David and Julie Siacci

[Lofty]

G'day David

We been running a residential real estate vendor finance since 2003, so I thought I'd answer your questions from our point of view.

1. Out of all the things we do in the business, finding buyers is the easiest part. That's because vendor finance purchasers are pretty well invisible to the real estate market but there's plenty out there. About 20% of the population can't get a traditional home loan and, frankly, that's spot on for a lot of them. However there are a lot of people in this group that have solid serviceability and drop through the cracks due to lack of deposit, some small credit hits, newly self employed, newly divorced, etc, etc.

These solid Aussies can't get a home loan and they're not happy about it. That's why the longest we've ever had to wait for a buyer to move in was 6 weeks, i.e. 6 weeks from the time we settled on the property until a new VF buyer moved in.

2. We find that "stuff" happens to around 1 in 20 of our buyers, i.e. enough "stuff" for them to be unable to carry on with the purchase. When it first happened to us, we thought the sky had fallen in and we'd been ripped off by ever getting into this business ;-) However after the VF buyers left, we sold it again, for $10K more and got another deposit from the new VF buyer.

Once people realise they can't afford it anymore, the thing they're worried about most, is us coming after them for the remainder of the debt, like traditional lenders do and possibly bankrupting them. We usually give them a hand financially with their move and we have a piece of paper where we agree not to go after each other in future and we also agree not to ruin their credit reference.

Cheers, Paul

 

[DavidMc]

Thanks for the info.

Do you care to share how you find them? Newspaper ads? Websites (I saw a few)? Hanging around at the bank and look for people walking out unhappy

What would you say is the harder part (once all of your processes and documentation is set)? Finding the sellers? Some people I know who have tried vendor finance said this was difficult.

 

[Lofty]

Hi David

We market our properties 3 ways; small classified ads in small community newspapers (the type that get thrown on your grass each week), free internet ads and signs out the front of the property. It's pretty unsophisticated but it works.

We either buy the property and on-sell it or our JV partners buy the property and we do the rest. Other times we work with disgruntled landlords and help them. There's no shortage of those ;-)

I wasn't real happy doing the paperwork needed to administer the resulting loans, so we hived that off into a separate company. Similar to a landlord hiring a property manager.

Cheers, Paul

 

[Aaron Sice]

my biggest concerns with wraps are -

1) how do you get the money if the "tenant" can't get finance later? there's a reason they can't in the first place, or likely to be a million reasons why they can't at the time. do you screen your "tenants" for viability to get finance?

2) if a "tenant" defaults, what happens if they're renting to own? is it just like a Radio Rental's contract whereby goods and all monies are forfeited...? i just can't imagine that going down too easy, ending up in court, etc.

 

[Lofty]

Hi Aaron

We used to operate with Rent To Own's (RTO) but don't much anymore as we tend to find RTO buyers have a "tenant's" mentaility. Almost always now we sell with an Instalment Contract (IC) and find this gives us a "buyer's" mentality. Or experience is that the "buyer's" mentality is a lot better. Also, IC's seem to generate greater confidence in our buyers as the government pays the FHOG to eligible first home buyers, buying their home with an IC.

Our IC's are written up over 30 years but most refinance somewhere in the 2 to 5 year range. We declare up front to our buyers that their interest rate will increase over the first few years, to encourage them to refinance. Yes, we do "vet" our buyers closely but, with the interest rate increases I mentioned, if they did stay for the long term, we'd be happy, as the monthly cash flow would be very attractive.

As I mentioned we don't use RTO's much, so we don't normally have tenants. In relation to a default, let me ask to a question. If you have a traditional loan with a bank and you default, how much do the bank give you back? We give more, in that we'll normally help our clients financially with their move.

If you end up in court, you shouldn't be in this business. We currently have a buyer whose circumstances have changed and she has to move out. She has offered to do a video testimonial for us, saying how happy she is with the way she's been treated and how we've paid her next rental bond and helped financially with her removal. Lots cheaper than a court case ;-)

Cheers, Paul

 

[boods99]

As I mentioned we don't use RTO's much, so we don't normally have tenants. In relation to a default, let me ask to a question. If you have a traditional loan with a bank and you default, how much do the bank give you back? We give more, in that we'll normally help our clients financially with their move.

Paul,
In this circumstance, what happens to the "client's" equity that they have built up over the term of the contract?

Banks will sell the property from under their client, however, the client will get to keep any excess proceeds from the sale should there be any.

Assuming this is the same with your clients...

boods

 

[FormerLurker]

Hi Andy Pandy,

It seems to me that lots of people has nothing better to do, than making totaly uninformed comments. I just don't understand why can't they find some other stupid hobby for themselves.
Anyway. Don't forget: You should only follow people who already achieved what you want to achieve! (And clearly enough most of these people will never do! All talk ......)

So back to the topic, Julie and David Siacci learned the trade from Rick Otton and all they did is follow the steps what they've been thought. That is the only secret to success.
Choose what you want to do, find the master of that field, learn the trade from the best at the field, don't change the system, do it yourself.!

That's it, works all the time.

