Delayed Settlement

Discussion in 'The Buying & Selling Process' started by Ketsle, 12th Dec, 2018.

Join Australia's most dynamic and respected property investment community
  1. Ketsle

    Ketsle Well-Known Member

    Joined:
    3rd Sep, 2018
    Posts:
    424
    Location:
    Perth
    Hi all,

    Am curious to hear from anyone that has negotiated a delayed settlement on the purchase of a property. If you wouldn't mind sharing what you did and/or why you did it that would be great. @NHG I remember you saying something about this?

    More-so general advice on what can be done and what you can get creative with. Hypothetically speaking there is a property im looking at that is subdividable and ticking many other boxes, however probably not within my means to jump in in 2018 but early - mid 2019 would definitely be possible.

    Thanks in advance
     
  2. Ricki barkham

    Ricki barkham Well-Known Member

    Joined:
    16th Aug, 2018
    Posts:
    300
    Location:
    Pakenham
    I think you can only get a 30, 60 or 90 day settlement.

    But can't you negotiate with selling party for longer
     
  3. NHG

    NHG Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    640
    Location:
    Sydney NSW
    I asked for it.

    Property is pretty straight forward.
    Humans make it complicated.

    I'm not aware of a limit. I recently asked for a 2 year delayed settlement which the owner was happy to accept (changed my mind - property is positive geared in Sydney).

    I have done a 6 month settlement previously. Owner wanted to find a place for his mum, I wanted to put a deposit together. I ended up buying another place and moving his mum into it. Win-Win.

    Mate did an 18 month delayed settlement with a clause for early access. She renovated 6 of 8 units in the block, and used the equity uplift as the deposit.

    You can do anything your mind can think of. As long as the other party agrees to it and is deemed legally fit.

    For your deal, try looking at placing an option on it.
    Use the say, 6 months to get the DA through and source a money partner.
    This is not advice, just stating what is possible. Lots of pros and cons to this.
     
    Last edited: 12th Dec, 2018
    craigc, Brady and Ketsle like this.
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,675
    Location:
    Australia wide
    There are no time limits. Many have done 30 year settlements in fact.
     
    Ketsle and Toby like this.
  5. Ketsle

    Ketsle Well-Known Member

    Joined:
    3rd Sep, 2018
    Posts:
    424
    Location:
    Perth
    Thanks, I guess im just curious as to how to word it. "Im interested in this but i cant pay you for 6 months until i can muster up a better deposit", what's the incentive to the seller? Or should I say, what are some things you can say to the seller to motivate them? Just something i've never experienced before so coming in totally green.
     
  6. NHG

    NHG Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    640
    Location:
    Sydney NSW
    I have a funny perspective on this.

    I see it like dating a girl.
    You can do all the song and dance you want.

    If the girl ain't interested, she ain't going to say yes.
    There is no magic combination of words to convince a girl to date you.

    It has to be something you both want.
    What you can get better at, is working out if she's interested.
    Talk to her friends (agents), ask good friends for advice (your professional team), work out if she's the right fit for you (do your DD).

    Really all you can do is ask.
    Confidence goes a long way.
     
    Last edited: 12th Dec, 2018
    Brady likes this.
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,675
    Location:
    Australia wide
    You could say that you are interested in moving in, but need to sell another house first.
    Or getting an inheritance in 6 months
    or a pay out from a divorce settlement
    or getting sentenced to 6 months imprisonment
    etc
     
  8. thatbum

    thatbum Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    5,792
    Location:
    Perth, WA
    What's the incentive for you by the way? I can't think of many scenarios where it was clearly in my interests to have a long settlement for whatever strategy I was using for a property I've purchased.
     
  9. jazzsidana

    jazzsidana Well-Known Member

    Joined:
    27th Jan, 2018
    Posts:
    459
    Location:
    Melbourne
    No limit whatsoever ..

    In this market sellers will surely consider longer settlement (works in their favour to some extent)!.. I have done 4-7months settlement in past.

    Just be mindful, if borrowing money from bank and circumstances change (not in your favour), that can be worrisome ...
     
