Vendor Payback

[markj]

I have a property I am interested in that was partly burnt out due to internal fire. There is an insurance payout of around 20,000 for repairs.

Can I make a settlement on the property (lets say it's worth $200,000) and get the vendor to payback to me on settlement the 20,000 from insurance and an additional 20,000 for work that I deem needs doing to finish the property?

That would mean settlement price of 200K paid to vendor on settlement and vendor pays me 40K on settlement.

 

[Superstitionist]

Why not just pay $160K in settlement...

Super.

 

[PrimeCommercial]

You could put what ever you want in the contract but I dare say that when time comes to sell it and your up for capital gains the ATO will asses your cost base as $160k not the $200k. I'd dare say that your bank would asses the purchase price as $160k also. That may have cash flow complications if your were banking on having the $40k cash in your hand.

Maybe best to speak to your accountant as to the consequences.

 

[Witzl]

I cant see why this wouldnt work as a find of vendor finance. Have a chat with your accountant and solicitor.

 

[markj]

Why not just pay $160K in settlement...

Super.

Its all about pulling back cashflow to cover some risk whilst showing full purchase price on account ot bank.

 

[markj]

I cant see why this wouldnt work as a find of vendor finance. Have a chat with your accountant and solicitor.

Thanks Witz

I will be having a chat to the solicitor. In reality the property is above 3 mil and the insurance is 60K and the payback I am looking for is around 200K including the insurance payout.

I am laying down 20% deposit, covering the addional 10% as it's commercial. I have covered all calculations as far as risk is concirned for the prurchase howver I would still like the 200K to cover any cashflow risk if it arises.

 

[markj]

You could put what ever you want in the contract but I dare say that when time comes to sell it and your up for capital gains the ATO will asses your cost base as $160k not the $200k. I'd dare say that your bank would asses the purchase price as $160k also. That may have cash flow complications if your were banking on having the $40k cash in your hand.

Maybe best to speak to your accountant as to the consequences.

Thanks Shady,

I am interested in what the banks will consider the purchase price if I am asking the vendor to pay 200K for repairs. Will they asses the price with the the 200k or consider the payment payback clause in the contract as a deduction from the real value.

 

[Witzl]

i thought that it depends on what you put on the contract.

EG - if you put that $200k as vendor finance on the contract, the bank will consider the full amount on the contract as your purchase price (allowing you to mortgage based on that price)
.... then the contract between you and the vendor outlines what the vendor finance entails.

NB: this is my vaigue understanding of how it works, but please check with the professionals before acting on my beliefs.

 

[markj]

I have come up with a modification on original thought of the Vendor payback situations.

The property that I would like to purchase needs a lot of renovations. So my proposal in the contract would be that the vendor pay a company for the renovations prior to settlement.

The property will be purchased under a trust with a development company as one of the benifits of the trust.

My thought would be that the vendor pre-pays the development company under the trust a lump sum at settlement for the renovations.

Does anyone have any thoughts or experience on this kind of settlement?
The money would be spend on renovations over the time but would also be used to manage risk of availible cash.