Creative way to buy PPoR

[tbow]

Hi all

I was interested in your collective wisdom as to how we may purchase a PPoR using a creative method.

Our position is asset poor but cashflow... reasonable. Basically we don't have anything in the way of a deposit but would like to do something other than straight out rent.

We know a bit about lease options, rent to buys and vendor finance but now we find ourselves in the opposite position of being the purchaser.

We're prepared to do a letter drop and online marketing campaign to find vendors. But what type of deal would be a win win in this situation? Who is our ideal vendor?

Looking forward to your advice and ideas.

Cheers
Tony

 

[The Y-man]

Basically we don't have anything in the way of a deposit ...

Welcome Tony.

My first question would be "why not" (as in early on in career? Other issues?).

Cheers,

The Y-man

 

[Aaron_C]

Usually vendor finance involves higher interest rates - if you weren't able to save before without a mortgage - what makes you think you can save this time to pay it off?

 

[Rolf Latham]

Are you eligible for the FHOG ?

ta
rolf

 

[tbow]

No FHOG, one of us has already used it.

No deposit due to other circumstances that lead to debt which has just been cleared.

Saving a deposit is an one of the options we have available. And while we know a creative method to buy NOW may not be as financially cost effective as waiting and saving there are other reasons why buying now, and wearing that cost, may still be attractive to us.

 

[Lofty]

Hi Tony

As Instalment Contracts are now regulated by the National Credit Code's 'responsible lending conduct' I'd guess you may not get across the line with an Instalment Contract application.

This leaves the Lease/Option path, sometimes call a Rent To Own, that's not regulated by the NCC.

I'd suggest your ideal vendor is a frustrated landlord. There are plenty of them about. We have found the following ad in the To Let classifieds gets the phone ringing:
'Professional couple looking for long term lease with view to future purchase. Call xxxx on 04xx xxx xxx'.

Cheers, Paul

 

[tubs]

Why not find someone who does vendor finance in your area and get them to approach sellers on your behalf. Then take that side of the deal.

 

[tbow]

Thanks for the good ideas.

@tubs - we have contacted the few vendor financers we've seen about down here and they seem to be focused on the properties they have available which are in different areas than we'd prefer.

@Lofty - Thanks. So would that be an option to buy with a lease where some of the money from the lease goes towards reducing the sale cost. Should we execute the option. And if we don't we lose it all.

I dragged out a couple of storage boxes with the Rick Otten and Steve McKnight stuff in it last night. Will go through it again but wondering if that is what you're suggesting.

We are also planning to do a letter drop in the areas we prefer. Is there any other demographic this type of deal may be attractive to? Elderly? Vendor selling but determined to stick to their price? i.e. Their price, my terms.

 

[tbow]

I should mention we intend to do the ad the local newspaper you suggested, too.

 

[veseli]

Vendor finance usually works out in vendor's favour, and if i was you i would never buy it like that.
My sugestion is take out personal loan in one name and buy property in the other name, use personal loan to fund the deposit, after 6 months refinance on the house and pay off personal loan.
Few ppl that i know did this and now they own a house, but you must have a steady income and good cash flow to do this.

 

[Lofty]

Hi tbow

You will normally pay a premium price for a property when you buy through an experienced vendor financier. However if you are making the approach to a vendor then, sure you may have to pay their asking price but it's unlikely to be marked up too much.

In answer to your question, yes I'm suggesting you consider buying with a Lease and an Option as you describe. And yes, people who are looking to downsize and vendor's stuck on their price but with the ability to trade off some time, are also good prospects.

Also, try your local property managers. Just ask them, 'do you have any properties for rent that came back to you after they didn't sell?' If you can find a way to 'work' with the property manager, this is a great resource.

Cheers, Paul

 

[boomtown]

This is a seriously crap idea. I dont think you know what you are getting yourself into getting finance from an amateur punter.

Save for a deposit like a normal person. If you can't do that then there are bigger issues at play.

 

[Lofty]

Hi tbow

Just FYI, there is a list of vendor finance expert solicitors available at:
http://www.vendorfinancelawyer.com.au/vendor_finance_specialists.htm
Mark, the Tasmanian solicitor really knows his stuff and will be able to draw up the legal paperwork for you.

In NSW, the two vendor finance solicitors/conveyancers I know write, on average, 5 residential real estate vendor finance contracts (Instalment Contracts and Lease/Options) per week each and have been doing so for years.

Cheers, Paul

 

[redwing]

Hi all

I was interested in your collective wisdom as to how we may purchase a PPoR using a creative method.

