How to Buy a house for $1 - Wrapping / Vendor Financing

Hi all,

As the title suggests, yesterday I attended Rick Otton's one-day seminar in Melbourne on How to Buy a House for a Dollar and I just wanted to share the experience with you guys and ask a few questions if I may.

I am sure that some of you must have attended one of his seminars before, so you would probably be familiar with some of these strategies he suggests and recommends using.

The morning sessions were mainly around Rick Otton's history and involvement in property. A history which by the sounds of it is full of 'property transactions' over 4 countries; USA, Canada, UK and Australia.

In the afternoon sessions he unveiled the following strategies in very simple terms, for which I still have many questions as to how they legally work.

The strategies outlined yesterday were as follows (my queries are below):

Installment Contracts (also known as Terms Contracts):
This works best with sellers who are happy for you to make monthly payments for longer than three years.
The idea is as follows:
1. Say you want to purchase a $400k property. After contacting the Seller, you both agree to pay say $10k deposit, then $440k through equitable transfers over a period of time and legal transfer when the property is paid off.
2. Contact a Buyer and agree for them to pay $20k deposit, then $480k through equitable transfers over a period of time and legal transfer when the property is paid off.
3. You get $10k upfront, about $1,000 cashflow $40k at the back end.

Handyman Special:
This is best for buyers with no deposit and sellers with an upside down loan. (Seller’s loan is greater than the value of the house.)
1. You on behalf of the Buyer assume (babysit) the seller’s mortgage.
2. Sell to the Buyers at a higher price than current value based on estimated value after renovations.
3. The deposit is Trade money (labour) for the cost of renovations.
4. A schedule of agreed work becomes part of the paperwork.
5. Work must be completed before buyer moves in.
6. House sells on installment contract.
10.10 Strategy:
This is best for houses with no debt against them, where the Seller is asset rich and cash poor.
1. You on behalf of the Buyer agree to pay 10% more than the asking price.
2. You agree to pay out balance in equal installments over 10 years at 0% interest.
3. You sell-on the property and the Buyer pays a deposit and pays out the balance in equal installments time at 6% interest.


I am sure that these strategies might not be new to some of you, but they are all fairly nifty and new to me and I'd love to hear your feedback and experiences with these techniques.

Questions:
1. When buying or selling on a rent-to-own or installments basis, who is on the mortgage and title? and how is the scenario set from a legal point of view.

2. They also mentioned in the seminars that some of the larger banks would be willing to "buy-off" the debt from you after 12 months of consecutive payments from your Buyer. Is this true?

3. A contractual clause was mentioned, which is along the lines of "transportability on a home loan" clause. Anyone familiar with this clause?

4. Another one was "Substitution of collateral", which essentially allows you to seize over a mortgage without having to reveal any credentials but a bank account. Anyone know more about this?

5. How do you incorporate these strategies within a trust structure?

I would be very grateful if someone is able to shed some light on these questions for me. :)


Overall, Rick Otton seems genuine and also good at what he does. He was troubleshooting live in front of the audience that basically threw their problems right there on the table and he solved more than a few, including one where the owner of a $1m house owes $1.25m on it and is struggling to keep up with repayments due to a nasty divorce. I wouldn't go as far as paying the course fees to "study" his strategies, as I do believe that these strategies are commonly known out there and used often.
 
Hi

There is a myriad of issues here.

Australian Credit Licence is required for some structures.

You need to get professional advice and be prepared to spend money on it.
 
Hi

There is a myriad of issues here.

Australian Credit Licence is required for some structures.

You need to get professional advice and be prepared to spend money on it.

Hi RPI,

When you say spend money, do you imply spending the money on setting up the proper structure to pull these strategies off successfully?

Be mindful that in the seminar, Rick has demonstrated close to 30 different show cases of his students (through videos, letters, emails etc.) where the main focus is on the legal paperwork rather than the structuring for asset protection.
 
Oh thats ok then.

Next time I will be mindful that ricks course and 30 examples can replace specific legal advice and the professional indemnity insurance that goes along with that.

No chance of people stuffing up what is a complex legal arrangement after amount of intensive training.

