Rick Otton - buy houses no bank loan

[JWR]

So does anyone have any experience buying houses without a bank loan (or for $0 upfront)?

It seems interesting if it can be done.

The way I would want it structured:


1) Buy house off vendor for $200k
- vendor supplies 10% deposit ($20k) - so in effect I am paying $180k - 20k is released back to me at settlement.
This would provide me with a 10% deposit for free - and I would apply for a 95% bank loan and pay costs with other 5%.

I then rent it out and make money over the next 20+ years.

Is this legal/possible?


2) I take over vendor's loan of $200k (the outstanding loan may be less than $200k or even $0 - but now vendor becomes my bank and I owe him $200k)

I pay him X% interest (just like a bank) for lets say 20 years (paying P+I).
Again, I rent it out and make money over time. The idea is that if you are buying from someone who doesn't need the money right now and is just going to put it in the bank anyway.

Is this also possible. If so, has anyone successfully done it before? And how would you find the right person to transact with?

3) JV. You take over the loan but leave 10-20% of the house in his name (he owns his portion outright with the cash he provides) - and this acts as the deposit/security for the bank. I own 80-90% but am solely responsible for all liabilities. Then I rent it out.

The third seems a lot harder to do - but has anyone done it?

I'd only be looking for cashflow neutral or positive properties so that I can replicate the process rather than negatively gearing 5 or so and running out of cash each week.

Appreciate all the help,
james

 

[Peter_Tersteeg]

Option 1 sounds good, but it doesn't work in practice. You're talking LVRs above 80% which means mortgage insurance. Once you're in that kind of territory you can forget about doing anything interesting. The insurer simply won't allow it. Even without mortgage insurance it'll be almost impossible to sell a lender in the post GFC regulated market.

Option 3 is similar. If you leave 20% in the deal for the vendor, your scenario suggests you're borrowing 100% against your share of the property. Getting any more than 80% of the total property value will also be near impossible.

Option 2 is similar to what Rick Otten and many other vendor financiers are doing. A year ago Loffty posted some useful links. Take a look at:
http://www.vendorfinance.asn.au

I believe they still run regular meetings. It would be worth going to one, listening and discussing your ideas. VF strategies aren't for everyone but they do work well for some people. The Vendor Finance Association is a good way to get introduced to people who are actively persuing these strategies.

 

[Aaron_C]

Problem with VF is that most vendors wouldn't have a bar of it. People mainly sell because they want to free up capital tied up in their property for personal/investment reasons...Vendor Finance deters from this goal.

 

[Lofty]

Hi James

I suggest you follow Peter's advice above, especially with regard to attending some Vendor Finance Association meetings. Also, do further research on the subject and consider how you plan to get your vendor finance education. Not being rude but your Options above indicate that this education is required.

The unfortunate thing about VF is there aren't many books to self educate yourself with. People mainly get the education from VF educators or by doing a JV or two with an experienced vendor financier.

The people who buy and sell with vendor finance tend to be almost invisible to the traditional real estate market. Buyers get knocked back by traditional lenders and disappear. A vendor stops using the traditional selling process, after they don't sell via traditional methods. And it's this ever growing percentage of the population that are making vendor finance inquiries, e.g today we had 3 vendors make inquiries wanting to know how to sell their properties with VF and 3 buyers making inquiries about buying with VF.

All in all we're finding it to be a buoyant market.

Cheers, Paul

 

[JWR]

I admit I have no education in this area - but I would love to learn as it looks to be a way to make serious money. Especially if you can do it with no money down as you can technically complete an infinite number of transactions.

Where are these meetings located?

Is Rick Otton's material any good? I have listened to lots of his 'creative real estate' podcasts and read his website but think the $3000+ fee is a bit excessive. He claims his clients make $40k on the first deal - so I offered to do the course for free but pay him $10k with the profit from the first deal - but no deal. So it cannot be that good if I am offering to pay him double if his teachings actually work.

