Hi everyone
I recently entered into negotiations on an 8 room ‘boarding house’ in Brisbane returning 800+/wk @ 500k. It had (in my opinion) fantastic opportunity to convert to flattetes by putting a ensuite in each room as all rooms had a seperate kitchen dining…up rent to 1200+/wk after 12 months (and probably 100k later)…and yes it was withing 5k of the CBD. That would have given us a 800k+ valued property we owed say $625 ($525k +$100k in refurbishment)returning $62k gross or approx $54k net (a nice cash flow +ve deal)
Anyway…when it came time to sign the contract the owner added clauses that read:
1. Clauses 7.4(1)(d),7.4(2),7.6 and 7.7 are deleted.
2. Residential Services
a) The Buyer acknowledges that neither the Property nor the Seller comply with the following;
:-Residential Services (Accreditation & Accomadation) Act 2002 & Regulation 2002
b) The Buyer has no right to terminate this Contract, claim any compensation or delay settlement as a result of the non-compliance referred to in Special condition 2(a) above.There was also a title emcumberance to do with an entitlement conveyed on the property via a will, however that was going to be removed.
Essentially after seeing this we sent it to our solicitors who, rightfully so, called a halt to proceedings until these clauses could be removed / drastically ammended. It was just too risky as they passed onto the Buyer (us) the risk that there will be an “unsatisfied judgement, order or writ affecting the property” + any other unknown unsavoury outcomes.
We lost this property to someone else who was apparently willing to sign with all these clauses included!???!!!???
Now…sorry this has taken until now…but my queiries revolve around the negotiation process. Specifically should I have pressed ahead and tried talking to the owner directly with or without his solicitor present to try to uncover the real story. I was happy to sign with the property not meeting the residential services Act as we were planning a substantial upgrade on the property however in no way could we open ourselves to the plethora of nasty possibilities if Clause 1 remained intact.
How would you have handled this situation?
Oh…The real-estate agent was not helpful chap.
Thanks
Ben
hi Ben Morris
the purchaser crosses out what he doesn’t like and then goes to bat on those issues so if you wanted it i would have spoken to the owners and then informed the solicitors.
I’m in for battle for 56k in gst as I crossed out plus gst as the owner said it was not subject to gst so I creoosed out all reference to gst in the contract we cross signed them. purchase the land and then fight the ato for my gst they then go back to the vendor(ex now as I own it)and get the gst off them its a fight but I think I will win and as I own it now they can’t ask me to pay it as it was part of the agreement.
so yes if it worth fighting for.
fight.
the best bits are the bits that you hadn’t budget for.here to help
If you want to get involved in some of the projects I’m involved in email to [email protected]Specifically should I have pressed ahead and tried talking to the owner directly with or without his solicitor present to try to uncover the real story. I was happy to sign with the property not meeting the residential services Act as we were planning a substantial upgrade on the property however in no way could we open ourselves to the plethora of nasty possibilities if Clause 1 remained intact.How would you have handled this situation?
Oh…The real-estate agent was not helpful chap.
Ben, this sounds like one of those deals where you need to read the documentation and be involved up to your neck before you can actually comment.
Firstly, if the property sold for what the Vendor wanted, I would suggest that the REA was very helpful. Remember who pays him. If you didn’t get your way with him, that probably means he’s doing a good job.
It sounds like you perceived a risk that was maybe there, and went to your solicitors who confirmed also that it was also a maybe…and then all of these big bad nasty things that can eventuate if a maybe comes up.
You mention clause 1, but don’t detail anything about clause 1. What did it say ?
You had 4 exclamation marks and 6 question marks against the statement that another buyer was willing to purchase with these added clauses, I have no idea what these clauses actually say, except 2a and 2b….but I can only surmise that they were not as scared of the maybe’s as what you and your advisers were….or perhaps they knew something that you didn’t….or perhaps they were the adjoining neighbours and were going to demolish it and use the land for some other purpose…or perhaps they were experienced operators in this field and knew the “maybe’s” that your solicitors were so scared of were a complete load of bollocks.
Best thing you can do, I suppose, is keep track of what the eventual purchaser does with the property and observe as a non-financial bystander whether any of these “maybe’s” that both you and your solicitors are so scared of actually come to fruition. It won’t earn you any money, but then how else do you learn.
Every property one buys has risks…if you continually run to your solicitors they will without doubt take you down the path of least risk. This invariably will translate into the path of least return.
Every investor must at some point (by my definition at least of an investor) shoulder the full weight of the decision to purchase or not. Advice is only advice, you must mull it over and see how it fits with your overall strategy / position.
Ben, you may have missed out on this perceived opportunity, their will be another. Personally I didn’t think the $ figures you presented were that crash hot on a nett level, and it looked like you needed to do a bunch of work and risk to get them.
Also remember that a few of these individuals have been playing these high level wily negotiation games for 50+ years. Their knowledge and cunning is staggering. Our group are mere pups going hardball with some of these guys. Alot of the times we get crushed too, but we dust ourselves off and get back in there butting heads with the stubborn ol’ buggers to close a deal we perceive to be OK.
In terms of removing clauses, everything is up for agreement…if the other party don’t agree, it either stays on or you walk away. I always console myself by calculating exactly what the dirt is worth…if it’s over 90% of the value you are paying, the clauses mean nothing to me.
This is where Mickey Mouse seminar tricks vs real world hardball negotiating separate enormously. We found “NO” to be a very powerful word indeed.
Keep looking mate, something else will come along that takes your fancy.
Hi Dazzling
Wow…thanks for the detailed reply. Clause 1 I refer to is the first ‘special conditions’ clause that the vendor added to the contract that then said that clauses7.4(1)(d), 7.4(2), 7.6 & 7.7 of a standard REIQ contract were to be deleted from the contract.
They read:
7.4(1)(d) there will be no unsatified judgment, order or writ affecting the property.
7.4(2) The Seller warrants that as the Contract Date and at settlement ther are no current or threatened claims, notices or proceedings that may lead to a judgement, order or writ affecting the Property.
7.6 & 7.7 are too large to re-type here but basically pass onto the Buyer other similar type of risks.I was just not willing to buy a property subject to these conditions without much further investigation and most probably negotiating a more accurate clause that better reflected the ‘real’ situation rather than these catch-all clauses.
I’m not that concerned I missed this one…I know there is always another deal around the corner and this one actually gives me motivation to continue my search because now I know good deals (cash flow +ve ones) can be found.
Once again..thanks for taking the time to reply.
I’ll be back
Ben
Ben
You certainly fin in Brisbane at the moment many vendors try and remove or insert conditions especially when it comes to development contracts.
As an owner of a boarding house or 2 in brisbane myself i certainly after Childers wouldn’t sign a Contract with a clause
“The Buyer acknowledges that neither the Property nor the Seller comply with the following;
:-Residential Services (Accreditation & Accomadation) Act 2002 & Regulation 2002″Remember there will always be another property around the corner.
Cheers Richard
Ph: 07 3720 1888
[email protected]
http://www.yourstatefinance.comSpecialising in US & IP finance.
Richard Taylor | Australia's leading private lender
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