Viewing 5 posts - 1 through 5 (of 5 total)
  • Profile photo of Jarrod_2Jarrod_2
    Member
    @jarrod_2
    Join Date: 2002
    Post Count: 3

    Hello all,
    I have a quick cash deal that I would like to complete on a property in Melbourne’s northern suburbs. I have a few problems with the deal, that I thought someone from the forum might be able to help me with.
    The property is being sold because the owner has relocated to another state. It is a brand new house from a house and land package. The house is valued at 225,000-235,000 and I believe I can purchase it for about 195,000 based on conversations with the owner.
    The problem is I would like to sell the house straight away but I am concerned the closing costs will make the deal not worth much at all.
    I think the approximate costs will be:
    $7500 stamp duty,
    2-3000 for lanscaping.
    Agents fees for selling (3-5%) approx 15000
    Legal Costs $500

    My questions are:
    Are these approximate costs correct?
    Does anyone have any strategies to avoid some of these costs?

    All replies welcome.
    Sincerely,
    Jarrod Egan

    Profile photo of Steve McKnightSteve McKnight
    Keymaster
    @stevemcknight
    Join Date: 2001
    Post Count: 1,763

    Hello Jarrod,

    Thanks for your post and welcome to the forum.

    Let’s see if I can help you with a few of your concerns…

    quote:


    I have a quick cash deal that I would like to complete on a property in Melbourne’s northern suburbs. I have a few problems with the deal, that I thought someone from the forum might be able to help me with.


    It might be wise to spell out a little more about what you mean by ‘quick cash’ – as these days that tern can mean a number of things. I expect that you mean a flip, that is, buy it and then resell it during the settlement period.

    quote:


    The property is being sold because the owner has relocated to another state. It is a brand new house from a house and land package. The house is valued at 225,000-235,000 and I believe I can purchase it for about 195,000 based on conversations with the owner.

    The problem is I would like to sell the house straight away but I am concerned the closing costs will make the deal not worth much at all.


    Hmmmm – it’s an interesting situation here. You have found a potentially under-priced property (I would due more due diligence to establish this) and you seem to have a sale figure in mind too (again, I suggest more due diligence to get a more reliable figure).

    Your due diligence is designed to remove ‘approximates’ and thurn them into certainties. For example, stamp duty at $195,000 would be $7,360 + a $570 Transfer Fee.

    The more you know about the figures the better your investment decision would be.

    As for the other costs, get written quotes and turn estimates into definites.

    Now let’s look at those numbers, working backwards…

    Sale Price $235,000
    Closing Costs ($7,930)
    Legals ($500)
    Landscaping ($3,000)
    Agent’s Commisison ($15,000)
    Purchase Price ($195,000)

    Balance $13,570

    Now only you can make a decision as to whether the investment is worth the risk… but if the place sells for less than $235k then in my opinion you are starting to look a bit skinny.

    Alternatives

    Perhaps a better idea is to try and buy an option over the property at the low price and then sell the option to someone else. This raises some issues about being a licensed real estate agent that you should investigate… but it may allow you to by-pass stamp duty and also agent’s costs if you can deal direct with the buyer.

    This means you will have to mount your own advertising campaign, but more work will probably mean higher profits.

    Exit Stratgey

    If you go ahead, I’d also work on Plan B for the investment on the basis that you have to close… what would you do with it then and what would the financial consequences be?

    I commend you on finding a deal, but would encourage you to work hard to develop a realistic plan that deals with more certain numbers and evaluates how easy it would be to find a seller willing to pay $235k in a presumably new housing estate where builders / developers might be cutting deals left, right and centre.

    Good luck. I’m sure the forum would love to know how you get on.

    Bye

    Steve McKnight

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Jarrod

    An option sounds good. I don’t think you will have any licencing problems with an option because if an option is purchased you will have an equitible interest in the property. It is like selling your own property.

    Terry

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Jarrod_2Jarrod_2
    Member
    @jarrod_2
    Join Date: 2002
    Post Count: 3

    Hello Steve and Terry,
    Thanks for your replies to my questions. I aggree that I need to do a bit more due diligence to establish what the true costs of the deal would be. I guess I stopped investigating it too much when I realised that I may not make much out of the deal if I went ahead and onsold it through an agent.
    I have learnt a lot going through the process though.
    I am particularly interested in buying an option. This was my original idea as I have read John Burley’s book and liked the exchange of contract deals.
    The problem is I am not sure were I can find information that explains the process in detail. Eg. How do you buy an option?
    I suppose that you simply draw up up contract to buy but insert
    buyer_____ and/or nominee______.
    Could you lead me in the right direction as to where I can find this information. I also read a book by Shemin that has sample option contracts and was wondering if you have seen these or if they would be suitable?
    Thankyou for your help and I look forward to any replies.
    I will keep you posted I my progress.
    Jarrod

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Jarrod

    You need to get your solicitor to draw up an option contract. Just adding and/or nominee won’t do becuase you will be required to settle on the property if you do not find someone. WIth an option agreement you have the right but not the obligation to purchase the property.

    Also with an and/or nominee clause you cannot nominate someone that you find after signing (in Vic). You have to have an existing agreement in place before you sign or double stamp duty. I think!

    Regards

    Terry

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

Viewing 5 posts - 1 through 5 (of 5 total)

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