All Topics / The Treasure Chest / free deposits

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  • Profile photo of Pro investorPro investor
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    @pro-investor
    Join Date: 2003
    Post Count: 108

    Hi

    Just finshed talkin to an investor that said they bought a house for $200’000 but had on the contract 250’000 so they get 50’000 extra cash from the bank which they are using as deposits on potive cash flow houses I said that it was illegal and they said that everyone is doing it what are peoples thoughts on this.

    Thanks Rob

    Profile photo of hufnstufhufnstuf
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    @hufnstuf
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    quote:


    Hi

    Just finshed talkin to an investor that said they bought a house for $200’000 but had on the contract 250’000 so they get 50’000 extra cash from the bank which they are using as deposits on potive cash flow houses I said that it was illegal and they said that everyone is doing it what are peoples thoughts on this.

    Thanks Rob


    Profile photo of hufnstufhufnstuf
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    @hufnstuf
    Join Date: 2003
    Post Count: 2

    Rob

    I certainly wouldn’t go near this approach. Apart from the illegal aspects there is the risk of losing all credibility with the banks – also paying more stamp duty than you otherwise would on the inflated purchase price.

    Regards

    Profile photo of DanTheManDanTheMan
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    @dantheman
    Join Date: 2003
    Post Count: 100

    Robert

    You can make it a little “less illegal” by making the $50,000 for a reason. For example “Purchase price $250,000 with a $50,000 refund for early settlement” or “for neccesary repair work”.

    That aside, since the banks always value the security of thier loan (the property) you can only get away with this if you are getting a bargin. If you are getting such a bargin, some banks will actually lend you against the valuation price as opposed to the contract price, in which case you need not “decieve” them.

    Dan.

    If you want an extraordinary life you have to be prepared to do things that ordinary people aren’t prepared to do.

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,190

    Stacking the contract is not illegal. But not disclosing fully to the bank may be. But banks usually only want the front page of the contract. If there is sonething listed abuot special conditons, then they may also request to see what the special conditions are.

    I have heard of people making a provision in the contract for extra work or repairs to be carried out. These don’t get done before settlement and the purchaser gets a discount. eg $250,000 with $50,000 discount if new carport is not errected. But you have to be careful, the vendor may just erect that carport to save themselves $50,000.

    Terryw
    [email protected]

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of caddy222caddy222
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    @caddy222
    Join Date: 2003
    Post Count: 24

    I have never heard of this approach. Obviously there is no conveyancing company or real-estate agent involved as you would think they would pick it up. Sounds dangerous to me as the banks would not view it favourably.
    Caddy[:O]

    Profile photo of caz_in_perthcaz_in_perth
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    @caz_in_perth
    Join Date: 2003
    Post Count: 29

    It is fraud to obtain by ommission or deception an amount greater than the actual purchase price. You may get the “early settlement rebate” or “subject to repairs” clause past the bank IF the total is equal to the bank valuation. Banks have LVR for a reason.

    I reckon it’s safer to just find a bank that will do a higher LVR and cap it with fees so you are paying less out of your pocket if you need the cash for other purchases.

    We’ve been asked for both sides of the contract on our recent applications.

    And yes, what about stamp duty and other costs calculated as a percentage of the loan? You could be paying an extra 5% on the portion that you are inflating.

    You’d also want to be very careful about how the contract was worded, as shown by Terry’s example.

    An article I read in the MIAA mag said there would be a crackdown on this practice.

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