Forum Replies Created
Ahoy hoy
"Working" a real estate agent is definitely an art form.
As for them not presenting your offers to the vendor, it was my understanding that they are obligated to do so? The first time I tried to offer VF through an agent, he just told me "That won't work for her", when pressed as to whether or not he was even going to tell the vendor about my offer, he said he'd mention it to her in his "Weekly wrap of activity"…..
In any case, because VF is a bit out there, you've got no hope in hell of getting the deal through unless you get the agent to agree to it in the first place. To do this, you really need to develop rapport with the agent first. If you find an agent that you don't "click" with, I really think your chances are better if you try and find one you do get along with.
One of my friends has told me that he has presented creative offers via agents, and they have come back with a "no" in the near future, with my friend suspecting they never presented the offer to the vendor. In those circumstances (assuming owner/occupier) my friend would then detail his offer on a piece of paper, and put a note on the front saying "Sorry my offer didn't work for you", just to make sure the agent wasn't lying!
Assuming you can't find an agent that speaks your lingo, the only other way is to present the information one piece at a time. Eg, Ask them if they're willing to accept a big chunk of money now, and a small chunk later first. If you get agreeance, then work out how much now, and how much later. Step by step.
If you offer, say, $280 000 with $220 000 up front with payments made on the 60 000 at 6%, interest only, for 5 years with the balance paid at the end, and the vendor says "no" – which bit are they saying no to??
Hope this helps
Andrew
Hi again
Linar, I suspect you found my post confusing because you haven't read everything that I've said. It IS a long thread at the moment. I did make it clear that I haven't done one of these yet, and that the information I have presented is the combined suggestions of a whole bunch of people that I have spoken to. Chances are, I'll go through this new mortgage broker I've been speaking to who says that he knows lenders who are fine with it. If it doesn't work out that way, I'll probably try it again in another few months, and if that doesn't work out I would likely change my focus until the credit climate changed.
It is not about seeing nothing wrong with what other people are suggesting. There are plenty of things that friends and associates of mine do that I don't think I would ever do, but that doesn't mean I'm going to judge them for it. I guess I'm a "He who is without sin throw the first stone" kind of guy.
Like I said, I'm happy for Richard to disagree with me, or anyone else. What I would be interested in, however, is the percentage of people who are caught in mortgage fraud, who are actually charged with it. I have been told it is a very low number, but that wasn't by a lawyer. I'd love to hear either of your takes on that one. And no, just so we're clear, that does not mean that I am considering it!
Oh, BTW, I just re-read the whole forum. I totally missed our young friend's shot at Richard about "bignoting" himself, and thought Richard was abusing him because he said the banks were crooks! My apologies.
I am interested however in the "people" who have jumped down Richard's throat… I've only counted one. Am I to assume I'm the other?
Andrew
Struth people!
I turn my back for 24 hours and it's world war three in here!!
Ok, links in my signature, got it…
Ok, Jaffa is a mod.. got that too!
I'll also remember to have someone proof read my posts for spelling, punctuation and grammar so as not to provoke the ire of either of you!
While I'm happy that some people appreciate my posts through here, please don't think I've got a problem with Richard giving his opinions on the legalities of something that I haven't even done yet myself. I'm pretty sure I even dubbed them as "dodgy" in my original post. Obviously I pay for legal advice on these things, so it would be silly of me take Richard's word as gospel on legal issues when I do have a couple of legal guys on my team. It would be equally silly (probably more so) for anyone to take anything I say as gospel either!
I would also be fascinated to know how Richard got started in this business with full disclosure, because it is my illusion that if I were a decision maker in the banking system, that someone coming up to me who had never done a wrap before, and had no financial qualifications other than being good with numbers, wouldn't get far with me, even if all his proposed figures added up and looked realistic. Did you get started in a different climate to what we're in now? Do you think the banks would really smile on someone with no experience who went in with a proposition for a wrapping business having not done any before (in this financial climate)?
At the risk of provoking Richard's ire, I will say that any sort of entrepreneurial spirit will always raise eyebrows. Richard, has anyone ever told you that wraps are illegal, or that what you do with vendor finance is not right? Has Neil Jenman ever made you mad? While I think that a lot of what goes on in this industry is "dodgy" as I said before, I don't feel it is up to me to judge the activities of other entrepreneurs just because I'm a little more old fashioned than they are. If I think they're out to get rich by screwing people over, well I'll judge them then, but not just because they're skirting around a legal system that is clearly not designed for these types of transactions.