You need legal advice for both. You need to get the documents drafted by a lawyer who knows what they are doing in that area.
 
Oh thats ok then.

Next time I will be mindful that ricks course and 30 examples can replace specific legal advice and the professional indemnity insurance that goes along with that.

No chance of people stuffing up what is a complex legal arrangement after amount of intensive training.

You need legal advice for both. You need to get the documents drafted by a lawyer who knows what they are doing in that area.

RPI I did not mean any disrespect in that regard, nor was I trying to prove that 30 live examples can replace specific legal advice by the appropriate licensed practitioners.

Each and every case would be different and I am sure that at least some of these students did the right thing by seeking professional advice and setting up the right structures prior to attempting his strategies.

All I am really asking in that regard is whether these strategies and the associated documentation requirements are known to most legal practitioners or not.
 
There are a few around who do it. Rob at the vendor finance institute knows where they are.

There is also a small chance that this firm does it

http://www.vendorfinancelawyer.com.au/

D

Thanks Darryl,

Funnily enough, all the attendees received Rick Otton's book at the seminar, and I just noted that in the Acknowledgements section, he has acknowledged Anthony Cordato, i.e. Cordato Partners :p which is his lawyer. Also on the link you just posted on the bottom of the page he names all of the strategies discussed.
 
While its not the same thing, I have sold my business through a vendor finance arrangement. The buyer has paid half cash, and pays me interest for the other half.

For me that has enabled me to get a better price than I would otherwise have been able to do; the P&I for 10 years at commercial rates gives me an income.

For the buyer he has been able to buy without putting his own money in- he would not have been able to buy otherwise.

The risk is that I am behind the bank if he gets in trouble. That's mitigated by his experience in running this type of business.

Although it wasn't a common arrangement, it was one that I had been first introduced to by Rick Otton. It cost me extra in legal fees as it was a completely non standard contract, but a concept was nothing new for my lawyer.
 
Once you read Ricks book which you probably got given at the seminar, it will make more sense. Ricks lawyer which has done a lot of his work in NSW (and many others) also has written sections in the book explaining. His own web sites have HEAPS of excellent info. Reference to Cordato Parners is in the book, but can be found here www.vendorfinancelawyer.com.au/, www.businesslawyer.com.au/

I have attended a couple of Ricks seminars, plus others where he was one of many presenters. The last one only had a small attendance, he had already done another one a month earlier in Sydney. It was very easy to chat to him at breaks, at one time I was sitting on the edge of the stage with him having a personal chat for 10 minutes. This is when you find out more info, and realise that there is a hell of a lot more to know - possibly more than you would learn at bootcamps. It is a bit like being taught how to drive a car and gaining some confidence, only to find out what you are driving is the space shuttle and so much more can go wrong.

You don't know what you don't know ....and need to know.

I like listening to Ricks strategies and ways of solving problems, helps you think outside the square. But you would have to be really confident that you knew the answer for everything that can go wrong - although if using a good lawyer for VF or RTO they should know what needs to be in contracts to protect yourself in situations you may not have thought of.

There is so much to read on the internet, even in just Australia on VF etc. Once you have spent quite a bit of time reading and learning you will realise how much more there is to know. Start with this site, but read the book first!
 
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The risk is that I am behind the bank if he gets in trouble. That's mitigated by his experience in running this type of business.

Sounds like it's got its many pros and cons. So why do you still own the risk if I may ask? Did your lawyer set it up this way as a form of security showing your vested interest in the business until its fully paid off?

Once you read Ricks book which you probably got given at the seminar, it will make more sense. Ricks lawyer which has done a lot of his work in NSW (and many others) also has written sections in the book explaining. His own web sites have HEAPS of excellent info. Reference to Cordato Parners is in the book, but can be found here www.vendorfinancelawyer.com.au/, www.businesslawyer.com.au/

I have attended a couple of Ricks seminars, plus others where he was one of many presenters. The last one only had a small attendance, he had already done another one a month earlier in Sydney. It was very easy to chat to him at breaks, at one time I was sitting on the edge of the stage with him having a personal chat for 10 minutes. This is when you find out more info, and realise that there is a hell of a lot more to know - possibly more than you would learn at bootcamps. It is a bit like being taught how to drive a car and gaining some confidence, only to find out what you are driving is the space shuttle and so much more can go wrong.

