it so that is the market price.
That's partly why you didn't hear back from your friends at Henry Kay.
So how do you get around this???
There are a few ways.
1. When you get to the next level and buy bigger properties that bank's do recognise (mine does) that as a professional you can buy below market value.
2. Add value. If you alter the property and add value eg renovations additions, spruce up and particularly when this brings in higher rents, then (shortly) after settlement you can go back to the bank and say - hey this is now a different and more valuable property...please lend me more. The catch is you need the money to settle and to do the renovations. I'll be discussing exactly how to do this in my upcoming FREE seminar in July. I'll keep you posted or email me for details.
Michael Yardney
Metropole Properties
 
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Reply: 1.2
From: Andrew Pennisi


Ian
Here is something to run past you legal people. If you buy the property with a separate condition that provides for a discount if you settle before an agreed date. Doing it this way the banks valuer will still see the value as purchase price because the discount only relates to the terms of the contract. I have just done this with NAB I had a 6 month settlement and a discount of 10000 if settled within 120 days They new about the condition and still took the contract price. I did it this way because I had another property on the market and it gave me time but i dont see why it would not work under your circumstances. Good luck
 
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Reply: 1.2.1
From: Ian Douglas


Andrew ,
That is excellent !, This is the kind of creative terms I am talking about.

To respond to dream spinner, Firstly, depending in what state you are in, fraud would be defined differently.
In Qld, where I am, if you dishonestly obtain goods from another, and many other varied sections having the main element of "Dishonestly" or similar term included is considered fraud.

Now having a contract that sets out everything for all the world to see is hardly dishonest.

I just want creative ideas, It's not about breaking any rules, its about knowing what the rules exactly cover, and using it to yours and others advantage.

It is not about tricking anyone, it is not about being dishonest, it is about being creative and working within the boundaries of ethical and moral decency.

Is there any one else who has any creative contract ideas for the buyer or seller ?

Andrew's idea is excellent !, That is what I want, and it is to create quick equity, and equity created at settlement would no doubt be the best to start with.

Is there anyone, who can help ?

Cheers
Ian
 
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Reply: 1.2.1.1
From: Anonymous


Two other options to get the contract price increased :

1- As part of your offer, get the seller to fund your closing & loan costs.

2- Get the seller to pay for some make believe repairs to the property as part of the settlement.

The last option is mainly used for the larger comm property deals, but could work with little deals :
3- Slip a third party or entity in at settlement that buys the property, which then onsells it to you at an inflated price.
Bank only see's the purchase price you paid off the third party and lends against this figure or valuation. Be aware the third party may have to pay tax on the gain, just depends on how you structure it.
 
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Reply: 1.2.1.1.1
From: Dave :)


David & Ian,

About your question regarding valuations above contract price. I have used a broker for 7 years who's been able to do this, and more, for me. I only have full trust in a broker who is also an aggressive property investor and understands the strategies we use. To be able to suck out every bit of equity from my assets, and structure the finance in a way that allows me to buy more, sooner, is what's important to many of us.

Let's face it...all brokers have access to the same lenders/products. It's how they structure the deal that's sets 'can do' good one's apart from the rest who say 'you're too rental reliant' or 'your LVR is stuffed - come back in 12 months'..and all the other stuff we cringe at.

If anyone wants the contact details of the broker I'm talking about, email me and I'll pass this on.

Oh, by the way, no I don't get any spotters fees or anything like that. The purpose of this forum is to pass on useful info that we all know that may benefit other investors. That's all I'm doing.

Cheers,

Dave
:)
 
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Reply: 1.2.1.1.2
From: Paul Zagoridis


Hi Ian

I was emphasising the need to have an answer to the question of deception. There are legitimate ways to have two prices in the contract. An early settlement discount is one.

Realise that once it becomes popular banks will only take the lowest contract price. This will hurt those who use them legitimately.

I stand by the argument to get a bank to lend on valuation. A good broker will help you there.

Watch out if you want to inflate the purchase price above market value in order to borrow 106% of purchase price. I've borrowed above market value in the past and had it bite me. What happens if interest rates rise? Or if you fix and suddenly have to break? Or receive a good offer that doesn't quite cash you out?

I've had all three. Not pretty in any case.

So yes you can separately contract a discount/refund/commission/kickback/bribe. This is an advanced technique, very similar to trading futures contracts when you don't know how to trade a stock market. When it goes wrong people wail "why wasn't I warned".

You should have a relationship with a lawyer who you can ring up and work out how to do it. If you don't or don't want to pay for that advice, then you should avoid getting extremely creative.

