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That all sounds good in theory, however the real world I would see that you have a few problems with what you are proposing and I will poke holes in your thought process.
Firstly, to mark out a property by 25% over its retail price point for three-year option is way too ambitious from my experience and I have seen people end up in court having to reimburse the buyers for selling properties way over the market. Case in point, I heard through the traps that a guy and his brother who had a property in Regents Park on sold a property through a lease option that was worth $400,000 for $500,000 and it was rumoured that they did an out-of-court settlement for I think $60,000 as a buyer to come to court for unconscionable conduct.
Secondly, as you have stated, the property is a low growth area, from my experience, the likelihood that 3 years that the person would be able to refinance out of the deal would be unlikely because it would not bank value up and therefore you might end up in court again based on the premise that the property deal was set to the failure in the 1st place and that the buyer never had a chance to purchase is property in the 1st place due to an over inflated price point setup at the start and by the general public opinion or if you are totally caught you be viewed as a scammer. There too many consumer action groups these days that would love to hang you out to dry based on the deal scenario that you are proposing. Also, in most cases you look at making money unless the person refinance is you out and therefore the likelihood of a person they do that is near non-existent based on the scenario that you propose.
Thirdly, most people selling of these types of deals go in charging a premium price for a property is 5% – 10% from my experience. You need to purchase a property at a discount so that in the deal if you want to make say 20% margin then you need to purchase the property at 10% – 15% below the market and then charge 5% to 10% over the market. That is how we use to run in when we did about 50 instalment contracts and rent buys back 10 years ago, however the difference was we would only on-sell the property for the maximum listed price in an area for the property specifications that will selling.
Fourthly, from my experience finding people who have a 20% deposit is yellow be extremely difficult for the following reasons. Most people live anywhere between $5,000-$10,000 to their name and if they have any more they will not really want to part with it and if the deal goes sour you don’t have to pay them back a large portion of their deposit/option fee. That hasn’t happened to me but it has happened to a lot of people who have taken quite large deposits in the lease option game. One thing you are forgetting, the person has a 20% deposit, they will go get a loan from a bank or worst-case scenario from the second-tier lender like the Liberty or Bluestone purchase ANY (not yours) property at fair market value.
Your deal seems to be very one sided (all about you and what you want to get) and you really haven’t asked yourself what makes you deal appealing for a buyer to say yes to.
It may seem a bit confronting one of said I’m just trying to help you. There is food for thought in relation to what you’re proposing, I hope it helps.
in relation to a lease option and from my experience the following is worth considering:
1. You really don’t make money until the lease options exercised and therefore I would go for a shorter period rather than longer period.
2. The longer you have the lease option goes for the longer the management of the deal and your risk profile increases from the point of view of the ability of the person to exercise the lease option as they may lose their job etc. If a person can’t financial profile in order so that they can refinance and exercise the option within an 18 to 24 month period, then the problem is that they might not be able to re-finance and will have to rely on the growth in the property market for them to cash you out on the lease option.
3. Also if you’re looking at a price manipulation of the lease option agreement, then the it is better from how the government and consumer groups interpreted it from my experience to reward somebody than to punish them. For illustration purposes only, set your price at $260,000, then offer a 10% discount if the option is exercised in the 1st year a 7.5% discount if the option is exercised in the 2nd year and a 5% discount if the option is exercised in the 3rd year and no further discounts after that time period.
Happy property dealing,
Hi Kate, Richard and Ivan,
Thanks for responding to my requests, I have already personally contacted Terry and he has referred me to someone and I have a number of other solicitors to check out on Monday. Thanks for all your help.
Kate … Love the look of your website.
- This reply was modified 5 years ago by Property Trader.
When I started 15 years ago we use to assign contracts (on about 20 deals) … however it is difficult these days. We currently use call options (on about 100 property deals) as it allows you to secure the property and prevents any funny business occurring with onselling it (the rights to purchase) either from the seller or potential buyers cutting you out of the deal. Remember in these types of deals you are the middle man in the deal.
Tip: If you get a significant discount on a property then secure it with a normal contract.
All the best.