You don't know what you don't know ....and need to know.

I like listening to Ricks strategies and ways of solving problems, helps you think outside the square. But you would have to be really confident that you knew the answer for everything that can go wrong - although if using a good lawyer for VF or RTO they should know what needs to be in contracts to protect yourself in situations you may not have thought of.

There is so much to read on the internet, even in just Australia on VF etc. Once you have spent quite a bit of time reading and learning you will realise how much more there is to know. Start with this site, but read the book first!

Thanks Beachside,

We see eye to eye. It is also not my first Rick Otton seminar and I really enjoy going to them as you learn something new each time and they are simply fun to go to, but it's the first Rick Otton seminar that managed to capture my attention.

I would definitely take up your tip and read the book, and regarding the research, if anyone has any other links to read more about these type of deals feel free to hit me up :)
 
Hi Mizz

We have been working in the residential real estate vendor finance market place since 2003 and you may be interested in a blog post I've just posted called '10 Mistakes to Avoid with Vendor Finance'. It's at:
https://vendorfinanceinstitute.com.au/home/?p=1749

Here's some information on vendor finance (VF) educational resources.

The Vendor Finance Association is a great place to meet vendor financiers. Dates and details of meetings are available at: http://vendorfinance.asn.au/meetings-and-memberships/

I believe it's important to build a good foundation to your vendor finance knowledge and there are numerous educators to choose from. Some that spring to mind are:
Sean Summerville - http://www.thepropertyking.com.au/
Rick Otton - http://www.rickotton.com/
Dave & Julie Siacci - https://vendorfinanceinstitute.com.au/home/siacci-system-of-vendor-finance-1997/
Paul Zalitis - http://www.aussiewrapper.com.au/Cash-Flow-Investing.html
Gordon Ku - http://gordonku.com/
It is worthwhile researching all these educators and choosing one that suits your style.

Some other research locations are:
http://www.propertyinvesting.com/strategies/wraps
http://www.propertyinvesting.com/strategies/lease-options
http://negative2positive.com.au/information/about-vendor-finance
http://www.vendorfinancelawyer.com.au/vendor_finance_intro.htm

When vendor finance started to become popular again in the early 'naughties', it did attract a bunch of make a quick buck "specialists". However more recently the Vendor Finance Association and new legislation have helped to make buying your home with vendor finance a viable alternative for home buyers who are unable to get traditional home loans.

Cheers, Paul
 
Mizz

As Paul has listed above, there is a heap of information available on the internet, and a lot of the references can be found on this site (forum). Once you read up all the info available on those sites you will have a much better understanding as I did when I wanted to learn more about VF. Some of the sites don't seem to have been updated for a while, which makes you wonder about those people offering courses and training - may have lost some of their enthusiasm.

I went to a seminar of Sean Sommervilles after looking at his site, no doubt he has good knowledge but has no idea of running a seminar - I don't know why he bothered. He was more interested in taking phone calls and looking after other business matters - kept excusing himself from the room which did not impress us much. He may be alright one on one, but I would have doubts about the enthusiasm he has in really helping anyone who signed up with him. I was just curious to see what he had to say, you never know what you may learn, but not worth the time going though.

I get the impression Ricks former students Dave & Julie Siacci are trying to distance themselves from Rick, but Rick mentioned them at one of his recent seminars giving the impression they still call Rick for advice. :D You gotta laugh.
 
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Questions:
1. When buying or selling on a rent-to-own or installments basis, who is on the mortgage and title? and how is the scenario set from a legal point of view.

2. They also mentioned in the seminars that some of the larger banks would be willing to "buy-off" the debt from you after 12 months of consecutive payments from your Buyer. Is this true?

3. A contractual clause was mentioned, which is along the lines of "transportability on a home loan" clause. Anyone familiar with this clause?

