Paid 10% on lot purchase. Can't get finance.

nansnake on 06/05/2019 - 17:19

So, here is the situation.

Two of my friends and I paid 10% deposit on a lot (for investment) in an area in Melbourne which was seeing major price growth. We paid it off using credit cards/balance transfer. We were expecting the steady price growth to continue, which obviously didn't.

The plan was to sell the lot to another buyer once there was significant price hike, before getting to settlement stage.
But, as things are looking now, there are very few buyers willing to buy this property.

We also tried going to the bank desperately hoping to secure the loan, but our pay & financial situation isn't up to the mark for a finance.
The contract is in my name, and I signed it on behalf of my friends. The settlement is in September 2019.
Is there any way to get out of this situation without crucial burns? (I've heard of developer suing for their loss and stuff).

PS: We had huge education loans to pay off (not HECS), and that's why we undertook this bold move, which backfired. (Please don't throw hate speech at me for this, but the idea seemed very reliable at the time of purchase).

Financial

Comments

  • chuckles89 on 06/05/2019 - 17:23
    +19

    yikes. considering that settlement isnt till approximately sept. you would be best off just selling at a loss, cut your losses.

  • Baysew on 06/05/2019 - 17:24
    +2

    Lender of last resort - Bank of Mum & Dad.

    • Downvoter on 06/05/2019 - 19:49
      +11

      Fantastic. Financially burden the parents due to irresponsible fiscal endeavours. They’d love that.

      • [Deactivated] on 07/05/2019 - 08:00

        Worked well for Donald Trump

    • nansnake on 06/05/2019 - 22:17
      +5

      I wish I could, but kind of think its morally wrong.

    • JIMB0 on 06/05/2019 - 22:39
      +2

      Lender of last resort would be bikies.

  • [Deactivated] on 06/05/2019 - 17:26
    +5

    Just have to cop a loss. Learn. Move on. Smile and wave.

    Understand if you don't want to answer but what is land size and location? Is it a more desirable block in the estate?

    • nansnake on 06/05/2019 - 22:22
      -1

      It is a 400m2 land without easement in werribee area. Shopping centre and public transportation very nearby.

      • Zachary on 15/05/2019 - 16:34

        …wow that sounds big…..must have cost a lot………shame it didn't turn out right……dunno who negged you for providing further details though…..

  • OpenHand on 06/05/2019 - 17:29
    +4

    Same thread came up on AusFinance a while back. See advice there:

    https://www.reddit.com/r/AusFinance/comments/agfp1x/i_made_a…

    https://www.reddit.com/r/AusFinance/comments/ap0xnk/update_i…

    Read them both: the guy came back with an update after deciding to forfeit the deposit.

    • xuqi on 06/05/2019 - 17:48
      +4

      Geez what a dumb, greedy dipstick:

      "The big problem I have now is I'm fearful of investing. I haven't told you all before but I lost 7K last year on bitcoins. My wife doesn't trust me with money anymore and she's not convinced of ETFs too. So I don't know what to do with my money other than to keep it in a HISA.

      It's funny I decided to shell out 7k last year to my friend to invest in WANCHAIN even without knowing what a bitcoin is or what the hell that I'm supposed to do with that. I convinced my aunt (7K) and uncle (3K) to invest along me and invest they did. Good thing is atleast they are not mad at me for losing all their money but blame themselves for their greediness. My friend losing all his 10K doesn't comfort me though."

      • pais on 06/05/2019 - 19:51
        +12

        The big problem I have now is I'm fearful of investing. I haven't told you all before but I lost 7K last year on bitcoins. My wife doesn't trust me with money anymore and she's not convinced of ETFs too. So I don't know what to do with my money other than to keep it in a HISA.

        My wife wouldn't trust me either if I gambled thousands of dollars away.

        • zathras on 06/05/2019 - 23:33
          -4

          If a tree falls in the forest and your wife doesn't hear it, does she ever find out? Only if you're a dumb-ass.

      • [Deactivated] on 07/05/2019 - 10:30

        In every bet there is a winner and a loser. Every gambler loses. Don't beat yourself up over it.
        The most popular gambling is stocks (not cfds), and realestate. Businesses are much more risky.
        Learn time proven investments, don't do quick money bets, and you will gain confidence and your family in you.

        The above might sound corny or insulting but everybody gets tempted by a sure thing. I learned my lesson about 20y ago, and never gamble without research and sound odds.

        Put it on black :-)

  • websterp on 06/05/2019 - 17:31
    +1

    A similar post was in OZB few months ago - See the discussion here

  • djkelly69 on 06/05/2019 - 17:32
    +17

    The contract is in my name, and I signed it on behalf of my friends.

    The contract is in your name only?? If this is the case, your friends don't have a problem, you do.

