How to save $100K on a new apartment

They need to be on here getting edumacated

They also need to be on here getting edumacated

Circa 400k would be the cost Im guesstimating.

 

A couple of things, from my perspective the risk in the apartment market and to some degree houses (at least the ones which won't lend more than 70-80%) is in the area of OTP.

In some developments you have had a lot of overseas and local buy at the margin...in other wards they expected it to go up. A lot of banks now will only take the actual val settlement..not the end value.

So lets so a developer sells 70% OTP ....and the rest he has kept for employees, family or to seel on completion.

Where the contagion will spread is when lets say 10 OTP buyers fall over due to vals....the developer is in deep poo...because the developer is exposed. He/she can ride it out for a couple of months after that Mr Banker will pull the rug from underneath from him...and in march the receivers.

At this point it becomes a fire sale...because the banks would had the hurt money from the developer (typically 10-15%)....as 20-25% is profits. The banks could easily sell say 500k units for as low is 350-400k as they are only interested in minimising their loses.

This is how I picked up my Central Coast property for a bargain of 232k when it should have sold for 300k.

 

The trick is getting in on the know when the deals arise. I was chatting to someone the other day that said they knew someone who underwrites development sales. So a developer sells say 70% of a development OTP to Chinese, and the bank won't finance him as sales are too risky, so dev goes to this guy who guarantees the sales with the bank. He gets a fee say 10%p.a. on the guarantee amount and if the sale falls over he has to buy at 80% of the sale price.

 

Mezzanine finance??

 

No different to mezzanine finance.

Mez is just lending at high rates for low security. Like 20% and second mortgage.

This is guaranteeing foreigners will settle and getting paid a interest rate on the risk, and given a predetermined discount if the guarantee is called upon. A bit like a put agreement with a strike price agreed and a fee for entering into it.

 

Interesting...let see if this was used by developers in Sydney and Melbourne....

 

This was one Melbourne development, but I imagine it's not the only one.