4. Another one was "Substitution of collateral", which essentially allows you to seize over a mortgage without having to reveal any credentials but a bank account. Anyone know more about this?

5. How do you incorporate these strategies within a trust structure?

1. With instalment contracts tittle only passes on completion. Vendor keeps their mortgage until completion too. Think of a normal settlement as being 42 days, an instalment contract just blows this 42 days into 30 years and allows you to live in the property until completion.
2. Never heard of this before. What do you mean by “buy off the debt”
3. Could you please elaborate on this? Transportability of a loan means you can take the loan with you if you sell a property, ie just substitute your security/collateral.
4. Taking over a mortgage? Any lender would surely want to make sure you as the new borrower could afford the repayments. Substitution of collateral would mean changing the security for the loan, ie changing the property.
5. As per normal. Trustee of the trust enters into contracts.
 
Hi Mizz

We have been working in the residential real estate vendor finance market place since 2003 and you may be interested in a blog post I've just posted called '10 Mistakes to Avoid with Vendor Finance'. It's at:
https://vendorfinanceinstitute.com.au/home/?p=1749

Here's some information on vendor finance (VF) educational resources.

The Vendor Finance Association is a great place to meet vendor financiers. Dates and details of meetings are available at: http://vendorfinance.asn.au/meetings-and-memberships/

I believe it's important to build a good foundation to your vendor finance knowledge and there are numerous educators to choose from. Some that spring to mind are:
Sean Summerville - http://www.thepropertyking.com.au/
Rick Otton - http://www.rickotton.com/
Dave & Julie Siacci - https://vendorfinanceinstitute.com.au/home/siacci-system-of-vendor-finance-1997/
Paul Zalitis - http://www.aussiewrapper.com.au/Cash-Flow-Investing.html
Gordon Ku - http://gordonku.com/
It is worthwhile researching all these educators and choosing one that suits your style.

Some other research locations are:
http://www.propertyinvesting.com/strategies/wraps
http://www.propertyinvesting.com/strategies/lease-options
http://negative2positive.com.au/information/about-vendor-finance
http://www.vendorfinancelawyer.com.au/vendor_finance_intro.htm

When vendor finance started to become popular again in the early 'naughties', it did attract a bunch of make a quick buck "specialists". However more recently the Vendor Finance Association and new legislation have helped to make buying your home with vendor finance a viable alternative for home buyers who are unable to get traditional home loans.

Cheers, Paul

Thanks Paul,

I appreciate all the info, I even signed up on some of the websites you posted and will be attending a VFA meeting. By the looks of it, it's really not rocket science, you just need to get your due diligence right on the property you will be 'wrapping', then find the right buyer, and of course last but not least, cover your behind with all the right clauses in the installment contracts.

I figured that it's something I'd love to try out considering the cashflow is there for grabs (and that is really what I am interested in at the moment - not the "loss" of the true present value of the property once sold after x amount of years).

Would there be a lawyer you recommend engaging for these sorts of 'transactions'?

Mizz

As Paul has listed above, there is a heap of information available on the internet, and a lot of the references can be found on this site (forum). Once you read up all the info available on those sites you will have a much better understanding as I did when I wanted to learn more about VF. Some of the sites don't seem to have been updated for a while, which makes you wonder about those people offering courses and training - may have lost some of their enthusiasm.

I went to a seminar of Sean Sommervilles after looking at his site, no doubt he has good knowledge but has no idea of running a seminar - I don't know why he bothered. He was more interested in taking phone calls and looking after other business matters - kept excusing himself from the room which did not impress us much. He may be alright one on one, but I would have doubts about the enthusiasm he has in really helping anyone who signed up with him. I was just curious to see what he had to say, you never know what you may learn, but not worth the time going though.

I get the impression Ricks former students Dave & Julie Siacci are trying to distance themselves from Rick, but Rick mentioned them at one of his recent seminars giving the impression they still call Rick for advice. :D You gotta laugh.

LOL that's a true definition for loss of enthusiasm right there! :p I believe Dave & Julie Siacci are now Rick's competition in the field of property education.
 
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