What is this process called?

[Tizzy]

I've been told about a process ( I suspect isn't fair or legal) where a buyer arranges to pay for land, then that buyer delays the settlement so that it corresponds with the date he receives funds from new buyers he has onsold the land to. Obviously onsold at a higher price. I think thats how it goes.

Can anyone tell me what this practice is called? Do you know if it is legal in Australia?

 

[aaarghhh]

Hello Tizzy

Isn't this just an extension of time for settlement? The buyer may have to pay penalty interest if the vendor agrees to the later extended settlement.

e.g Buyer asks for settlement to be extended extra 4 weeks.
Purchase Price $150K
Deposit $1000.00
Original settlement date - 4 weeks.
Buyer gets approval from vendor for an extendend settlement now an extra 4 weeks.
Buyer is subject to penalty interest of : -
((Purchase Price-Deposit)*(InterestRate/365)*Agreed_no_of_days)
(($150,000-$1000)*(13.5/365) * 28) =$1543.07


Tizzy it doesn't sound illegal. Would have to be a cheap price to flip the property and get a decent profit.

Aaron

 

[Perp]

I've been told about a process ( I suspect isn't fair or legal) where a buyer arranges to pay for land, then that buyer delays the settlement so that it corresponds with the date he receives funds from new buyers he has onsold the land to. Obviously onsold at a higher price. I think thats how it goes.

Can anyone tell me what this practice is called? Do you know if it is legal in Australia?

This is a concurrent settlement. It's entirely legal. If the buyer has an assignable option, they don't even have to settle on the property, but just pocket the price difference. It's just onselling at a profit, in a very short timeframe. What do you think is unfair about it?

 

[stumunro]

I've often referred to it as flipping.

Ozperp with an assignable option, what affect does this have on stamp duty. I've always known the pitfalls of flipping is that you have to settle, so you incur stamp duty costs for the property and solicitors fees which usually erode any profit.

I also remember something about needing to get a real estate agent to sign the contracts to onsell? Or something along those lines to make the sale legal?

 

[NOT 2 L8]

I've been told about a process ( I suspect isn't fair or legal) where a buyer arranges to pay for land, then that buyer delays the settlement so that it corresponds with the date he receives funds from new buyers he has onsold the land to. Obviously onsold at a higher price. I think thats how it goes.

Can anyone tell me what this practice is called? Do you know if it is legal in Australia?

Hi Tizzy,

I think this is commonly referred to flipping. It is sometimes possible to arrange for the two settlements to happen at the same time. (This is the best as you need not use any of your own money.) There are some legal issues such as having the vendor's permission to advertise the property for sale. You need to also get permission to place a sign on the property. You must advertise the fact that you have an unconditional contract on the place and that you are looking to on sell....etc.

Frauhgt with danger without proper legal advice until you fully understand the process. The current issue of API has an article in the legal segment (I think) on this.

I am sure (I think) that the transaction also attracts 2 lots of stamp duty.

I'm sure there are others here that can shed more light..

Cheers Chrisv.

 

[Tizzy]

Thanks for your responses everyone. Flipping sounds like the description I was trying to think of.

I (and other investors) are in a situation where we bought land through a project manager and he told us it would cost "X". We've now found that our project manager actually paid significantly less and pocketed the difference. He didn't disclose anything to us. He's used this method at least half a dozen times, never disclosed that he was receiving a fee (in fact denied he was) and never said he was arranging a concurrent settlement and had paid significantly less. Keep in mind, the project manager also collected a full fee from each of the investors. I'm so angry with him.

Anyway, ASIC is heavily involved and I'll let the lawyers sort it out. Very disappointing to be shafted like this though.

 

[Tizzy]

Well I'm thrilled that you have experienced some joy in your otherwise doom & gloom day Scamp.

 

[The Y-man]

Thanks for your responses everyone. Flipping sounds like the description I was trying to think of.

I (and other investors) are in a situation where we bought land through a project manager and he told us it would cost "X". We've now found that our project manager actually paid significantly less and pocketed the difference. He didn't disclose anything to us.
He's used this method at least half a dozen times, never disclosed that he was receiving a fee (in fact denied he was) and never said he was arranging a concurrent settlement and had paid significantly less. Keep in mind, the project manager also collected a full fee from each of the investors. I'm so angry with him.

Anyway, ASIC is heavily involved and I'll let the lawyers sort it out. Very disappointing to be shafted like this though.

I am sorry you feel disappointed, however from what I can gather, he had no need to disclose anything. If you buy a property, and then sell it (no matter what time span you hold it for), you are not required to disclose to the buyer how much you paid for the property. Any money made in this way is not a fee - it is just straight cap gain. The person took a significant risk in buying the property - as he may not have been able to flip them to other buyers (at all, let alone at a profit).

The good thing is, if others have paid a similar price, then the effective valuation of the plots have been "set" (for now) so obtaining finance etc should not be a problem.

I know this sounds very harsh, but I assume you signed for the property because you felt it was a good price - and it probably is, so be happy with it.

There's a story Dolf De Roos tells on one of his tapes:
Dolf was on the way to do a presentation at an establishment he owned. Unfortunately his car broke down on the way. So he hailed down a cab, but in a fit of ego he decided to tell the cabby "Take me to the swishest club in town".

To his delight, the cabby took him straight to his establishment.

Totally chuffed, Dolf gave the cabby a big note and told him to keep the change. The cabby looked a bit surprised and said, "Wow, thanks Dolf!".

At that moment, Dolf felt hideously ripped off!


Keep at it.

The Y-man

 

[Tizzy]

Hi YMan. Thanks for your response. And yes I do agree with you that a flip is not illegal and is something that occurs frequently.

The particular issue I have is quite a bit more complex than a simple flip. I just haven't been able to provide all the facts, so it's not explained very well here. I'll just wait and see what transpires.