Good Luck: Tamira

Yep they learned the trade alright - we don't need to work....but buy our system anyways we're really doing it as a favour for people because we care so much.

You sound suspiciously like a shill - apologies if your not.

edit: I know nothing of this property educator or their system they may be Yoda or they may be the Emperor my comment was directed at the quoted post which is long on accusations short on useful content.

 

[DavidMc]

Thanks for sharing Paul. I'm sure people here interested in taking that next step will be in touch.

If a buyer pulls out, do you split any capital growth/loss experienced in that time?

If the house value dropped say $40k could the buyer not just pull out, lose their payments and walk away (and be better off than going ahead, even after say 2 years)?

 

[DavidMc]

Also Paul - how does this example sound?

What figures would be different for you or have I guessed them pretty close?

 

[DavidMc]

Paul,
In this circumstance, what happens to the "client's" equity that they have built up over the term of the contract?

Banks will sell the property from under their client, however, the client will get to keep any excess proceeds from the sale should there be any.

Assuming this is the same with your clients...

boods

I suppose you could do what banks do, and charge them so many fees if they do break the contract that any equity they have would be eaten up.

So perhaps the house has gone up in value by $20k but there are $11k worth of penalty fees.

Reading ones own lending doco might be good start - surely you couldn't get in trouble if you charged what the banks charge?

 

[Lofty]

Hi Boods & David

Yes, inside the Instalment contract there is a mechanism for buyers to access their equity build up. It's a long convoluted formula written by the lawyers that draw up the IC.

From what I've seen of the ravages of a default followed by a mortgagee auction with a traditional loan, my opinion is that it's a lot better.

Cheers, Paul

 

[boods99]

I suppose you could do what banks do, and charge them so many fees if they do break the contract that any equity they have would be eaten up.

So perhaps the house has gone up in value by $20k but there are $11k worth of penalty fees.

Reading ones own lending doco might be good start - surely you couldn't get in trouble if you charged what the banks charge?

Very unlikely that if you had $150k in equity that this would all be absorbed by the bank in fees associated with the forclosure.

I'm still assuming that the Vendor Financier would allow the buyer to keep their equity (minus reasonable costs) in the event of a default and subsequent resale. Afterall, they "give more" than the bank as claimed

Boods

 

[boods99]

Hi Boods & David

Yes, inside the Instalment contract there is a mechanism for buyers to access their equity build up. It's a long convoluted formula written by the lawyers that draw up the IC.


Cheers, Paul

Is this the case also if the buyer is in default and the property is reclaimed by the Vendor?
Care to give us a little peek at this clause? I think it would make for interesting reading...

Boods

 

[Lofty]

Also Paul - how does this example sound?

What figures would be different for you or have I guessed them pretty close?

Hi David

I'd probably mark the price up a bit more but lower the interest rate initially to around the Big 4's standard variable. Then over the next 3 or 4 years we increase the interest rate to no more than 2.5% above the Big 4's standard variable, i.e around 9.9% at the moment.

Cheers, Paul

 

[Lofty]

Is this the case also if the buyer is in default and the property is reclaimed by the Vendor?
Care to give us a little peek at this clause? I think it would make for interesting reading...

Boods

Hi Boods

Yes that is the case. Sorry our lawyer has the copyright on his IC. However he used to sell a copy for $450. I think he still does, so let me know if you need his contact details.

Cheers, Paul

 

[boods99]

Hi Boods

Yes that is the case. Sorry our lawyer has the copyright on his IC. However he used to sell a copy for $450. I think he still does, so let me know if you need his contact details.

Cheers, Paul

maybe you could just summarise it for us...no law against that...("fair use" and all that copyright law jargon...)

Boods

 

[Savanna100]

slightly off topic but I just want to confirm something...

I did Rick Otton's Course about 3 years ago and want to eventually use the knowledge when selling units I hope to develop. I believe that, with a lease option I dont need to have this new financial licence but to sell on IC I will need such a licence, can you please go over the requirements for me.

Thanks

 

[Lofty]

Australian Credit Licence

Hi Savanna

Yes, you are correct, you don't needed Australian Credit Licence (ACL) when you "sell" a property with a Lease/Option (Rent To Own).

However our experience has shown us that buyers seem to prefer a real contract of sale and also the fact that they can claim the FHOG if they buy a property with an Instalment Contract.

If I was in your shoes, I'd ask a local frienly ACL holder what might be involved to get ACL coverage for your proposed sales.

A more detailed discussion on the ACL and Vendor Financiers is attached.

Cheers, Paul

 

[DavidMc]

Very unlikely that if you had $150k in equity that this would all be absorbed by the bank in fees associated with the forclosure.

Agreed.

However, it's also very unlikely that someone say 2 years into a VF deal would have anywhere near 150k in equity on a FHB type property, especially if the initial purchase price is loaded from the start by 30-50k.

Most buyers refinance after 3 years.

After two years of good growth (10%) on a 320k-ish property they might have 30k. If a bank was to foreclose they could easily lose 10k in fees, 20k on a fire sale (at a guess) and have their credit rating smashed.

 

[Savanna100]

Thank you Lofty, much appreciated.