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IP Repair during contract what could go wrong?

Discussion in 'Accounting & Tax' started by Subodh Shirodkar, 29th Sep, 2015.

  1. Subodh Shirodkar

    Subodh Shirodkar Well-Known Member

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    Hi
    We managed to secure a structurally sound IP in Brisbane; but with termite damage and few other issues that need fixing and repair of about 30K. The valuation came back saying "not suitable for renting". We are happy to fix the IP and get it back to rental standard.
    We therefore plan to have delayed extension and seek early access to the IP to fix it while under conditional settlement subject to Building & Pest and Finance.
    What could go wrong?
    - We may not get finance approval at the end.
    - Can the seller change his mind?
    - Could the seller litigate against us and ask us to return the property in same condition i.e prior to our repair if it is not settled.
    We are trying to get the contract suitably amended.
    Any tips / experiences or things to watch out for? Ideas are welcome.

    Regards
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Heaps can go wrong so make sure you get good legal advice.
    Vendor dies.
    Vendor refuses to complete
    Someone else gets priority over property (see Black v Garnock)
    Who is liable for issues relating from the repairs
    Insurance issues
    What if the toilet is stolen?
     
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  3. dabbler

    dabbler Well-Known Member

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    it is not the one that is 399 that someone else already let go due to same issue/s is it.......anyways......

    If something goes wrong while your doing this, such as further structural damage, you are responsible, if you fix it all up nice, vendor does not complete and says, thanks for fixing my place (not to your face of course) and your out.

    if it is not habitable, I would guess the lender wont count income from rent and value will be less in their eyes, if you can show you have the cash, they may think it is ok.

    Why would a vendor, or you, get into any major repairs with the finance all ok anyway ?

    I have risked painting and minor repairs where the majority is my labour, I would not be slapping down sizable sum of my cash to fix what is not mine.
     
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  4. Nemo

    Nemo Well-Known Member

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    Could you go 80% with a desktop valuation?
     
  5. wylie

    wylie Moderator Staff Member

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    Why not line up your tradies after settlement, ready to go as soon as you own it.

    We've done major reno before settling once to suit a holiday we couldn't change and we needed to get rent flowing as soon as we could. We ripped up carpet, painted, removed some fittings. We got vendor's written permission (avoided solicitors as they generally say no - and for good reason too). In the end we had spent $17K, removed a bathroom, installed a new bathroom, ripped out a wall. I was getting quite nervous because had we not settled, and whilst we had ripped out the horrid old bathroom, the vendor could have asked us to please install another bathroom, put back the wall, or after we installed a new one vendor could have said "thank you very much for the new bathroom, polished floors and lovely open plan layout".
     
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  6. Subodh Shirodkar

    Subodh Shirodkar Well-Known Member

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    Dear All,

    Thanks for the responses. The IP is good value and well located in logan shire. There is equity in it. We also own the next door block; Therefore could be good purchase from land banking perspective.
    The challenge is given today's lending market we have few lenders to go to & full valuation (perhaps a mistake) came back "not rentable".
    Anyhow, Nemo still trying my finance options. Wylie know how you must have felt, about to tread that path. Terry respect your views & knowledge working closely with my solicitors. Dabbler this is a cheapie low 200K 3+1 standard block.
    Thanks for all the tips and suggestions. Will keep you posted.
     
  7. Nemo

    Nemo Well-Known Member

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    I bought and renovated a place a couple of months ago. We got early access and permission to do certain things, like paint and clean. I also used the time to measure and order things like a new kitchen, curtains etc. I got a bit impatient and did rip out the old disgusting kitchen a few days early.
    Because the place was so disgusting and I didnt want to risk the valuation, I bought it at 80% so I could just do a desktop valuation, which stacked up nicely. The 20% was borrowed against another property, so still deductible.
     
  8. Subodh Shirodkar

    Subodh Shirodkar Well-Known Member

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    Hi Nemo,
    Thanks for sharing the experience. We are looking at a win win outcome. The seller has agreed for early access / complete cooperation for reno / repairs / delayed settlement. All subject to satisfactory Building & Pest and Finance approval.Their solicitor will also accept the amended contract with conditions. In lieu we will transfer initial deposit as they need to pay the same for their new purchase.
    Plan B is to keep equity handy to settle @ 80% if required or even at land value worst case.
    Unfortunately I am not very hand's on in doing the reno; but it's an experience that will be worth going through.
    Thanks again for the positive support.
     
  9. D.T.

    D.T. Adelaide Property Manager Business Member

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    If you had used a broker who structured the loan correctly, the valuer would have looked at the contract only and not at the property and none of this would have even come up.
     
  10. dabbler

    dabbler Well-Known Member

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    If you really want it, just keep getting other finance options, or come up with any shortfall & show a plan & funds for repairs (and that you own block next door and want to develop)

    good luck, there is usually a few hurdles here or there

    PS is it worth putting 30k into a place that you may knock down anyway seeing it is only at the 200k mark ? If it is not dangerous, maybe way lees is needed to make it a satisfactory rental ?
     
  11. Nemo

    Nemo Well-Known Member

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    If you havent already got a broker I highly recommend @Corey Batt He's fantastic. I couldnt have bought my place without him.
     
  12. Subodh Shirodkar

    Subodh Shirodkar Well-Known Member

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    Hi dabbler,

    Yes quite determined to get this through. Your though of trying to optimise the reno cost is also noted. Might try to convert this into a 4 bedder from a current 3 bedder

    Plan is to keep this house standing for few years hope to get a rent of 290 for a purchase price of 200 + Reno & closing cost.

    Thx.
     
  13. Subodh Shirodkar

    Subodh Shirodkar Well-Known Member

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    Thx. I do have a Ross from Aussie Parramatta on my side since past few years. No issues so far.
     
  14. Subodh Shirodkar

    Subodh Shirodkar Well-Known Member

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    I think in general what was possible few months back is not possible in today's market in terms of Finance.
     
  15. D.T.

    D.T. Adelaide Property Manager Business Member

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    The ability to have the valuer review the contract and not the property has not changed. You should have communicated with your broker that the property was in disrepair and he should have organised finance to suit.
     
  16. Subodh Shirodkar

    Subodh Shirodkar Well-Known Member

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    Yes Agreed. lesson learned. I also insisted on full valv as I wanted to be sure of finances.
     
  17. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    These sorts of deals the finance needs to be structured carefully to allow the right result.

    The policy around this hasn't changed with APRA - so definitely would have been prudent to utilise a lender with policy to use contract of sale/desktop for purchase.
     
  18. Subodh Shirodkar

    Subodh Shirodkar Well-Known Member

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    Lessons Learned mate. There is always a next time.

    Thx.
     
  19. wylie

    wylie Moderator Staff Member

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    Can you change tack and use a broker now and try to avoid a full valuation?
     
  20. Subodh Shirodkar

    Subodh Shirodkar Well-Known Member

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    Hi Wylie,
    Thanks for the concern. We do use a broker, but in our anxiety to be sure we asked for a full valuation.