One idea is to go down to the local market on the weekend, pick yourself up a couple of plants to put in the garden, which are super cheap to
buy compared to going through normal retail stores.
Taking one step back in the a few other questions also ask as well;
1. How much of a discount to get off the property? What are the big discounts? 40% +, an average discount of 30% or a run-of-the-mill 15%? I always believe that you make money when you buy, especially doing renovation projects in this current market. Depending on your answer, I would then determine whether I would seek early access to the property or not. At a big discount, I wouldn’t even bother asking for early access.
2. What is the duration of your settlement period? It is only a short period we wouldn’t bother or I just do clean-up job outside of
3. Is the house occupied? From my personal experience working around people still living in the house is an absolute nightmare and it becomes more trouble than it’s worth. In this case, I normally ask for an early settlement so I can get the renovation project started earlier.
4. Level of renovation work before settlement? From my personal experience, if I had early access to a property to do the renovation
work, then I would only invest in what I’d be prepared to lose as many things can go wrong during the settlement process and you might need to walk away from the property and therefore not settle on. This is normally reinforced to me when I seldom asked my solicitor about it.
5. From my expense rather than go loggerheads with the seller, just go back in a nice way asking and work out an arrangement that suits
both of you. Either they can come down to just tidying the outside of the property or bring settlement for seeking start your renovation project earlier.
Hope this helps.
In Australia , to my understanding the banking industry needs to be PERCEIVED as doing the right thing in achieving fair market value for the property. In one of those mechanisms, to achieve it is to take the property to the market by the auction process. Where it gets advertised to the general market, has time to attract potential buyers/bidders in an auction day and seeks to achieve the best price possible. Therefore in effect, the lender has done its DUE PROCESS in getting fair market value to the house.
However if there are hardly any bidders at the auction; and the highest bid is way below the market and is sold, then BY PROCESS the lending institution has done everything in its power to do the right thing for the previous homeowner.
That is how I understand it, I could be wrong.
From my experience, the best Mortgage Brokers to work with are the ones that have their own Personal Assistants. As a Broker can get out there and generate the business while the PA is in the office making sure all the I’s are dotted, T’s are across and that everything is running to schedule.
Hope this helps.
From my experience I would suggest that because of the situation:
1.) I would first find out and completely understand why the person has approached in the first place.
2.) What pressure is upon them at the moment?
3.) How do you plan to resolve or help your friend out?
4.) What is she prepared to do or give away to make that happen (best price or terms)?
After obtaining the above information I would proceed to make the property transaction pretty clean cut and settle pretty quickly so that there are no future disputes with relatives’ etcetera over the property.
Well that’s my two cents worth. All the best on this property deal.
Over the past 12 years, I personally done well over 100 property transactions and from my experience I will share a couple of ideas with you:
THE PROPERTY FINDER A BUSINESS
1. I pay my Property Finders $1000 for every good lead they provide me. All they have to do is give me the property location and a bit of background information on why it would be a good deal and I take over from there. When not running a little lawn mowing business that was your age, a $1000 paycheque would be very nice to bank.
2. Our business is based on “you make money when you buy” and therefore we have a high emphasis on processing due diligence and checking out the opportunity when you see one.
3. Being a Property Finder is like paper trading on the sharemarket. You can go through all the due diligence you like; especially with all the web-based tools available during these days, you can really be an armchair property buyer. If you do it right, your major investment will just be your time especially if your mentor or the person you work for gave you access into RP Data or Price Finder.
4. If you understand what your client is looking for, then it will be 10 times easier for you to spot the opportunities when they come along.
5. There are a lot of times poor people/professionals out there went through a lifestyle choice where they do not want to spend their time trawling real estate portals finding half decent opportunities which you can provide for them.
1. In choosing a mentor, focus on someone who is a DOER not just a TALKER. There are loads of people who know all about the theory of property investing but they’re only a handful of people relatively that get off their backsides and actually do it.
2. Theory is a good thing to know but action will trumpet it every time. The right mentor will allow you to get out there and take action knowing that he/she is only a phone call away to answer a question if you have one or they will know someone who they can ring and get the answer for you.
