Join Australia's most dynamic and respected property investment community

Distress sale of off-the plan apartments. How would you play it?

Discussion in 'The Buying & Selling Process' started by RM1827, 18th Oct, 2015.

  1. RM1827

    RM1827 Well-Known Member

    Joined:
    29th Jun, 2015
    Posts:
    153
    Location:
    Sydney
    Hi All,

    An agent is offering me an off-the plan apartment in a building that is due to finish early next year. Talking to the agent I came to know the reason of selling is because the owner (probably an investor) can't find finance from the banks so is forced to sell. That is happening in at least three apartments in the same complex (2 towers, 5 stories each, 50 apartments in total, no pool, no gym).

    The asking price is at market value however since I know they are forced to sell before settlement I think it would make sense to offer low but how low should the offer be? I am not interested in off-the plan but it might be an opportunity to snatch something below market value. Established apartments in the area are selling between 650-720k. According to the RE agent,the owner signed contract around 580k 2 years ago.

    I am thinking to buy as OO with goal of rent it out later. Could this be a good strategy?

    I would appreciate your comments!
     
  2. Kangaroo

    Kangaroo Well-Known Member

    Joined:
    21st Aug, 2015
    Posts:
    254
    Location:
    Sydney
    Sounds good.
     
    RM1827 likes this.
  3. EN710

    EN710 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,130
    Location:
    NSW
    Contract price plus all costs that'll be incurred by the vendor once the place settle
     
  4. RM1827

    RM1827 Well-Known Member

    Joined:
    29th Jun, 2015
    Posts:
    153
    Location:
    Sydney
    Why contract price if the he/she should have paid at least 10% of the price of the apartment?
     
  5. Kangaroo

    Kangaroo Well-Known Member

    Joined:
    21st Aug, 2015
    Posts:
    254
    Location:
    Sydney
    It just depends how urgent the seller is . If urgent enough, they will accept anything. But my gut feeling is the best opportunity has not come yet, in 2016/17, there will be much more to be settled in Sydney. maybe wait a little while. Which suburb is it ?
     
  6. RM1827

    RM1827 Well-Known Member

    Joined:
    29th Jun, 2015
    Posts:
    153
    Location:
    Sydney
    I agree in that 2016/2017 it might bring more opportunities. However, how could you know when someone is selling because they are distress? This time the agent contacted me directly.
    I was thinking to make the offer closer to the completion of building so the pressure is higher and therefore more room for negotiation.

    Building is in the upper north shore.

    Edit: I just don't know how to handle this kind of negotiation and how low you could go.
     
  7. Kangaroo

    Kangaroo Well-Known Member

    Joined:
    21st Aug, 2015
    Posts:
    254
    Location:
    Sydney
    Love it. Pool seller and my heart goes with them.
     
  8. RM1827

    RM1827 Well-Known Member

    Joined:
    29th Jun, 2015
    Posts:
    153
    Location:
    Sydney
    Lol :p I think I am getting ruthless.
     
  9. EN710

    EN710 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,130
    Location:
    NSW
    I am assuming the seller will need to cover the shortage if you offer less. So if you're against someone who will at least cover the cost, easy to see who will get the property right?
     
  10. RM1827

    RM1827 Well-Known Member

    Joined:
    29th Jun, 2015
    Posts:
    153
    Location:
    Sydney
    Good point and I think even in that scenario might be a good deal considering rent in the area will make the property to have a 5% yield aprox....
    I just thought that if you cover, let say 60% of their deposit plus selling costs they will lose just a fraction of what they put down originally and I will get a bargain. I suppose that's the risk when you make low offers, you're always competing with other buyers that are willing to pay more or even pay market value. Otherwise, how people do it?

    When you say: 'costs that'll be incurred by the vendor once the place settle'.. Which ones exactly are you talking about?
     
  11. EN710

    EN710 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,130
    Location:
    NSW
    @RM1827 re cost after settlement - selling cost I assume, and stamp duty, lawyers, etc. I assume he needs to settle first before selling, I.e. He needs to pay stamp duty.
     
  12. alexm

    alexm Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    305
    Location:
    Sydney
    If they contracted to pay $580k then why not offer them $500k? If they reject then walk - it's pretty simple.
     
    RetireRich101 likes this.
  13. RM1827

    RM1827 Well-Known Member

    Joined:
    29th Jun, 2015
    Posts:
    153
    Location:
    Sydney
    If I pay his stamp duty plus all costs plus my stamp duty then it won't make a good buy imo...
     
  14. RM1827

    RM1827 Well-Known Member

    Joined:
    29th Jun, 2015
    Posts:
    153
    Location:
    Sydney
    These are my hubby thoughts :rolleyes: but I just think is too low.I think if he/she can't get finance with the bank for lack of funds or serviceability issues then it won't probably have to cover that shortage otherwise will continue with purchase...
     
  15. EN710

    EN710 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,130
    Location:
    NSW
    I mean e.g 600k offer (if that's still far below market value). Not covering his stamp duty in cash.
     
  16. RM1827

    RM1827 Well-Known Member

    Joined:
    29th Jun, 2015
    Posts:
    153
    Location:
    Sydney
    Got you...do you mean make an offer that will cover part of its costs but low enough that I will still be below market value?

    Old stock are selling around 650 - 720k now at the peak. If in coming years there is a correction lets say 8% that would make property closer to that offer.
     
  17. EN710

    EN710 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,130
    Location:
    NSW
    Yes, but hey, if you can get far lower then might as well :p
     
    RM1827 likes this.
  18. sanj

    sanj Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,148
    Location:
    Perth
    It was said above that similar apartments are selling for 680-720k and there are still a few months before settlement, why would the owner accept a 40% discount?
     
    Esh and RM1827 like this.
  19. alexm

    alexm Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    305
    Location:
    Sydney
    @sanj Why not make a low ball offer if the vendor's are desperate to sell?
     
  20. EN710

    EN710 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,130
    Location:
    NSW
    In each scenario, vendor would lose his deposit. On $500k sale, that's the 10% deposit and more. So, in that occasions, he might as well default. Low balls are ok, however there's a limit on how lowball it can be.
    Seller is selling because they want to accept an offer. If you make your offer totally impossible to accept, then you won't get the property.
     
    Last edited: 19th Oct, 2015
    sanj likes this.