If we're going to take the strict line on full disclosure, I (along with many other investors) would be in a lot of trouble. I know that I've moved out of houses, changed jobs, rented out houses I bought as PPRs, changed rents, changed incomes, put new tenants in, all without fulfilling my obligations under the fine print of the mortgage to inform the bank of what I was doing. If you have never done any of this, that's great, but I feel you would be in the tiniest of minorities. What then is the difference between doing any of those things without informing the bank, and selling a place under vendor finance and not informing the bank? It is my opinion that the only difference is one's subjective judgement of where their own line is as to what is and isn't acceptable to them.
While I'm on a roll, I will mention the fact that I never saved for my first deposit, and I don't believe I feel any worse for it! I received approx $65K as an inheritance as a 20 year old in 1997. My parents then pulled financial support from me (not with any ill feeling), I worked my way through Uni for the next 4 years, used some of my inheritance, and then still had enough for a new Hyundai Excel and a 20% deposit on my first house which cost $122K in 2001. I'm thinking probably a lot of 20 year olds wouldn't still have had that much left 4 years later, but I still can't claim to saving 25 grand as a deposit.
Cheers,
Andrew
Hi guys
This second mortgage carry back is something I've been meaning to get into, so I've been talking with lots of people about it, but I haven't done any myself yet. I have done a bunch of instalment contracts and a couple of rent-buys though, so I've got some idea what's going on.
Also, I've got a new mortgage broker who tells me he can put these deals together – even at 90/10 – but until one happens I'll stay naturally skeptical. No idea who he'd go through though – he tells me there are a couple of options.
Anyway, I was asking everyone I knew who did them, and this "gifting the deposit" idea came up – along with a couple of other, similarly "creative" ideas. It's my understanding that the "gifting" idea means something along the lines of indicating that the deposit has been gifted by the vendor on the sales contract, and then they have a second mortgage agreement privately that the bank doesn't know about. The seller then doesn't register the 2nd mortgage until after settlement. Again, I haven't done one of these, so feel free to ask questions, but I can't necessarily answer them!
Other possiblilities I've heard… Finding a private short term lender who loans you the cash for the deposit for long enough to put it in the lawyer's trust account to show the bank it's there, then give it back with a bonus and go ahead with your 2nd mortgage agreement (again, don't register until AFTER settlement). One more…. ummmm…… oh yeah, telling the bank a relative of yours was going to gift it to you, and then them "mysteriously" not turning up with the money at settlement, and the vendor then going ahead with the 2nd mortgage option to "stop the deal falling over".
Then there's my new mortgage broker who says that some banks just plain don't mind the whole idea??
Anyway, if you want, I'll be trying to put one together in the next month or so (as a purchase) and I can let the forum know how it goes (or doesn't go!)
Also sjh, I'm based in Ipswich and while I don't have any houses out in Toowoomba, I've certainly put in offers on a few and would be happy to let you know if I ever ended up with a house out there. I'm not aware of any people familiar with these types of strategies with any property up there at the moment though.
Find me on facebook if you want to go on my buyer's list or just keep in touch. http://profile.to/andrewbuyshouses/
Good luck with it.
Andrew
Hi all
I read an article the other day (sorry, no idea of the reference) but it did say that sticking with variable will beat the fixed rate 83% of the time. Effectively that means that one out of every six times, fixing your rate is the best way to go. But when is that one in six exactly??
Stuffed if I know!
As people are saying, the spread between variable and fixed at the moment is so large that imo, fixing them is kind of pointless really.
I have seen some arguments that in the USA that rates are likely to skyrocket really quickly, because of all this money that their government has flooded the system must create high inflationary pressure which the fed will endeavour to curtail with the only tool at their disposal – ie, hike up rates faster than you could imagine!
However, I have also heard arguments contrary to that which basically say that the amount of bad loans written off, when combined with the massive falls in real estate and the stock market will more than make up for all the cash dumped into the system by the US government. Therefore when interest rates do inevitably go up again (from zero!) that they will only need to rise at a normal pace.