    • nansnake on 06/05/2019 - 22:22
      +1

      Yeah, it is in my name only.

      • [Deactivated] on 07/05/2019 - 10:35

        Are they going to own up to their rightful loss?

        • TheBilly on 07/05/2019 - 15:44

          I think they have forked out to him via credit cards and the like so no name but still screwed

  • Sergeant Salami on 06/05/2019 - 17:38
    +1

    How big is the block and what area?

  • wei13 on 06/05/2019 - 17:42
    +1

    What does your contract say? I am guessing you'll either forfeit the deposit, or as other mentioned you can try to sell for a lessor loss.

    Yes the other party can sue you for breach of contract. But it's usually easier for them to take the deposit and resell to someone else, especially if you have nothing to sue for.

    Also can try to talk to developer, advise you are unable to finance, and see if you can just forfeit part of your deposit.

    • Chandler on 07/05/2019 - 11:35

      What does your contract say?

      This. If what you said (OP) is true:

      financial situation isn't up to the mark for a finance.

      Then I hope your contract has a subject to finance clause, and as wei13 has said, you'll probably lose your deposit (again, depending on what the contract says).

  • mskeggs on 06/05/2019 - 17:47
    +2

    It seems as though you do understand the issues involved.
    As you allude, the vendor may seek to force you to complete, or sue you to regain any losses if they can't sell for enough to recoup the original price.
    You will be the solitary target of any action, and would then need to convince your friends to fulfill their part of the bargain - likely to be impossible if they are unwilling.

    I have heard rumours of this happening to other international students (assuming your situation from your comment on education debt) who are simply returning to their home countries, as it would be impractical for the vendor to pursue them there.

    If you have no options, you might as well wait until September - it is not impossible the market might have improved (albeit unlikely, I think).

    • xuqi on 06/05/2019 - 17:49
      +5

      Highly unlikely that the market will improve given the current outlook.

  • thatonethere on 06/05/2019 - 17:49
    +2

    Try going to a mortgage broker rather than just one bank.

  • Azrael169 on 06/05/2019 - 18:00

    Are you working? are you sure you cant get finance? Try a mortgage broker. If you got a job today that's enough working history come September for some of the lenders out there to get the loan.

    If you simply dont earn enough, approach the developer see if they will amend the contract to put your friends on it and then try to get a loan with all of you.

    You can try to sell at a loss and eat the difference.

    Is your contract subject to finance?

    In some circumstances if you try and give it back to the developer they will keep the deposit and then can come after you if they shoftfall themselves when selling it compared to the original sale price (say block was 200k, you paid 20k deposit. Cant get finance and hand it back to developer. Developer now sells it for 150 to next person along. 200k minus your deposit (20k) minus new sale price (150k) = shortfall 30k… Developer could come after you for that 30k)

    • nansnake on 06/05/2019 - 22:44

      Is is unconditional. As I mentioned, little did I care about the contract since our plan was to sell it prior to official proceedings

  • orangetrain on 06/05/2019 - 18:09

    Did a firm ask you to "invest in a property thats set to rise in value" or similiar or did you and your friend decide to invest in a property?

    • nansnake on 06/05/2019 - 22:45
      -3

      Actually, it was my idea. One of my friends had a whooping $60k hike in 6 months. It was too stupid not to try at that time.

  • tsunamisurfer on 06/05/2019 - 18:23
    +21

    The contract is in my name, and I signed it on behalf of my friends.

    You have adopted 100% of the risk, 100% of the losses and 33% of the potential profits.

    What could go wrong?

    PS: We had huge education loans to pay off (not HECS), and that's why we undertook this bold move,

    You undertook higher risk debt to try to cover educational debt. Where does one begin with this?

    • pais on 06/05/2019 - 19:52
      +3

      You have adopted 100% of the risk, 100% of the losses and 33% of the potential profits.

      I think I glossed over it, but you've absolutely nailed it.

      OP, sell it and just take the loss.

    • yellowfever on 06/05/2019 - 20:16
      -2

      OP is looking for advice, not be lectured with what they already know was a risky decision.

      • Ughhh on 06/05/2019 - 21:28
        +4

        they already know was a risky decision

        Highly doubt it. If you know it was that risky, yet proceeded, then you definitely need to be lectured. Don't forget that they had no backup plans.

        Op better hope the two friends are stupid enough to not realise this is op and only ops problem

    • garetz on 06/05/2019 - 22:33
      +1

      Your friends took advantage of you, ive got news for you, they arent really your friends op.

      • nansnake on 06/05/2019 - 22:47
        +1

        This was mainly my idea, and they joined afterwards. I cant blame any of them for participating in this.

        • orangetrain on 07/05/2019 - 08:55

          They may not have agreed and prevented this if they actually had some risk.

        • brad1-8tsi on 08/05/2019 - 08:09

          You can blame them. They are grown ups too.