    Last edited: 13th Dec, 2018
  10. Westminster

    Westminster Tigress at Tiger Developments Business Member

    Joined:
    3rd Jun, 2015
    Posts:
    11,331
    Location:
    Perth
    It's certainly possible but you need to consider many things - here are some but there are many others

    1. what would make your offer more attractive to the owner than a standard one. This generally means working on finding out their motivation and giving something towards that motivation. Generally it's a higher $ amount for them to put up with not getting their funds, continuing to pay their mortgage etc
    2. the longer the settlement the longer a subject to finance clause would need to be and this makes it even less attractive to the seller. If you wanted to get a longer settlement then you need to be strong in other areas and that increases your risk if you decide to go with a cash/not subject to finance clause
    3. an increased deposit is often required to make it attractive to the Seller so that if it does fall over they can keep that money for all the money they will have spent taking it off the market and maintaining it (mortgage etc). Again this is risk to you that you may need to walk away from that money

    The upsides
    1. you can work on getting a DA during the long settlement. I've had DAs approved before I've settled on properties which is a nice to have (does need permission from Seller to do so)
    2. you can save more deposit, get into a new financial year, get your annual bonus etc etc things that help your serviceability if that is what you need to get a new mortgage over the line

    Creative thinking for situations like this
    If possible in your situation make 2 offers, one that is lower with a more normal settlement of 60-90 days. One that is higher with a settlement of 120-150 days.
     
    wilso8948 likes this.
  11. Bonz

    Bonz Well-Known Member

    Joined:
    23rd Oct, 2015
    Posts:
    144
    Location:
    Fremantle
    In a falling market, an option to purchase in two years time at the then market value be the way to go. Can’t see the vendor jumping at that kind of deal, but if you don’t ask you don’t get:)

    Alternatively lease it for a couple of years with an option to buy
     
  12. Ketsle

    Ketsle Well-Known Member

    Joined:
    3rd Sep, 2018
    Posts:
    424
    Location:
    Perth
    Thank you all for your responses they've been great.
    @Westminster pretty much hit the nail on the head with this one below, which is what i was thinking. I guess the general hypothesis was to potentially 'secure' a site that you've seen with good potential or at least get it under offer with a lead time to getting more funds together.
     
  13. New Town

    New Town Well-Known Member

    Joined:
    8th Sep, 2015
    Posts:
    743
    Location:
    QLD & NSW
    I negotiated a 90 day settlement once for no other reason than commercial advantage but wouldn't do it again. The problems included paying stamp duty (and insurance) for a property that you did not yet own. The stamp duty was payable on day 40 I think. And general anxiety of what could go wrong while waiting for the days to tick over.
     
  14. New Town

    New Town Well-Known Member

    Joined:
    8th Sep, 2015
    Posts:
    743
    Location:
    QLD & NSW
    Before you do that read the story of pub owner Justin Hemmes at the Coogee Pavilion. Spent millions on a renovation - then had the owner try and rescind the agreement for some late rent payment
     
    NHG likes this.
  15. neK

    neK Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,842
    Location:
    Sydney
    Interesting....
    How would stamp duty be calculated ?
    Today’s value (date of contrast) or the market value in 30 years time.
     
  16. NHG

    NHG Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    640
    Location:
    Sydney NSW
    Thus my disclaimer.

    Also recently heard the opposite.
    Person took over a property and did a shoddy job.
    Didn't purchase it and left the original owner with I think it was $100k worth of damage.
    Though I'm told there is more to the story.

    You play in creative spaces, you can make magic happen, and also create disasters.
    I too have my own burn stories. Why do I do it? Because it's fun. Like playing with lego without the instructions.

    Not sure I would place a straight forward delayed settlement in that space though.
    Just a tactic to secure a property and source funding over a longer period of time.
    Benefits to the owner may be, property purchased at asking price, or they haven't found a new home yet.

    Perhaps they simply like you and aren't dependent on the monies.
    Just saw a potential PPOR a couple of weekends ago.
    Owners moving to Melbourne.
    Work is putting them up rent free for a year whilst they find a new home.

    That's 12 months I could leverage to get a delayed settlement as the home is $200k above my budget.
     
    Last edited: 13th Dec, 2018
  17. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,675
    Location:
    Australia wide
    In NSW it would be calculated on the exchange date and payable within 90 days.
     
  18. NHG

    NHG Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    640
    Location:
    Sydney NSW
    Is this an inheritance play?

    Isn't stamp duty due at exchange of contracts, or close to?
    I thought just prior, or up to 3 months after without incurring interest charges.

    What could go wrong? Insurance for fires...
    Perhaps if the vendor is about to go bankrupt...
     
  19. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,675
    Location:
    Australia wide
    not sure what you mean by inheritance play?

    Stamp duty is payable within 90 days of contracting in NSW, except for off the plan.
    contractor could take insurance as they have an insurable interest
    a buyer would have an equitable interest at exchange and could lodge a caveat to give them some priority over others, but it would potentially get messy if the vendor went bankrupt.
     
  20. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,675
    Location:
    Australia wide
    Oh and a common 30 year settlement period used to happen when purchasing a property via an installment contract. 30 year settlement with payment in stages.
     
    NHG likes this.