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No money down - Buying at 80% of valuation

Discussion in 'Property Finance' started by Melbpositivegeared, 10th Feb, 2016.

  1. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    Hey guys,

    I've come across 10 units, all already strata titled and renovated. To sell them quickly I'm negotiating with the owner to get them at 70-80% of the asking price (which seems to be exactly what equivalents are selling for) - I've also had the owner agree to pay stamps.
    These are in a "good" postcode- each unit is 48m2 internally plus has its own land and carpark on title.

    My question is- Can I complete this with no money down? Banks want to see funds to complete (I could have 20% dropped into my account for a few days- but I couldn't use it) - and banks generally won't look at valuation if this is higher than purchase price.

    Does anyone have suggestions for a broker that specialises in this kind of deal, or a lender that I could consider?

    I'm open to second tier lenders and private funding provided the interest rate is no higher than 7% (I know I can refinance 3-6 months down the track and be fine)

    My income doesn't support the size of the deal but at the price I think I can get the lot for they would be at a 9-10% yield and are all tenanted.

    If all else fails I'll bring on a JV partner- but id like to hear some creative suggestions first.


    One idea so far was to have the owner "gift" 3 of the units and sell the others at where there valuation sits - then use the equity from the 3 "gifts" to settle on the rest.

    Kickbacks of deposits or a second mortgage being "forgiven" could work... However I also want to make sure the deal is actually legal and I'm not committing fraud so I'd need to run these options past my lawyer....
     
  2. TMNT

    TMNT Well-Known Member

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    question, you said 70-80% of asking price,

    what is the market price of them individually??

    if the 70-80 price is what the market price, its hardly a great deal, excet for the SD
     
  3. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    You might get some love from a private funder such as La Trobe. I managed something like this years ago (pre-GFC). You'll pay a premium for it though, if it's even possible these days.

    The more mainstream lenders have a fairly firm policy of using the lower of the valuation or purchase price and they'll discount any rebates such as the stamp duty you mentioned.

    A couple of other things to consider (at least for residential lending)...

    ** Most lenders aren't going want to fund 10 units in a single development, this is an over-exposure risk from their perspective.

    ** If you don't have the income to support servicing, nobody is going to give you the money. The proposed rental income of the new property can be included in servicing, but it's a lot more complicated than just the cash flow of the property.

    ** 48m2 is a problem. This limits the number of lenders willing to even consider the deal.

    ** Just because you're getting a 20% discount on the asking price, doesn't mean you're getting a 20% discount on the property values.

    There was a recent discussion about stamp duty rebates or similar things. This sort of thing has one of 2 outcomes. Either you're committing fraud, or you can't get the finance. The bottom line is you need to come up with a deposit and purchase costs.
     
  4. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    My offer is at 70% of asking price. Asking price is bellow what other 1 bedders have sold for in the area, however others have also been I slightly better condition. I believe asking price to be pretty accurate- Rp data and investar autovals come in a lot higher than asking price
     
  5. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    The "proposed rental income" is actual rental - this property is 20 years old and fully leased - yield is 9-10% depending on final purchase price.

    It is not illegal to have the seller pay stamps- no law states the buyer has to pay- you just change the conditions of the contract.

    As for no bank lending to 10- that's ok - I can use 3 banks as it's all strata titled.

    They are not a high density development/ they are 10 units on single story on land. Once the court yard is included they are over 50m2 - I understand this restricts some lenders- but not all
     
  6. TaylorChang

    TaylorChang Well-Known Member

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    As far as I know, all the majors will not touch this type of deal.
    In the residential lending, I think, your chance to get funding is very low.
    You need to package up as a commercial or business lending deal.

    How much is the deal ? How much lending are you looking for ?
     
  7. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    If you disclose this arrangement in the contract, it's not illegal. However the bank will look at the contract and immediately discount the value of the property by the rebates. They'll then lend a percentage of that amount, you'll need to make up the difference with your own cash.

    The only way around this is to not disclose the arrangement in the contract, which is illegal. It also makes the arrangement unenforceable.

    By most lenders servicing criteria, a 10% yield is roughly neutrally geared because the banks factor in significantly higher repayments than what you actually pay.

    There's certainly ways to purchase this property, but you're going to have to come up with the deposit and purchase costs yourself. The floor space of the individual units means that there's a few lenders that would finance to 90%, but some of the units will probably need to be financed at 80%.
     
  8. TMNT

    TMNT Well-Known Member

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    the seller willing to pay for stamp duty to me sounds likethey are desperate.......

    whats wrong with just lowerg the price to reflect the stampduty ifdifference
     
  9. Marty McDonald

    Marty McDonald Mortgage broker

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    You need to consider why the vendor would discount 20-30% off market value and throw in the stamp duty as well. Either they are desperate for a quick sale for some reason (health, business failing etc) or you are not seeing something they can and it isn't the bargain you think it is..

    As per the lender options as Pete said ultimately the bank value is the price less any rebates so you need to fund to deposit and costs. 48m2 isn't an issue with many lenders though > 40m2 is OK with majority.
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Dont forget the stamp duty will be aggregated on the combined value not just the individual units x 10
     
    Leo2413, York and tobe like this.
  11. York

    York Finance Broker Business Member

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    Yep....stamp duty aggregation rearing it's head again...same transferor...simultaneously purchased. One arrangement.
     
    Last edited: 11th Feb, 2016
    Leo2413 likes this.
  12. Scott No Mates

    Scott No Mates Well-Known Member

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    A 30% discount to mv + stamps: sounds more like 30-40% overpriced especially if they're already strata.

    Sounds like you haven’t adjusted the asking price against comparable vals.
     
  13. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    I've offered to pay an extra $25k if they will pay the stamps as a way of what I thought would allow me to put in less of my own funds
     
  14. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    Thanks- I was under the impression that owner paying stamps would help me- if it doesn't then no need for that arrangement.

    They are desperate for the sale (elderly retired with a goal of travel) - it's been harder to shift than they imagined being under 50m2
    And with the area having an average days on market of 155- to get all the profit in I shot is much more attractive than waiting for 3 years to sell the lot.
    (Same product same spec X 10 is going to take a while)

    At least that's what I'm aware of- they were trying to shift them individually and I approached them for a large discount to buy as a bundle deal.

    Who knows what shows up in the DD phase- but I'll get to that in due time.
     
  15. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    Also discount is prior to throwing in stamps
     
  16. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    As in 20-30% discount - then pay an extra $25 to have stamps thrown in
     
  17. Melbpositivegeared

    Melbpositivegeared Well-Known Member

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    As mentioned earlier- the asking price is on the slightly lower side of what 1 bedders sell for- although they are a slightly inferior product to the comparables too. I believe asking price to be fair and accurate of the market.

    They were trying to sell 1
    - I approached them for discount to sell all 10.

    30% discount is the start of the negotiation - it's more likely that I'll get it at 20- the whole lot shifted in one go is very beneficial to them I. An area where average days on market is high
     
  18. D.T.

    D.T. Adelaide Property Manager Business Member

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    Where are they at, may i ask?
     
  19. SK Investments

    SK Investments Well-Known Member

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    Have you thought about a staggered settlement arrangement? Say 3 lots x 3 months apart or something like that.
     
  20. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    If you have the cash, or have mates that can stump it up, then chase hard and get the thing done


    If you need any form of borrowing above 60 % lvr

    No

    Sometimes brevity is the fastest way to a new achievable goal.

    Im all into possibility thinking, but the tipping point from impossible to invevitable looks to be on the wrong side here.

    ta

    rolf