I'm just re-posting this, in case people didn't see it first time round.
I am just wondering anybody out there has heard of a certain type of property investing that involves purchasing of 'lease rights'.
A friend told me that she has a friend who purchased an off-the-plan 'lease rights', say for $25K. After the apartments are built, the friend was told the apartment, for which she bought the 'lease rights' of, was worth $300K. So she on sold the 'lease rights' to someone else for $300K and made a profit of $275K!! Apparently the 'lease rights' allows the 'lease rights holder' to collect rent and the rent is one form of their income.
All this happened in Perth, I'm not sure whether it makes a difference.
The scheme sounds very 'funny' to me and neither I nor my friend understand what her friend is talking about anyway.
So, if anyone out there, has vaguely heard of such investment scheme, please enlighten me.
Sounds screwy.
I can only assume your friend actually bought a purchase option or simply signed an OTP purchase contract with $25k deposit.
Supposing a developer is building an apartment building where most apartments are to be valued at $250k. They'll try to sell as many units off-the-plan as they can, typically asking 10% deposit. Speculators who believe the value of the property will rise between signing the contract and building completion will purchase apartments using just the 10% deposit then resell at or before completion.
They might purchase 1 x $250k apartment using a $25k deposit. They might not even be able to get finance for the whole $250k, but can take a personal loan for $25k. They expect the apartment to be worth $300k at completion in 12 months time, so should be able to resell it, scoring a their deposit plus $50k windfall.
The risks in this strategy are as follows:
– The developer spends much of the deposit money, fails to construct the building, company declares insolvency and directors retire to their beachfront palaces.
– The speculator finds that the apartment has not appreciated prior to completion (might have been overpriced to begin with) or is even worth less than the contracted value. They cannot onsell the contract / option. Some developers might let them walk away from the contract and they lose their deposit. Others will pursue the failed speculator for the entire contract. This happened in Melbourne in 2004. People were forced to remortgage their homes and left with apartments worth less than they'd paid that they were unable to sell (bank wouldn't let them sell due to negative equity). Some didn't have the equity in their homes and were persued into bankruptcy.Hope this is useful and on the right track.
F. [cowboy2]
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