Bought our first trade!!

[moovet]

Hi all,

Have just secured my first property to trade today. Structures are getting sorted and have clause in contract that Vendor agrees to allow purchaser to novate any nominee or entity. Have got 6 weeks to settle, access prior to settlement for renovations and 18% below valuation. It is a 1960's 2 story 3 bedroom with a huge rumpus room downstairs I can make a couple of bedrooms out of and an extra bathroom. It has some ongoing repairs and maintenance issues eg Leaky roof but I have budgeted for those worst case scenario etc. The decor is dated but carpets are excellent which is a bonus. SO it will need to repaint walls and modernise upstairs kitchen and bathroom. Create 2 rooms downstairs and toilet and shower room. I have budgeted $40000 worst case scenario to do the repairs and modifications and with this I should still make $30000 net if it is on the market for 6 months and sells at the bottom of the range including holding costs. Not a huge profit but our motivation for our first trade was to pay for our wedding in November.
No doubt I will be asking plenty of questions to those that do a lot of this.
First question: The local council requires consent for undertaking the room conversion and shower below so my first question is do I need an architectural draughtsman for that or can I submit that myself to the council. I need it ASAP so we can get to work before the settlement date.(currently 5 weeks turnaround time for consent to go through).

Cheers in advance

Geoff

[Dean@Massiveaction]

Hi Geoff, first thing is to check that you are not unconditional on the contract prior to your trading trust being set up. Sounds like you are and if so the nomination/novation clause won't help you. You will get screwed when you get audited as IRD will decide that a second sale has taken place. They will not allow you to claim the GSt but will still requitre it to be paid when you sell. If you have done this get some professional advice IMMEDIATELY to see if you can be rescued. Matthew Gilligan or Garth Melville would be your best bet. I hope I've misread your post and you aren't in this situation but it reads like you are.

[David_W]

Wedding funds...

Moovet - I think you may still be able to have a great wedding from the profits of this trade. Unless you are a skilled draughtsmen yourself. I would firmly recommend that you engage an architect to do it right (hopefully first time).

Under the reasonably new Building Act 2004 even small modifications can become major problems, and you will require building consent for what you mentionned. Contact an architect immediately.

From my previous life as a tax solicitor, I concur with poomba that you seem screwed for GST in the event that you are unconditional in a non GST registered entity already. Do see an expert like Matthew Gilligan or his legendary sidekick Anthony Lipscombe, or Garth Melville as soon as possible!

[moovet]

Poomba, we are conditional on this contract at the moment. One of the conditions is the vendor agreeing the purchaser to novate any nominee. Now the trust is set up and we haven't instigated any GST-related activities we can novate to the trading trust before we go unconditional and before we activate the time of supply. No deposit has been paid either. So I am premature in my enthusiasm. I more correctly should have said we have gone condtional on our first trade!!

Cheers,


Geoff

[revdev]

we are conditional on this contract at the moment.

"collective sigh of relief"

[McDuck]

Sounds like you got a good deal there.

Your plan to add value is also clever.

As for the roof...water is a crazy thing when carried by wind...it can creep from the strangest places.

What I'm trying to picture is the look of mom and pop home owner when the contract returns with the words
"novate any nominee".....does that mean he wants the garden shed as well?

[Stevegoodey]

Ya hooo

Sounds like it could be a sweet deal.

Let the games begin.

Steve

[moovet]

THanx for the comments guys. Will see how we go. This is my first one so no doubt mistakes will be made but hopefully minimalised. Will wait till the fat lady has finished the final aria till I get really excited.
Biggest problem so far is finding an draughtsmen to draw up plans for the conversion downstairs. They are all busy for months it seems. Wish I had the skills to draw it up myself.
Struck it lucky tho' with the building inspector. Was going to call him out on a Saturday but he wasn't too keen about working a weekend. Then he realised he had just done an inspection on the same property a week ago so has given me that report for free to keep his weekend free.

Turns out there is less to do to the place than first thought too.

Cheers,

Geoff

[Edinburgh]

Geoff

I am interested in your purchase - 18% below valuation is good going.

Where abouts is it and what were the factors in you achieving this price, including the vendor's motivations?

Thanks.

[moovet]

Motivated vendor commited to buying another property and had 3 offers fall through on a builders report for this place. Went to multiple offer situation at same price but other buyers not prepared to negotiate. I paid 5K more but got access prior to settlement, novation clause and a few other extras.
Property is in Levin. Not best market perhaps but the location for the property is one of the best in town with surrounding properties in high 200's and there is also subdivision possibility. I will leave that for the next person. Back section of ~900m2 with house located to one end of it. There is actually potential to get 3 income streams if built a dwelling at other end and self-contain lower level but I dont think it would be worth it in Levin.

[drelly]

Sounds great. There are lots of investors out there looking for subdivideable properties!

[moovet]

Feeling Stupid!!

Hi all,

After my initial excitement at negotiating this deal 18% below, getting my structures set up etc I have struck a snag that I can't see me solving before I go unconditional tomorrow.
I had rung every builder in the area prior to going conditional and of the 5 that said they were available for the time I wanted, 2 pulled out early which left me three that all promised they were free for the period I wanted them for after they looked at the job in question. Just heard from the last one today that they wont be able to start for a minimum of 3 months now when I only have 1 month to settle. That greatly increases my turnaround time and decreases any profit. Cant get extension because Owner is wanting to move into another house on same settlement date. Real bugger.

Thought I had this problem licked by having 5 different builders saying they were free expecting 1 or 2 to not turn up pull out etc. The quotes came in under budget but dont leave me with much contingency if it doesn't sell within 6 months from settlement. Even had a draughtsmen booked next week to do the plans and they are 3 months booked out.

I have run out of ideas to salvage this deal unfortunately so will have to walk away again and keep looking unless someone has a brainwave or can do the work themselves in the Levin area.

Better luck next time eh

[SuperDad]

Hi Moovet,

There is a bright side to this - you have given yourself the ability to walk away from the deal, and the builders have let you know of their unavailablity before the deal goes unconditional. Whew!

How wedded are you to the idea of having the proceeds pay for your wedding? The reason I ask this is that the following possibility occurs to me - you could let the property short-term while waiting for builders to come available, and the rent will subsidise your holding costs. Then you will get to do what you want to do to the property which, as drelly points out, sounds like a good deal. You have done well to negotiate the good purchase price, and you have put a lot of time and effort into research - maybe you can still benefit from that. (Of course, this isn't by itself a good reason to stick with the deal - I'm just thinking of an angle here.)

Of course, it all depends on what your primary goal is here - paying for a big wedding in November, or doing a good property deal. I know which I would choose, but then again I got married in my lounge, for less than $1000 (including wedding rings!).

All the best with your decision making, and thanks for keeping us updated on your progress (as frustrating as it may be). I'm still looking for my first trade, so your story has been both interesting and useful.

Kind regards,

Paul.

[cube]

A Brad Sugars 'strategy' - tell the vendor that you have to pull out UNLESS the price is reduced by $x (where $x covers at least some of you extra holding costs).

If they have mentally moved to the new place, then they may be willing to negotiate the point.

cube

[Cliffy]

you could let the property short-term while waiting for builders to come available

Another angle (depends on extent of reno) - let it to a builder looking to make some extra money. Have him do the work while living there for a lowish rent and then split the profit with him on sale.