          You'll soon find out if they are real friends. If nothing else, i hope you have a written contract between yourselves.

          Out of interest, if the deal had gone well and you sold at a profit, how were your friends going to deal with the capital gains tax that was only in your name?

  • 87percent on 06/05/2019 - 18:23
    +15

    Not to be mean, but lol

  • ihbh on 06/05/2019 - 18:32
    +3

    bold move

    stupid move.

    it was at best speculative and it didn't pay off.

    Have a chat with the developer and see what options you have. E.g. it might not be worthwhile pursuing you and they might let you off if you pay the balance of say 20%. Perhaps they can recommend a lender as they will probably have other buyers in the same boat and too many buyers flogging off speculative blocks on Gumtree for very depressed prices doesn't help with their subsequent releases.

    Try to exit if possible as it was never your intent to purchase the lot and build on it to live in or rent out.

    • dcep on 06/05/2019 - 23:40
      +1

      stupid move.
      it was at best speculative and it didn't pay off

      won't see such comments from 2000-2016
      but history always repeats itself

      • ihbh on 07/05/2019 - 07:10

        Good point about Hindsight Harry.

        The speculation I mean was everyone thinking there was easy money to be made in real estate leading up to 2017. E.g. I had friends prepared to give buyers agents large sums of money to buy them real estate pretty much anywhere. This was the signal for experienced investors to sell. :)

        Just because you won't see such comments doesn't mean it's speculative. It takes time for booms upturns to turn into downturns.

        • ihbh on 07/05/2019 - 14:12

          Just because you won't see such comments doesn't mean it's not speculative

  • Ughhh on 06/05/2019 - 18:44
    +1

    We paid it off using credit cards/balance transfer

    That plus no back up plan. Always have a backup plan for such a big legal commitment.

    • nansnake on 06/05/2019 - 22:47

      Shoulda been more careful, I know.

      • zathras on 06/05/2019 - 23:44
        +4

        Don't beat yourself up about it, everyone makes mistakes. Better to make a financial mistake like this early, and learn from it. I feel sorry for the poor suckers that cruise through life and then get conned out of their life savings once they retire. They don't get a chance to recover from that. Think about all the mistakes you made with this decision and don't make those mistakes again. Chin up and soldier on, you'll be fine in a few years.

    • 87percent on 07/05/2019 - 08:16
      +5

      The logical answer is to get MORE credit cards and rinse and repeat

  • SBOB on 06/05/2019 - 18:59
    +2

    Buy land in the hopes it appreciates in value

    It's a bold move cotton, let's see if it pays off….

    • Malarkey on 16/05/2019 - 11:46

      Narrator: "It didn't"

  • whooah1979 on 06/05/2019 - 19:02
    -1

    Move overseas for a couple of years and then come back fresh.

    • brad1-8tsi on 08/05/2019 - 08:11

      Or just stay overseas.

    • Zachary on 15/05/2019 - 16:39

      …that only works on hecs debts…doesn't work on this…..

  • serpserpserp on 06/05/2019 - 19:59

    but the idea seemed very reliable at the time of purchase

    I'm not really sure what your exit price was, but lets say you bought this land @ 500k, and prices went up 20% before settlement (which would be a massive shift) after selling expenses, capital gains tax, and the cost that was involved in getting into this thing in the first place, split between 3 people, you would be lucky to make five figures of profit per person.

    FYI - unless you bought a plot of land in Hawthorn or the like that happened to have a house burn down on it, land on its own does not appriecate as quickly as houses anyway. If you bought out in Tarneit or Melton or the like you were always asking for trouble.

    But to help, like others have mentioned, you need bank of mum and dad (hit up all three lots of parents) badly. Or go to more friends to get involved, you absolutely need to turn over every stone to get out of this.

    • netjock on 06/05/2019 - 20:08

      Friends are off the hook. You haven't only lost money, most likely your friendship too.

      • mskeggs on 06/05/2019 - 21:32

        Sure, but consider they paid $100k deposit, and hoped to sell for the extra 20%, or double their investment, a handsome profit even after taxes etc.
        Leverage is a harsh mistress.

        • netjock on 07/05/2019 - 10:10

          Didn't that hope just evaporate as noted in the OP.

          If their friend sticks around they will be true friends but if it was threat of legal action and bankruptcy I say they will bail. Loss of 33k is small compared to bankruptcy.

        • serpserpserp on 07/05/2019 - 15:08

          They may sell for 100k more, but that isn't their true profit in hand.

          The risk of 100k capital (not to mention the DEBT they'll have to take on if it goes pear shaped like it has in this example) isn't really worth the ~35k-40k (estimate, I'm assuming no stamp duty here either) split between 3 people after it is all said and done and who knows how long that capital has to be deployed for to make that kind of earnings, could also be an opportunity cost I'm not factoring either.