So which one will it be? Again I say – stuffed if I know!
Which leads me to a whole other point…. No-one knows really. Anyone can guess, but no-one really knows. Which kind of makes the entire financial prediction industry just about the biggest waste of money in the entire world!
Oh, that reminds me of a joke Harry Dent told me recently…. Economists are people who wanted to grow up to be accountants – but lacked the required personality!
Andrew
Ahhhh, this has been good reading!
I hear on the grapevine how passionate some people are about the evils of vendor finance and rent to buys, but until now I've never seen or heard such things first hand!
As for Mr Jenman's complaints that rents in a rent to buy are double market rent, well derr! You're not really just renting the place, you are in control of the property, and as such you make payments closer to what mortgage payments would be. When I say mortgage payments, realise that if you need to get into a house this way, it's not really fair to compare the rate you would have to pay with the 5.09% that I'm paying for some of my houses. I was contacted by a seller a few months ago who bought their house, and their mortgage was locked in at 13% for a low doc loan with Bluestone. Do the math on that, and compare it to the payments on a rent to buy at near double rent.
I myself aquired the house I am in this very minute under a rent to buy towards the end of last year. Rent for the house would be around $300 pw, but I am paying $550 per week, with no rent credit. Given I got into the house on a very minimal deposit (less than 2%), with no need to prove my income, the fact that I am locked in for 2 years at just under 9% didn't bother me in the slightest at the time. Low doc loans at the time were closer to 10%!
In any case, I've got two years to either accumulate enough deposit to purchase the house the "normal" way, increase the value so I've got equity in it that way, or hope for the market to go up enough so that it values up another 10% and I can easily get a bank loan.
I'm prettty damn sure I'm not being taken advantage of!
Also, the seller who is on a variable rate is borrowing his money at around 5.5% at the moment, and lending it out to me at around 9% (effectively). In this credit squeeze we're in at the moment, he previously had the house vacant for around 4 months while two separate contracts fell through due to problems obtaining finance. Now he's getting $550 per week. Maybe I'm taking advantage of him?
Since interest rates have fallen so rapidly, obviously it would be in my best interests to refi tomorrow if at all possible. My payments would go from $550 pw to $350 pw overnight. Increasing the value of the house the required 10% to get enough equity to refinance should take about a month. On top of that, I can prove I've been paying $550 per week for the last 12 months… does anyone have Mr Jenman's email address so I can alert him directly of my pain??
As for any lawyer telling you to run for the hills if they know you are considering a rent to buy, I find that very interesting. As Mr Jenman is aware, these are not illegal instruments. If the lawyer is advising you against doing something that is in fact legal, then on what basis are they advising you? Surely they wouldn't be advising you based on your financial interests, as most lawyers don't actually hold a financial license. Being good lawyers, would they break the law and give you financial advice without a license?? Hmmmmmm……
Many lawyers however, will also lie and tell you this stuff is illegal. This is because they just don't understand it, and couldn't be bothered learning it. I have been told that in law school they spend about 15 minutes on this stuff at an undergraduate level. Personally, I've spent about 2000 hours on it, and I've still got no idea what's going on!
While, obviously, lawyers should be the best people to give you advice on aspects of the law, remember that they are not gods, and that no mere mortal can possibly know the entire law. There's just too much of it! Also, if you can find two lawyers who agree on everything, then one of them isn't thinking! Oh yeah, also remember that intake numbers for law school in Australia are growing and growing, and as such it's just not that hard to get in anymore. Remember that kid at school who the rest of the nerds used to take pity on because he tried hard, but just wasn't that bright? Chances are, he's your lawyer!
Anyhoo, I could go on for hours, but I am becoming less and less coherent…. (and more bitchy!)
Andrew
Hi Kyanne
Books? Oh, there are lots of them! It really all depends on what sort of level you're at.
I do think Steve's first two books are a good read. Also anything by Jan Somers gives you a good idea of the basics. I'm also a Hans Jakobi fan, if you can manage to listen to the smart things he has to say without getting swayed around to buying high yield properties all the time!
As for your ideas on your first investment, I'd seriously consider using a buyer's agent. If it were me I'd use Metropole because I've heard them speak a few times and they've impressed me, however I'm sure there are others around that are good.
