A profitable game of property dominoes

A profitable game of property dominoes
August 1, 2018 Propertyology

Lots of properties are bought with a contract clause that makes the purchase conditional upon the sale of another property.

If you’ve ever been involved in a subject-to-the-sale-of transaction, you’ll probably already realise that they can be very frustrating. But, in certain situations, these transactions can create wonderful opportunities for skilled lateral thinkers.

The circumstances of this particular property purchase were such that it took lateral thinking (and patience) to a whole new level. There were not two, but three properties involved.

Picture this. Propertyology Head of Acquisitions, Bryan Loughnan, wanted to buy a property for their client but it was already under contract. The buyer had to first sell their own property. And, the owner of the property in question had also signed a contract to by another property. Three properties are involved here.

Confused? We are not surprised.

It would be easy to just walk away and find something else however, Bryan took on the challenge to secure a great opportunity for our client (and he won)!

 

Piggy in the middle

One of several locations that Propertyology is currently investing in is a particular major regional city and its outlook is really exciting. In mid-2018, Bryan saw a particular property on the market in this city with a list price of “Offers Over $319,000”. He approached the agent, only to be told it was under contract. As you do, Bryan moved on.

Some weeks later, after purchasing several alternative properties for clients, Bryan noticed that the same property was still advertised for sale. He found this quite strange given that this particular location has fast become a very hot property market.

With good quality properties hard to come by, Bryan again touched base with the listing real estate agent to get to the bottom of the story.

As it turned out, the property in question (“A”) was still under contract however, a condition of that sale was that the buyer first sold their property (“B”).

And, just to add to the complexity, the owner of Property “A” had found their dream home (Property “C”) and had signed a contract to buy it. Yep, you guessed it, that contract was also signed subject-to-the-sale-of.

Property dominoes anyone?

It’s hard enough finding, negotiating, and completing due diligence on a property at the best of times, so why would one want to make life exponentially tougher by entering in to an environment where there are already three parties involved and two signed contracts in place?

In normal circumstances we wouldn’t!

But this particular location has an incredibly exciting outlook, the growth cycle has just started, and Propertyology is keen to get as many investors as possible in on the action. Good properties have become like finding a needle in the haystack, but this property met our criteria.

Always one to see the opportunity at the other side of the challenge, Bryan was also acutely conscious that the owner of the property that we wanted to buy (Property “A”) was itching to move in to their dream home (Property “C”). The emotional state of the desperate vendor is something that Bryan could leverage off to get the deal done and at a good price for Propertyology’s client.

Bryan knew from the outset that it wouldn’t take much for any potential deal to fall over given the vendors contractually had to give their buyers a set number of days to “make good” if another offer came along. If that were to happen, he’d be left hanging after undertaking all the necessary inspections for nought.

So, he came up with a plan.

He knew the vendors of this property dearly wanted that dream home, but at that point in time no one’s properties were selling to make that become a reality anytime soon.

Everything was in limbo.

Propertyology’s clients, Helen and Brian, on the other hand, were qualified buyers who could be unconditional within two weeks after the necessary checks and balances were completed.

From his extensive experience and after drawing on additional information from his strong networks, Bryan was also confident that the property inspections wouldn’t bring forth any nasty surprises.

So, he made an offer to the vendor: “Remove your uncertainty by issuing your existing buyer (now) with a notice to complete their contract within 48 hours and then we’ll have our offer unconditional within 14 days.”

The vendor’s strong desire to settle on their perfect property sooner rather than later, as well as a contract price slightly above what they currently had on the table, meant they agreed to the proposal. Two days later their original buyers were out of the equation!

“I leaned heavily on the fact that if they wanted their dream home, we could get them unconditional within 14 days,” Bryan says.

“I said, ‘You could be waiting another three months for them to sell and / or you could miss out on your dream home if another buyer turns up’.”

Upon learning of the vendor’s unique circumstances, Bryan’s strategy involved playing on their emotions.

“I was able to solve one problem by forcing the termination of the contract from the other buyer. In doing so, I’d provided the vendor with the certainty they wanted, while we also went to contract on our needle-in-a-haystack property.”

A win-win-win

The Propertyology team oversaw the entire due diligence process and, within 12 days, Bryan was able to tell the vendor that everything was good to go. In turn, the vendor was able to go unconditional on their dream home, thus preventing other buyers usurping them at any moment.

A win-win-win for everyone!

The biggest winner of all was Propertyology’s Sydney-based client, Helen and Brian. They officially had their foot in a very exciting property market – the second property that they’d invested in different locations using Propertyology’s services.

Helen, who is an emergency nurse, says the couple were attracted to Propertyology from the outset because of their honesty, plus the depth of their research in locations all over Australia.

“It would have been a stretch to buy in Sydney and you have to think of your lifestyle. We didn’t want to be eating baked beans for the rest of the decade,” she says.

“I was happy with the location; I’d done a bit research. But it’s just so hard to do it on your own without all the other variables and all the other things that you don’t think to research about local government plans and infrastructure; you can’t really get your hands on that sort of information very easily.”

“It takes up a lot of your time and we both work fulltime. You just have to let the experts do it.”

Located in a central, family-orientated part of town on a 697m2 block, the 3-bedroom brick house is well presented, and is very low maintenance. The eventual purchase price was an incredibly affordable $324,000.

A good tenant moved in shortly after settlement and is paying $340 per week. The gross rental yield of 5.5 per cent means that, with a 90 per cent loan-to-value ratio, the all-up annual holding cost for Brian and Helen is less than $2,000. By the time negative gearing benefits are factored in, the property will be cash flow neutral.

Bryan says that the complicated deal was successful because he was representing qualified buyers as well as a firm whose serious runs on the board carried considerable weight during negotiations.

“It was more around the relationship with the agent and the fact that we’re not just a Joe Blogs who has come in off the street,” he says.

“We had a buyer who we insisted that they organised their finance beforehand. We were going to manage the entire process, and we could provide certainty to the vendor that the deal would happen.”

“None of the sales agents get paid until settlement – whenever that might have eventuated. I helped each party see that Propertyology held all the aces and, if they all played fairly, everyone would walk away happy. Otherwise, I could take my bat and ball and go home.”

“At the end of the day, my client now owns a cracker of a property in a very exciting location that they never would have uncovered on their own. That initial confusion and other moments of chaos were all worth it.”

 

Propertyology is a Brisbane-based buyers agency and (national) property market research firm. We help everyday people to invest in strategically-chosen locations all over Australia. Testament to our multi-award-winning success is Propertyology’s expertise in being the only company in Australia to forecast Hobart’s remarkable resurgence and begin investing there in mid-2014, before the boom. Now, while others fight like seagulls over a chip to get in to that market, our buyer’s agents are actively investing in a few other locations that resemble what Hobart looked like in 2014. Like to know more? Contact us here.

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