Regards

Dreamspinner
 
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"special contract , History does repeat."

Reply: 1.2.1.1.2.1
From: Gee Cee Cee


Well yes.

Paul we are certainly heading back into the heady days I saw back in the late 80's.

Just today I have friends that have sat on the fence for the past 5 years but all of a sudden have to buy something. No investing experience , no thought , but this is how it is done.

What are they buying. Double storey with everything that opens 7 shuts. Top price for the area. Low rental return. Limited rental market. Especially when market turns. I said you are buying on emotion, top price for the area & at the top of the market.???

They say "We cannot loose it is a certainty"

Talk to them about facts figures and what a investment should be and you are just pessimistic.

I guess history will always repeat itself.



Gee Cee

The old pessimistic, conservative unemployed bum.
 
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"special contract , History does repeat."

Reply: 1.2.1.1.2.1.1
From: Paul Zagoridis


On 5/28/01 8:18:00 PM, Gee Cee Cee wrote:
>Paul we are certainly heading
>back into the heady days I saw
>back in the late 80's.

My uncle is an architect who has a builders licence and just turned 50. He's given me this advice for the last 10 years.

"Anyone can get rich in Real Estate, All you need are two boom/bust cylces. The first you see what happens. The second you put your experience to work."

In my case it'll take three coz I was too broke during the last one to take advantage.

Dreamspinner
 
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"special contract , History does repeat."

Reply: 1.2.1.1.2.1.2
From: Robert Forward


Yippee, I love these type of people cause when they go bust I'm ready to buy really cheaply and make heaps of money.

Go the uninformed.

Cheers
Robert
 
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PPPPPPP

Reply: 1.2.1.1.2.1.1.1
From: Pierre .


If you prepare yourself well enough during your first boom, you should be able to survive the first bust - at least that's what I'm banking on. Spend lots of time and effort learning and educating yourself, and put lots of effort into establishing robust structures and techniques from the outset, and you are more likely to come away from a bust in a good position. Then, as Robert points out, you sweep up the mess of those that did not prepare themselves well enough.

One of my favourite acronyms - PPPPPPP
Prior preparation and planning prevents piss poor performance. Apply it with much vigour to your financial affairs and reap the rewards.

Paul, I'm sure you are now well prepared for your third boom bust cycle and will come out on top! What do you reckon? Do you think you can prepare yourself well enough to not only survive, but prosper?
 
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PPPPPPP

Reply: 1.2.1.1.2.1.1.1.1
From: Paul Zagoridis


Hi Pierre welcome back.

Yep I am looking forward to the next tough market. I'm kicking myself for not getting over the last bust sooner.

That's the problem of not having SMART goals. Time passes without results.

Dreamspinner
OZ Film Biz
http://www.healey.com.au/~paulz/

PS I know it as "Perfect Pre-Production Planning Prevents PP Performance"

But that is an industry bias.
 
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Reply: 1.2.1.1.1.1
From: Ian Findlay


Hi Dave,

I'd be interested in details of your broker.

Thanks,

ian

----- Original Message -----
From: "propertyforum Listmanager" <listmanager@bne003w.webcentral.com.au>
To: <Recipients of 'propertyforum' suppressed>
Sent: Sunday, May 27, 2001 6:26 PM
Subject: special contract conditions- purchase price


> From: "Dave :)" <digidave7@hotmail.com>
>
> David & Ian,
>
> About your question regarding valuations above contract price. I have
used a broker for 7 years who's been able to do this, and more, for me. I
only have full trust in a broker who is also an aggressive property investor
and understands the strategies we use. To be able to suck out every bit of
equity from my assets, and structure the finance in a way that allows me to
buy more, sooner, is what's important to many of us.
>
> Let's face it...all brokers have access to the same lenders/products.
It's how they structure the deal that's sets 'can do' good one's apart from
the rest who say 'you're too rental reliant' or 'your LVR is stuffed - come
back in 12 months'..and all the other stuff we cringe at.
>
> If anyone wants the contact details of the broker I'm talking about, email
me and I'll pass this on.
>
> Oh, by the way, no I don't get any spotters fees or anything like that.
The purpose of this forum is to pass on useful info that we all know that
may benefit other investors. That's all I'm doing.
>
> Cheers,
>
> Dave
> :)
>
>
>
> To reply: mailto:propertyforum.4235@bne003w.webcentral.com.au
> To start a new topic: mailto:propertyforum@bne003w.webcentral.com.au
> To login: http://bne003w.webcentral.com.au:80/~wb013
>
 
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