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Welcome to another episode of the Property Nerds podcast. And today I'm really excited. We've got a special guest. And that guest is Joseph from KJ Co Legal. Trust me, it gets very exciting.
Tune into this episode to know how far your legal partner or a conveyancer you work with can really take it to get you the win you need. Also, the mistakes that you can avoid ahead of time when it comes to SMSF specifically from the legal and conveyancing side of things. So tune in. Let's get into it. Nerd alert!
Property Nerds. The home for data-driven property investors. Where we uncover Australia's hot and cold markets, latest headlines and trends. Joey, welcome to the show, mate. Thanks, mate.
Over 10 years knowing each other now from our time back in the finance world to property and then collaboration at InvestorKit. I wanted to know, what actually initially got you to pivot from the finance world into the space? Mate, it has been 10 years. I'm curious. We haven't killed each other yet.
That's amazing. You know what? Someone told me ages ago to start off in finance, even though I was studying law. It was a mentor of mine. And the best way to do that was to start off in the branch.
Because you deal with so many different types of people. That probably was really good in hindsight from a legal career because you're able to deal with so many different people and so many different people from different walks of life. And in terms of a customer service perspective or a client management perspective, that equipped me beautifully. Yeah, I was simply just doing that during my studies. It was great.
And then I transitioned over to the dark side, being law. Solving people's problems. Trying to solve the world's problems in one day. Yeah, I mean, like our relationship goes way back. And I know the guys here at InvestorKit and Fouracre Financial, Jack and Adrian, know you pretty well.
But we've been knowing each other from like over 10 years now. Started off with gym buddies as well, actually, back in the days. Yes. So a bit of a change now. But, mate, Jack, you've got some strong thoughts on the conveyancing world as well.
Man, I have a running joke saying that conveyancing is boring. I don't know if anyone's going to listen to the podcast. Jack, I pray for a boring deal, mate. A boring deal is a good one. Boring means I can go home and see my kids, mate.
That's it. That's it. I think boring is what you want in that because it's smooth, right? But at the same time, if people don't know what they don't know, and we see a lot of things, this stuff catches them by surprise. And especially in that legal world where they're not aware when they're buying an expensive asset, it's $500,000, $600,000, a million plus, and lots can go wrong.
So I want to know from you, Joseph, I think to really help some of the people listening here who are on their property investing journey, what are some of the mistakes you see specifically in SMSF? Because this topic has come up heaps. People are setting it up more than ever. People are more interested in taking control. They're basically going, I want to take control and continue to use leverage and property investing as my vehicle.
What are you finding are some big mistakes on that legal side that people make often? Just on a basis surface level, the implications of putting your pen to paper on a contract of sale of land in any state are really severe. And if you haven't sought legal advice before doing that, you're not just signing some gym contract, right? There are real implications. And when you get tied into a deal, and most deals can go unconditional straight away.
And for those of you who are listening, don't know what unconditional means is once you sign, the deal's going ahead. There's no subject to pest and building, subject to finance. So once you effectively sign that contract and you're committed to that deal, you're facing a lawsuit if you want to get out of it effectively. And if you're not seeking legal advice before you do that, you need to know what your bottom line is and what the risks are. And every contract's different.
Not every contract is standard. You might come across standard contracts, but there are special conditions in there that are all bespoke to different lawyers and different firms who have prepared that document. You need someone to take a look at it. You need a human being to sit there and take you through it. And that's what we do.
Turning into the SMSF, well, that's another SMSF sphere and those types of deals. Well, that's a totally different spectrum. I think the main two points there are generally with registering a bear trust deed, as you fellas are probably aware, the self-made super fund can't actually hold a debt. So you need to set up a whole nother trust to hold the property until that debt clears so that property can then be transferred over to your original SMSF fund. Setting up that bear trust differs in every state in terms of the timing of signing each document, how to register it, when to stamp it.
If you're not seeking the advice of a professional that's well-versed in that state and setting up those documents, so accountant, you run the risk of getting that document wrong, which means, and there's a massive implication of getting that changed because if we tie back in, once you've signed that document, signed the contract to sell, you're already tied into the deal and it's not a straightforward process in changing the purchase of name. The amount of times I've had a client send me a contract to sell with the trustee company of the SMSF, it's unbelievable. So who's responsible for actually telling them, hey, you can't sign the contract yet, you've got to set up a bear trust? Because I find that when people don't use a team, they don't have a buyer's agent, they're just doing it themselves, they'll just sign a contract and think that the SMSF trustee company goes on the contract. I've received so many of them, man.
And we've had to get it changed, like the other side, the solicitors, they don't have to help you kind of exit that contract and re-enter it, but I guess that's the only way around it, right? Well, I mean, if you're just going to pinpoint responsibility, you'd look at the person or the entity or the individual. Well, the sales agent just wants them to sign a contract, right? And the person who's buying, if they don't have a buyer's agent, they're just saying, yeah, yeah, I've got to do it in SMSF. Who told them to get it through an SMSF?