There are a whole number of reasons why I don't buy units very often, and I'd certianly be interested in your reasons for considering one in this instance, so I can see if I think they are valid. In any case, I'll go on a short rant about why I don't buy units (especially small ones in big complexes).
Body Corporates – If you own an investment house, you make all your decisions yourself. If you own a unit, not only do you have all these extra charges, but you also have very little say in the running of a building in which you own a portion. The other issue, however unlikely, is that interest rates rise dramatically, half the owners get their units repossessed, and then the rest of you all have to pay double body corporate fees to make up the difference. Sounds ridiculous, but I've seen it both on the Gold Coast and the Brisbane CBD.
Land Content – this is generally what drives price increases in investment properties. Units just don't have a lot of land content. If I were to buy a unit or a townhouse again, it wouldn't be in a complex of more than around 10 units.
Renovation – much less opportunity to add value to a unit than a house.
Valuations – Here's a fun one! Imagine you're thinking of refinancing to pull out some added equity because you think your flat you bought 3 years ago for 400K is now worth 500K. Great! However, a couple of owners in your block have hit tough times, and they've just sold off their flats quickly for 400K because they needed to sell fast! Since all 100 units are pretty much the same, guess what the bank values your unit at? Now obviously a similar thing can happen with a house, but not every house in a street is exactly the same, but often all the units in a block are.
I'm pretty sure I've got more reasons on a good day, but that's enough to start with I think!
Oh oh, finance issues! Forgot that one. I'm not sure what it's like at the moment, but last time I checked (years ago) many lenders were hesitant to lend on anything less than around 50 square metres. Obviously check that one for yourself.
Contrary to how it may appear, I'm not totally against buying certain types of apartments. I do realise that the average household now has fewer people in it than it did a decade ago, and that some people would prefer to hear everytime their neighbours sneeze than to mow a lawn every couple of weeks. The trends are certainly changing towards apartments, but I'd be looking at 2 or 3 bedroom townhouses in small blocks close to transport, eateries, and all that other stuff Gen Ys are looking for these days.
Get yourself a buyers agent. Saving yourself money by not paying for good advice for a potentially life long investment is a bad idea. I used to think paying several thousand dollars for someone's opinion was ridiculous – but even if you pick a unit that appreciates 7% per year, and they pick one that appreciates 8% per year, that's hundreds of thousands of dollars in a few decades time.
Oh yeah, and I second Richard's lecture on structuring your finance and ownership right from the start.
Get reading, get a buyer's agent, and get moving! In my opinion, you're long overdue to get started with the amount of equity you're sitting on!
Good luck with it.
Andrew
Hi Ben
While I applaud you for thinking outside the square on this one, I think you've probably got a snowballs chance in hell of getting this one across the line the way you're thinking about it at the moment. (Sorry!)
Also, you seem a bit confused with your comment "does the vendor get a loan…". As Richard alluded to, this sort of deal needs a few ducks in a row for it to come together, the first one being your ability to qualify for a loan with the bank in the first place. Banks don't hand out money to everyone at the best of times, and now is certainly not the best of times. The fact that the property should be cashflow positive if all works out properly is not enough reason for a bank to invest their money with you.
The second duck you need is that the 70 or 80% loan that you get has to be enough to pay out the seller's mortgage/s on the property. They then "loan" you the deposit. They don't get a separate loan and help you out that way, they loan you what you owe them, out of their available equity in the property.
I'm just reading this and I'm not sure I've explained it well – ask me again if I'm not making it clear.
The other issue is convincing the vendor to loan you the deposit. Why is it in their best interests to leave 20 grand in the deal? What can you give them, how does it benefit them, why would they do it? In my limited experience in this sort of thing, cashflow positive houses are very difficult to buy this way. All I can give the vendor for his 20% he leaves in the deal is an income stream. If he's selling the house, which was already giving him an income because it is cashflow positive, then why would your offer interest him? Now, there are always exceptions to this, and the vendor may just need 70-80K now for something, and be happy to carry back the 20k. Just remember though, he's going to need a compelling reason to do so.
If purchasing a property with none of your own money is something you want to do, it can certainly be done in your situation. However, it's not something that can be taught in a few hundred words!