3. Find a mentor who is active right now in the type of property investing that you wanna get into, as the market is constantly changing, what worked 12 months to 24 months ago might not be relevant in today’s market. Case in point, we’ve got four property transactions on go at the moment as we just finished one renovation, just put on the market and sold two weeks later. With another renovation that is about three weeks away from completion and we have two other properties that were trading at the moment plus we own a number of rental properties. How we acquire and calculate the buy price of our renovation projects now is totally different from 12 months to 18 months ago.
4. Being a Property Finder is a great way to learn the ropes especially when it comes to due diligence and everything you need to know when purchasing a property.
5. We’re not looking to get into commercial real estate investing. A good friend of mine who owned a large firm in the city once allowed me to be a Commercial Property Finder and get paid a fee by doing so. And then he allowed me to see how the project developed over the coming years so I can see one in real-time and observe all the ups and downs as it went along.
BEING TOO YOUNG
That’s only a self-limiting belief if you decide that to be true. Where there’s a will there’s a way.
I hope there are a few gold nuggets in what I’ve said to you. All the best in your future endeavours in getting into the property market.
One question I should have you is where you currently live at the moment (city/town and state).
All the best,
It looks like an interesting piece reading … I would say is that the range estimations are quite broad. Case in point is that anything with a parameter palings anywhere between $57 and $100 and typically I pay $65 which is the standard going rate timber fences these days based in Brisbane.
Have a closer read of it tonight.
You might want to check out this iPhone app called “houzz” … I got it from Jane at Hotspace.
We use both Price Finder and RP Data Professional …. I have been trading properties for the last 13 years and at that time RP Data standard version was really the only thing available and you get quite used to it and I find it even hard to trade up to RP data Professional , really used to the old system. The two downsides of RP Data is that it is becoming extremely expensive and the state of the stray are it only tied you down to a geographical area of the State due to cost considerations.
Price Finder on the other hand is extremely cost-effective which offers you the whole state which is a reasonable price and as mentioned above if you find an investment group who offer a group subscription to Price Finder you will find it extremely cost-effective if you are just starting off in property and realistically that’s all you really need.
I hope my two cents helped.
Maybe you could share with the forum what suburb and state the property resides in so members could give you some recommendations on some top property managers you can choose from based on their experience.
There are a couple meet-up groups related to property that both Paul Derry and Matt Jones run here up in Brisbane and on the Gold Coast. You might wanted to network some of the members online as you can have their profile and see which ones renovating Brisbane.
Paul Derry …
We renovate properties in the Brisbane region and currently this year we have done a few in Bald Hills, Redbank Plains, Wishart, Inala and Kingston. In another one of our businesses (Great Property Deals) we provided a renovator with a house at Kingston for $165,000, which they are going to renovate it and then rented out for about $310-$320 per week.
You can also jump on the Cherie Barber website as she now is a forum to see if anybody from Brisbane can answer your questions as well.
Hope this helps.
What you might want to consider is put out by Dean and Louise Parker is called Property Systems and step-by-step manual the “Complete Renovation System”. Propertyinvesting.com has it in their bookstore and you can either pay $1300 upfront or break in the three payments. .
A couple of helpful tips from someone who actually does the BUY – RENO – SELL strategy:
1. I found structural REPAIR renovations do not add value to the property, as buyers expect that to be done already. Therefore, realise that all the structural repairs that you will do to the property will only bring the property in line with other houses in the area. If you are adding on an extra bedroom then that’s a different story.
2. What the property was bought for and what the owner actually owes on the loan are totally two different numbers. When you are working out what your offer will be on property, keep in mind that sellers with damage homes might go way below their purchase price to clear the house.
3. In relation to the real estate agent, he’s trying to sell you the property therefore I would go and talk to 4 other agents in the area to get a better idea of what houses go for an area.
4. Depending on where you are at the moment, if you are in Queensland there is a large number of houses on the market at the moment where you can do cosmetic repairs on that a greater perceived value (I am talking more than the paint job) compared to investing in an awesome time in doing structural repair renovations.
Hope this helps.
If this is just a bedroom then carpet it like the other bedrooms (nice chocolate brown floors). As for the main room such as a dining room, I would seriously consider polishing the floor.