Okay, I've been playing around with a concept, and was wondering if some people here could give me some feedback if they've used this strategy successfully (or unsuccessfully!) in the past.
The idea is to offer the vendor 80% at settlement, with 20% on terms (ie I'll pay it off $x per month for x years).
I worked out some numbers on a hypothetical deal, so I'll put these in.
Asking price $170k (way overpriced, probably more like $150k)
I can either offer $135k upfront (100% at settlement)
or
I can offer $165k, with 80% at settlement and 20% on terms. I would also want to include my legal costs (ie stamp duty and titles office fees) as being payable on settlement by the vendor. So on this deal that would be say $6k, which means the true price is $159k.
Now, in this scenario the vendor would receive:
$132k at settlement
$6k to go for legal costs
$27k payable on terms (say $250 a month until paid out)
Now, obviously there are vendors who won't be interested in this, or who will receive better offers than $135k. If, however, you found the right vendor who was also motivated, it seems to me that at settlement they only receive $3k less with the 2nd offer, plus they get ongoing payments.
Anyway, logically it works, but logic isn't everything! That's why I thought I'd ask for feedback from the forum about people's experiences with doing something like this. Also, I'd be interested to know how you would present the deal. I've been told to do it in person if at all possible, but on my first attempt to do this the vendor was interstate and so I had to do it in writing. Also, would you always put the two alternatives to the vendor so that they can see that with the second deal they'd get almost the same? Or would that risk them taking the first deal, which may not suit me?
I could keep rambling on for ages, but I'll stop and open it up for input! Feel free to pick this idea to pieces, I won't be offended.
Oh, and for anyone who perhaps hasn't twigged why I'd want to go to all this trouble - if I can borrow 80% on the property and don't have to find the other 20% or costs, obviously I can buy a lot more properties, all I need is a few thousand up front to secure the deal, which will then come back at settlement.
The idea is to offer the vendor 80% at settlement, with 20% on terms (ie I'll pay it off $x per month for x years).
I worked out some numbers on a hypothetical deal, so I'll put these in.
Asking price $170k (way overpriced, probably more like $150k)
I can either offer $135k upfront (100% at settlement)
or
I can offer $165k, with 80% at settlement and 20% on terms. I would also want to include my legal costs (ie stamp duty and titles office fees) as being payable on settlement by the vendor. So on this deal that would be say $6k, which means the true price is $159k.
Now, in this scenario the vendor would receive:
$132k at settlement
$6k to go for legal costs
$27k payable on terms (say $250 a month until paid out)
Now, obviously there are vendors who won't be interested in this, or who will receive better offers than $135k. If, however, you found the right vendor who was also motivated, it seems to me that at settlement they only receive $3k less with the 2nd offer, plus they get ongoing payments.
Anyway, logically it works, but logic isn't everything! That's why I thought I'd ask for feedback from the forum about people's experiences with doing something like this. Also, I'd be interested to know how you would present the deal. I've been told to do it in person if at all possible, but on my first attempt to do this the vendor was interstate and so I had to do it in writing. Also, would you always put the two alternatives to the vendor so that they can see that with the second deal they'd get almost the same? Or would that risk them taking the first deal, which may not suit me?
I could keep rambling on for ages, but I'll stop and open it up for input! Feel free to pick this idea to pieces, I won't be offended.
Oh, and for anyone who perhaps hasn't twigged why I'd want to go to all this trouble - if I can borrow 80% on the property and don't have to find the other 20% or costs, obviously I can buy a lot more properties, all I need is a few thousand up front to secure the deal, which will then come back at settlement.