Find me on facebook if you're really hungry. If it's just "something you're thinking about" then don't worry – it's too much work!
http://profile.to/andrewbuyshouses/
Andrew
Unfortunately all too common.
Remember if you know he is lying to someone else, why wouldn't he lie to you??
However, I'm not at all concerned about the deal with the owner re: commission – I'm quite happy with that idea if it's true. However, given everything else that's occured that could be crap as well.
I'm pretty big on honesty, so I would probably not buy the house just to avoid pleasing the agent! I'd also probably leave an anonymous tip in the letterbox telling the tenants what he's doing!
However, if you do want the house and think you can get it for a price you want, then as long as you check everything he tells you there should be no problems. One thing we like to do with agents who are prone to say whatever crosses their mind at the time, is write down what they say about a property as they say it, and then ask him to sign that piece of paper as a record of everything he's said. If they're honest then it won't be a problem for them. If they've lied through their teeth for 15 minutes, watch them change their whole story on the spot!
Andrew
Hi Terry and everyone
You're absolutely right about the bankruptcy issue, and I think the purchaser would win out too. As for being legally messy, I've discovered in the last few years that by and large, there is no such thing as a watertight legal situation, and who wins often comes down to who wants to (or who can) fight the hardest.
As for the purchaser being kicked out for not paying, if you consider that most vendor finance properties are sold a bit above market value, what happens if it can't be sold the "traditional" way for the contract price? Our vendor finance contracts are all non-recourse loans, so the purchaser can walk away at any time if it's no longer working out for them, as opposed to worrying about me selling it off as a "fire sale" for 50 grand less than the contract price, and coming after them for the difference.
In the opposite situation, where they are defaulting but the price has increased, the purchaser has the ability at any time to sell the property himself the standard way if he thinks he can get more for it than he owes me. He then just pays me what I'm owed under the contract, and pockets the rest. I don't know if this is how they all work, but it's certainly how mine work.
Most people I know who do this stuff are just normal people who would prefer to work out a solution with the purchaser, rather than ending up in court over it. My mentor who has done hundreds of these tells me he has been to court once in his vendor finance career. A few years ago when I started getting serious about this stuff, I was way too over analytical. I finally convinced myself that if I needed to know all the "what ifs?" that I would never actually do anything – it was a very hard change to make.
As for not being keen on VF because of the low returns, I really have to disagree with that one. While having no buy and holds is just plain stupid, working your VF business correctly actually allows you to have more buy and holds, as you can use the cash flow from the VF properties to feed the negative gearing on your highly geared buy and holds. Furthermore, if the market is going nowhere for a few years and you know how to do VF properly, it's very easy to get in and out of a few properties in that time and make some cashflow as well as some money on the back end, when the buy and hold guys are just bleeding cash for three years for hopefully some growth next time.
Here is a recent example of the returns I'm getting now.
House valued at 325 K after a recent drop.
Loan against property of 321 K – not tying up a great deal of equity here!
My payments to the bank – currently around $350 per week.
Purchasers payments to me – currently $638 per week.
Their purchase price 370K – to be fair I set that price when I got the refinance val of $350K.
Now, I let this guy in with no deposit because I was a moron, but even if I could just have attracted a 4 grand deposit, I'd have no money in the deal really.Now, while this may sound like fun, this is not where the real magic lies. Once you've mastered the basics like this deal, you can then step up to where the real profits lie, and that is in the back-to-back deals. Here is a hypothetical example:
I rent-to-buy a place from a motivated seller:
$400 per week, price of 350K – real value around 380K. My option fee to get in is $1.I rent-to-buy the same place to someone new:
$500 per week, price of 400K.
Their option fee to get in is 10 grand.I make 10 grand up front, $100 per week for a couple of years, and around 40 grand when the buyer takes up the option to purchase.
I think 65 grand over three years is a pretty high return for $1.
I know this stuff is a bit "out there" people, but this IS the "Getting Creative" forum!
If anyone wants to know more about this stuff, or just abuse me and tell me why it doesn't work, then find me on facebook.
http://profile.to/andrewbuyshouses/
Have fun!
Andrew
However, if you do want the house and think you can get it for a price you want, then as long as you check everything he tells you there should be no problems. 
