Hi all,
This thought was straight out of Steve’s book “Millionaire”. I was scanning thru it and noticed I’d written the word GOLD in the margin, so I spent a bit of time fleshing out the idea Steve provided. As the title says, it is well worth a reread – the whole book of course, but also this post linked below:-
Let me know what you think, especially if you disagree ! ;)
Benny
Thanks for digging that post out again, Benny – the bit I keep coming back to is the test rather than the arithmetic: is the discount measured against what comparable stock nearby actually settled for, or just against the vendor’s asking price? If it is only against the asking price, then the whole return-on-cash case rests on the refinance valuation landing where you bought, which is really a bet on the location and the rent holding up rather than on the deposit trick itself. Before committing that much cash I would want three things written down: the vendor’s concrete reason for needing a fast, certain settlement, an independent rental appraisal supporting the income I am counting on, and a lender confirming up front that they would lend against that value. Miss any one of those and the bigger deposit is just buying a story, however good the arithmetic looks on paper. Great thought to have in the margin though – and asking costs nothing.
Hi Relax,
Before committing that much cash I would want three things written down: the vendor’s concrete reason for needing a fast, certain settlement, an independent rental appraisal supporting the income I am counting on, and a lender confirming up front that they would lend against that value.
Good points made there. Although I didn’t go into the part about comparable stock nearby, or vendor’s price, I am sure Steve’s original action would have been to determine what price fits with his parameters, and do a mini “due diligence” to know a property is even worth a deeper look. Then as part of negotiations, the discount idea would likely come after knowing more about “reasons for selling”. i.e. sometimes a vendor will be anxious for “Any offer” just to have a crack at stopping the pain (whatever that is). Some might be losing buyers if the settlement needs to be quick, or if a house needs a whole lot of work of one kind or another.
Knowing the seller’s hot buttons would alert a buyer to their needs, and a quick sale or a “cash only” sale would be a prime candidate for a discount offer. And of course, as per Steve’s “STEPS” procedure, a full due diligence clause would form a part of the contract, even if quicker than usual to fit within the “30 day settlement” window.
Re your third point (the lender providing finance) – I’d think that is of less importance than the other two points. I mean, what lender would not jump at finance for a 50% LVR loan? It is a pretty good “asset based loan” so any lender would have comfort in that, except if they needed to sell to get their $$ back – they don’t like doing that, so they would look at your DSR pretty hard to eliminate that risk eh?
In the end, it is still great “food for thought” eh?
Benny
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