Our position is asset poor but cashflow... reasonable. Basically we don't have anything in the way of a deposit but would like to do something other than straight out rent.

We know a bit about lease options, rent to buys and vendor finance but now we find ourselves in the opposite position of being the purchaser.

We're prepared to do a letter drop and online marketing campaign to find vendors. But what type of deal would be a win win in this situation? Who is our ideal vendor?

Looking forward to your advice and ideas.

Cheers
Tony

There's some additional information here with some good feedback as always from Lofty

The example had a large step up in rental though, is it something you could manage?

example from rodimus

I saw a few examples of Rent TO Own.

http://www.realestate.com.au/propert...west-109023511

How does it work. The average rent in Melton is $270, and this person is renting for $576pw. How much actually goes into the rent, and how much is put into the ownership part???

Is there any interests earned by the seller for vendor finance?

 

[Belbo]

This is a seriously crap idea. I dont think you know what you are getting yourself into getting finance from an amateur punter.

Save for a deposit like a normal person. If you can't do that then there are bigger issues at play.

I'd second Boomtown's view for another reason as well: There's just not enough capital gain in the game these days to justify employing higher-cost strategies like this (at least, not for entry-level players, and not in most large-population markets).

 

[JWR]

I think its a fantastic idea - I just don't know where to find these vendors that will give me 5 year interest free and market or below market price - with positive cashflow!

 

[boomtown]

The first question TBW needs to be able to answer is what security does he hold in the event that the vendor goes broke and the house is repossessed by the vendors bank. There are many other similar type issues. It's a quagmire.

 

[Lofty]

Hi

5 years interest free in Mayfield East. We bought with Deposit Finance after we watched the price come down $60,000 over six months. We paid the asking price but, on settlement, gave them only 80% and they carried back a second mortgage over 5 years, interest free.

A recent Instalment Contract buyer, in Quakers Hill, NSW, got a a licensed valuer to value the property. The valuation came in at Instalment Contract price. We are making $500 per month positive cash flow from the property.

tbow was asking about the possibility of buying his PPOR with vendor finance. Considering we now average 5 negative2positive enquiries a week from frustrated landlords, I believe buying your PPOR with vendor finance is quite achievable.

Cheers, Paul

 

[Lofty]

Hi Boomtown

If structured correctly the vendor finance (VF) buyer will be paying the underlying loan and I don't know of a traditional lender yet that would foreclose a loan that's fully up to date with its payments.

The greater risk is the bankruptcy of the holder of the underlying loan. For a Lease/Option this is a show stopper, i.e. the trustee in bankruptcy will be able to foreclose. That's why we prefer Instalment Contracts.

There are numerous cases in Australia where the trustee in bankruptcy have come after a property that's been sold with an Instalment Contract. In all cases the strength of the equitable title created by the exchanged Instalment Contract has protected the VF buyer from the trustee and the rulings have required that the trustee must hold off and allow the Contract to complete.

We currently have one solicitor as an authorised Credit Representative of our Australian Credit Licence and another has applied this last week. These along with the list at:
http://www.vendorfinancelawyer.com.au/vendor_finance_specialists.htm
indicate a growing acceptance in the legal community regarding vendor finance in residential real estate (it never went away in rural real estate). There are also dozens more who have studied VF developments over the last decade and are now prepared to advise their clients on the pros & cons of a VF purchase in a balanced way. In fact we will not sell a property with VF unless the buyers gets independent legal advice of their choice.

Cheers, Paul

 

[boomtown]

the strength of the equitable title created

Well for starters Australia runs a Torrens title system which mean the registered holder has indefeasible title. If they mortgage that title to the bank and the bank forecloses the purchaser is stuffed. Are you familiar with cross collateralisation and all monies clauses? It doesn't matter whether that particular loan is in default the bank is going to grab all the assets it can. No lawyer with more than half a brain is going to recommend reliance on equitable title without significant security package in place. In a Torrens system equitable title is not worth the paper it is not written on. I think you need to explain (a) what security is registered against the property on the register and (b) its priority vis a vis the bank.


Further what is the mechanism that stops the vendor from redrawing on the mortgage that the purchaser has kindly paid down?

In fact we will not sell a property with VF unless the buyers gets independent legal advice of their choice.

I should hope so. Otherwise you are at risk yourself of being sued if you dont insist on ILA.

Anyway the point is that it's a bloody minefield for newbs. Can it be done? Yes it can but not cheaply if it's going to be done properly and the purchasers interest properly protected. This is not a wise route to save a few bucks for beginners.