Oh, well, like if they've already pre-approved, like... Right, but the strategy of purchasing it in an SMSF, it's probably come from a financial advisor, right? Yeah, so it's kind of like who started it? Who started it? And they should be the ones telling you where to go.
If you're going to pinpoint responsibility, I don't really approach it like that. If someone comes to me and they're purchasing in an SMSF, I have a set of questions I ask them. So, look, do you intend to get a loan? Right, first question. If you're not intending to get a loan, put the SMSF on there because the fund can purchase it straight away.
But if you're getting funding from a financier, then we need the bear trust, and that's a 99. 9% of the time funding is going to be a thing, right, from a financier. So I'll ask for the bear trust. Tricky situation, we'll probably get onto this in a minute, is we won't know if it's just a proprietary limited company purchasing the property. The only way that we can pick up on those flags is if it says SMSF in that name.
True, because it could just be like a company purchasing it and no one has told you unless they actually unpack it more and things like that. Correct. So we need to, we diverse in that. When we do deals with your team and your referrals, we know because your team lets us know. But apart from that, it becomes a bit of a nightmare finding out once we've gone on con.
Yeah. Yeah, well, my team picks it up now straight away. We know to check that straight away. It's like make sure it's not the SMSF trustee company, but it's actually a bear trust. So the name is obviously one part, right, that's becoming an issue where in SMSF people keep getting that name wrong, the entity wrong, and it just differs from state by state.
So what we want to understand is like, hey, if you're a property investor, the first part is you've got the state of purchase. Now you also have the pre-approval, and then you've also got the accountant or the advisor advising you on like what to set up. It's making sure those three are linked by the original person who's going to not only manage the setup of it, but the ongoing admin and compliance for you, and that is usually your accountant or advisor. And so if you're going to come back to them, I think it's a real good starting point with it. But Joseph, beyond the name, you also see some other issues in SMSF.
Me and you talk about it often, and it's like people not knowing what to do when loan docs come around and how that differs or just different states. Like how does that work when we get to loan docs? Because this is a different part, and I know you and Jack can talk to this a fair bit. I think step one, best case, find the right accountant to set up the bear trust deed. Yeah.
Step two, find a suitable financier or broker to generally give you good expectations on what to expect once your loan docs come. You know, sometimes I find That makes it really hard for us to hit the deadlines that we need to. Yeah, especially if they put it off. Yeah, Adrian, you know the funniest thing you just made me think of then is that imagine there's a term you don't like, Joseph. Like, who's going to win the battle against the bank to go, oh, thank you for the loan approval, but clause 3.
C, I don't like it. Can we please change this? You might have a legal argument there, but you can never interfere with someone's commercial decision to lend you money. You can't never. There's always something you can do, but like you said, it's an uphill battle.
The bank doesn't want to give you money. Like, point in case, right? So you probably have a legal point, a legal leg to stand on to say, you know what, I don't have time to get my solicitor to sign this. DocuSign, take it or leave it, right? It's in accordance with the electronic transaction.
You can't really say anything about it. I've admitted to signing it. They've admitted to, my solicitor's admitted to signing it. Just cop it on the chin. The bank will go, no, we want a signature.
We're not going to give you the money if you don't give us this. What's the court going to say? You have to give them the money? I mean, there's a representation argument or misrepresentation argument or potentially an argument of a stop, I don't know. But leaving that point aside, I mean, it's a headache in itself to actually go down that path.
And also, again, my commercial decision to lend you money is on my terms. It's like, take it or leave it. It's not really a... Dude, you want this money? Take it.
Have you seen advice to now change it and let's enter it back and forth? Side note, if you haven't already, South Park. There's an episode on T's and C's with Apple, and it's the craziest episode ever. Can I see it? Yeah, I encourage everyone.
If you're nerding out with us on T's and C's to do with SMSFs and loan advice and mistakes, go watch that South Park episode. Are we allowed to talk about South Park? Probably not too much. I'll go down a rabbit hole on that one. Yeah, this is my brother's influence to me.
Go check it out, T's and C's Apple. That's the worst episode ever on this. But yeah, look, I think that's a really good insight into some of the mistakes they're made and how people in the SMSF space need to consider that. We were talking about different states earlier before, and I think what we are kind of seeing in the business as of right now or is becoming a lot more prominent is the whole concept of interstate investing, people investing outside of their backyard and everything like that. I think what would be really interesting would be to jump through a couple of states and really just highlight the differences.
I know we kind of went into it a little bit within SMSF, but maybe just more generally between the different states of, you know, let's call it Victoria, New South Wales, Queensland. What do you really see as those key differences between purchasing in those states? New South Wales and Vic are quite similar and quite stringent. Queensland's the Wild West with sheriffs, cowboys and Indians all shooting at each other at the same time and not knowing who the bad guy is. Effectively, New South Wales, you've got a 10-day cooling off period.