          • mskeggs on 07/05/2019 - 17:23

            @serpserpserp: Not arguing, because I agree, but I can see how many got sucked into this, when you see article everywhere a couple of years ago about people making big returns fast due to extreme leverage.

            • serpserpserp on 08/05/2019 - 19:31

              @mskeggs: Oh yeah I can see how people get sucked into this all the time. After all, the Australian property market is a mugs game. Always going up right? ;)

  • [Deactivated] on 06/05/2019 - 21:13

    Realistically, is the value already underwater(negative equity)?

    • nansnake on 06/05/2019 - 22:50

      The price that developer asks for following stages are still higher. But I doubt anyone will buy it off me at the price that I bought for.

      • ihbh on 07/05/2019 - 07:15
        +1

        I doubt anyone will buy it off me at the price that I bought for.

        Are you trying to get out of this without a loss?

  • garetz on 06/05/2019 - 22:41

    Your best bet is to get your friends to go guarantor on the loan, they dont want to lose their money i would say, that would be pretty much your only option.

    • nansnake on 06/05/2019 - 22:51

      They are ready to participate in finance as well. Even then, the figure is not satisfactory for a mortgage.

  • theguru1 on 07/05/2019 - 07:52

    Generally they will take the deposit and depending on the resale price may sue for any additional loss.

  • AlanJ on 07/05/2019 - 08:02
    +3

    "…as things are looking now, there are very few buyers willing to buy this property." Do you know this because you have tried to sell, or because a real estate agent has told you this? If the latter, don't give up the ship quite yet. You are now being very realistic about your situation, and you know that, at the end of the day, if you can't find someone to lend you money to tide you over until the market recovers, you are going to have to sustain some kind of loss. But just how much loss may well be up to how PRO-ACTIVE you are, between now and September, in going ahead with your original plan. Just about everything is saleable if the price is right, even in today's depressed market; what's more, it is still possible to sell privately without having to go through real estate agents who will take their cut while at the same time advertising the property with all the enthusiasm of someone flogging a dead horse. Leave the agents out of the mix for now, and start advertising privately anywhere and everywhere you can. Spread the word that there's a bargain to be had. Set a price that IS a bargain, but (if possible) one that will involve you in a smaller loss than if you fail to complete and leave yourself open to the owners coming after you for the shortfall when they practically give it away, without a second thought. There are several of you involved in this purchase, so, between now and September, between the lot of you, you should be able to make a lot of noise. Grasp the reins firmly and give it a shot! Good luck!

  • alxr0101 on 07/05/2019 - 09:45

    Risk….return…you risked but unfort no return for you. Compounding the issue is you gsmbled the risk using credit card debt.

    Prob also explains bank reluctance to loan you money.
    Sell at a loss, move on.

  • kiitos on 07/05/2019 - 10:39

    What sort of percentage loss do you estimate you'd have by selling at current market?

  • [Deactivated] on 07/05/2019 - 10:41

    Dude it seems everything points to futher drop in prices, maybe dump and smile sooner.

    OTOH, if you keep trying different lenders, you may get the loan you want.
    Also, maybe have a friend/family technically employ you for the minimum time required by a loan, say on weekends to boost your apparent income. It worked before.

  • plugmeister on 07/05/2019 - 10:44

    You are the epitomy of the current property bubble. Werribee? I hope you didn't pay more than $150k. I wish you well!

  • eggles01 on 07/05/2019 - 13:49

    try to sell it on gumtree or allhomes for the amount of the deposit you have to make,

  • jm48 on 07/05/2019 - 15:39
    +1

    Go and live on your block (in car, caravan, shipping container) and save rent for the mortgage.

  • TheBilly on 07/05/2019 - 15:50
    -1

    What is the dollar value on what you are in for? and what is the the amount of student debt you have? Evaluate this against your income and it might be worthwhile to just leave the country

  • Hirolol on 07/05/2019 - 18:01

    Chances are the developer won’t bother suing, if you can’t afford a mortgage then they may realise there is not point in suing as you probably can’t pay a fine or what ever they order you to pay.
    Cut your losses

  • Name on 08/05/2019 - 17:22

    What is the arrangement with your friends regarding losses? Are you equally going to share loss? Do you pay them back everything they lent you and you wear the loss?

    Considering your friends have invested in you, you should probably also ask their opinion on what they want to do with their investment as well.

    Did you ask the bank what they need in order to give you approval? Can you get more hours at work or something?

    Did you seek preapproval? Does your contract state what happens if you don't get loan approval? When we bought our house we had a line in the contract that related to reasonable effort to get loan approval.

  • Arie on 08/05/2019 - 20:15

    Speak to brokers. They may be able to recommend 2nd tier lender rather than big 4. However you need to pay more interest.

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