Heres the deal…. 5% deposit to secure a 3 storey townhouse at a fixed price, settlement to be in 2 years.
Plan is to use equity for the deposit and then onsell the property before settlement at a profit – have 2 years for the market value to go up.
I got hold of a proposed price list from one of the directors of the investing company, contracts will be available in about 2 weeks.
How do i onsell the contract at a profit? What are the main things i need to consider?
Can provide more detail if needed.You can onsell the place like a normal sale. But I beleive the vendor must allow this in their contract with you.
Settlement cannot occur until the place is complete, so your deposit will be tied up, and the deposit you receive will also be tied up until then. Also, the profit will be tied up too.
Think of the risks involved such as the property not going up in value, or even decreasing.
Watch out for sunset clauses. Some contracts have a clause where if the project is not complete in XXmonths, then either party can pull out. Some developers deliberately go slow if they know the market has risen. They then get the property back by rescinding yours and resell at a higher price to someone else.
And think about the opportunity costs. You will have your deposit tied up for 2 years and you will be thinking about qualifying for finance for 2 years, so this may mean you miss out on a few deals in the mean time.
Terryw
Discover Home Loans
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Hi rmcdonald,
Instead of putting in 5% deposit, try to negotiate 5% deposit bond. The bond will cost you few hundred dollars (may be close to a grand) but leaves your 5% equity deposit with you.cheers,
Sanjiv Gupta“There is no passion to be found playing small – in settling for a life that is less than the one you are capable of living.†– Nelson Mandela
One of the downsides with long term deposit bonds is that you will require assets equitang to upto 6 x the deposit bond amount in order to qualify.
For many individuals this is not achievable.
As Terry said if you tie the cash for that period of time you are likely to miss out on a lot of other deals that come across the table.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
New Shared Equity scheme has arrived – Email us for details.Richard Taylor | Australia's leading private lender
But he has the option of selling the property at any time during the 2 years if it looks like he could make desired profit venturing into other deals.
also, never buy off the plan if you cant afford to buy it in two years time.
i understand you are going to try and flip the property, nothing wrong with that. however if you cant onsell it you must be able to buy it. i've seen more than one person get caught like this!enjoy
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