You can sign a contract, but depending on whether or not... I know the InvestorKit way is effectively buying something that's not at an auction, right? But if you are... Time to time, it depends on the outcome. It comes up on the odd occasion.
Mainly prefer not to if we can negotiate really well, but time to time. And that's because once you negotiate at an auction, it's take it or leave it. Yeah, it's unconditional. Yeah, so there's no cooling off period, but it's unconditional like that in virtually all states, right? Unless there's some sort of special condition stopping that, but no one will go to auction without an unconditional exchange on the day.
But without going on a tangent or a red herring here, the New South Wales sphere gives you a 10-business-day cooling off period. You can pull out of the deal any time you want for any reason. You don't like the smell of the basement, you can tell the vendor to get stuffed. It's completely up to you, right? Vic, and again, after that cooling off period, you're committed.
Vic, a little bit different. You've got a three-day cooling off period. Again, the smell in the basement, you can only rely on that for three days. Then after that, it gets considerably more difficult for you to back out or get cold feet on the deal, meaning you've got a pest and building condition and a finance condition, depending on how long the contract states. Pest and building set at 14 days if there's not a special condition that amends that, and then you set the finance date.
One finance date in Vic's a little bit different where you actually have to show the vendor that you've done everything reasonably possible to obtain finance, meaning you can't just say, I didn't get a loan because I forgot to submit my application. You've got to show that you submitted straight away, you've done everything, you've done everything you can, right? And that's really an objective test, right? So what I think is doing everything reasonably possible compared to what you think being done reasonably possible may differ, but you generally have to just apply a rule of thumb of what you think is reasonable. Don't wait until the last minute or ask your uncle for the cash the day before the end.
You must see some crazy stuff, right? Yeah, I channel a lot of my anger actually when I act for vendors in that scenario. And I think I've used it as a case study of what not to do for a buyer, like 10 minutes before settlement, asking for someone to mow a lawn and clean a basin sink. I remember there was about $200 we were arguing about minutes before settlement, and luckily my client decided to dig her heels in. I told her, look, the legal advice here is just pay the $200 and let's get on with it, right?
But if you don't want to take the legal advice, I'm happy to be your attack dog. And she goes, all right, go for it. You know what? No, we're digging our heels in. Look, there's a bit of history to this matter.
The buyer's been unreasonable the whole way through. He wanted everything done, everything fixed. Then right at the 11th hour, I'm like, you know what? Screw it. I'm ready to see you in the Supreme Court over $200.
That's the dog you want in your corner, right? And when I win, you're going to pay my fees. That's unreal. That's unreal. Because ultimately, you can't be asking for all of these things once you've gone unconditional.
And once you've gone unconditional, committing to the deal, effectively, 90% of the issues that occur within the property, you've just got to accept it. And I like to say this to my clients in a respectful manner. If you're investing in property and things like this are concerning you, then respectfully, if it is too hot, maybe get out of the kitchen. If you're not up for these sort of surprises, this is not financial advice. This is just general advice from your solicitor.
There are going to be more surprises in the future that you're going to have to cop. It's just a fact. If this is an issue for you now, then it's going to be an issue for you later. Maybe you're not in the right sphere, but that's not my business. And then as soon as they realize that, they're like, okay, cool.
You know what? You're right. I think I'm focusing on the wrong things right now. So you've been in the game long enough, man. Do you have any other crazy stories for us?
Oh, he's a story bank. Get deep. I've got stories for days, but I don't want to be breaching client attorney privilege at the point. It's such a lawyer thing to say, hey. I feel like I've heard that on TV.
I feel like I've compromised myself in this already. Val came back during finance under purchase price significantly. It was like 70, 80K. So the vendor just got what they expected absolutely wrong. And a negotiation took place.
And the basis of that negotiation was effectively like my number is the bank's number. My client's number is the bank's number. We can only meet you at what my bank's willing to lend my client. Otherwise, we won't be able to satisfy the finance clause. I think the kicker on this one was a well-written letter.
So I believe that if I was to send just a one paragraph email on this point saying, hi, dear colleague, see attached valuation. We can't satisfy finance clause unless you drop the purchase price to X amount. Well, no. I got my client to get three different vows from the bank. We also got an RP data property search.
And we started to tell a story in the letter, right? A two paragraph email became a three page letter. And I'm explaining, right, we've got these valuations. But you know what? Just to show that we're not being greedy here, we're going to adopt the highest vow from the banks that have returned.
Just to show that we'll take any offer here that the banks are giving us just to complete this deal, right? And then we say, we fail to see how you can not accept this offer when if we terminate, you're going to go back on market and another buyer at the same purchase price that you want is going to face the same impasse that we're facing right now.