Are there any people on the forum who have successfully dealt with VF? Would love to hear some real stories on how to find the right vendors etc...

 

[knightm]

Paul,

Your words are intriguing to me and whilst the idea of vf is not something I have seriously contemplated doing myself it seems you may be worth a listen.

are the VFI and n2p both your businesses? with the n2p being the vf business and the vfi a way to profit somewhat from the education nexus that exists?

I am not criticising if they are, just curious.

 

[Lofty]

Hi

James, we have been running our VF business since 2003 and now operate this business full time. If you are prepared to take lots of action and that's what's always required to get all businesses going (plus persistence), go and ask a property manager (not a real estate agent) if s/he has any properties for rent that came back after they didn't sell. These are your sellers and I suggest you treat a property manager who has this information, very well ;-)

knightm, 50% of our core business is jvpropertypartners and the other 50% is negative2positive. Depending on what stage the market is in, determines which of these two strategies we concentrate on. Sure we do make extra profit from JV'ing with people who need some confidence building and newbie mistake prevention ;-) but it's really an adjunct to our core business. That is, like not wanting to pay for your education, a lot of people won't share the 'perceived' profit from their first transaction to learn. Luckily it's a minor part of our cash flow.

Cheers, Paul

PS. Don't get me wrong, there are educators I wouldn't pay either ;-)

 

[knightm]

paul

thanks, yes i believe there is a lot i can learn for free and also a lot to be learned that has a cost. if someone has specialised knowledge and has found a way to earn i don't begrudge paying as long as its the real deal and not sales spin or a scam. i dont think thats what this is. jv's could be a good way to learn to.

 

[The Fox]

Rick Otton subject of enforcable undertaking

Finally it seems that Otton has been taken to task over his "misleading" marketing strategies.

http://www.commerce.wa.gov.au/consumerprotection/PDF/EnforceableUndertaki/RickOttonWeBuyHouses.pdf

 

[Lofty]

The National Consumer Credit Protection Act 2009 (NCCP) started operation on 1 July 2010. As a result the Vendor Finance industry has changed for the better as licensing is now required for vendor finance transactions that fall under the definition of a Credit Contract (Instalment Contract, Deposit Finance and Deposit Builder [in Vic]).

The new Australian Consumer Law started operating on 1 January 2011. Since it's inception the Vendor Finance Institute, via it's VFI News newsletter, has been informing vendor financiers how to deal with these new rules and the changes they need to make.

Since these two new legislative programs have come into being, they have not operated in a vacuum. I can point you to numerous vendor financiers who have been audited by ASIC to ensure they are operating within the new National Credit Code.

The same applies to the Australian Consumer Law. The Tasmanian Office of Consumer Affairs and Fair Trading have required a vendor financier to make changes to their marketing and now WA consumer Protection have set out strict guidelines for the future, via the undertaking mentioned above.

As an analogy, it took many years for the mortgage broking industry to sort out it's 'challenges' from the laissez faire 1900's. The mortgage industry promised to self regulate around 2000, with less than stellar results. Being dissatisfied with self regulation attempts the Government brought in the NCCP and the mortgage broking industry is now a very different industry to what it was in the 1990's.

I believe the vendor finance industry is going through a similar period of transition, i.e. from a period of self regulation that hasn't worked to an industry that is being pulled towards either making the decision to become much more professional or to continue to resist regulation and disappear.

For me, I look forward to working in a much more professional, client focused vendor finance industry.

Cheers, Paul

 

[Aaron_C]

Meh, once Governments gets involved the industry always suffers. Broking is no different.

 

[see_change]

Finally it seems that Otton has been taken to task over his "misleading" marketing strategies.

http://www.commerce.wa.gov.au/consumerprotection/PDF/EnforceableUndertaki/RickOttonWeBuyHouses.pdf

Many long term forumites know Rick personally as he was quite active on the forum in the early 2000's . He's a smart person who has been very successfully for many years . I was surprised to turn up to a school reunion and see him there ....

This restricts him for what he was doing . No fine or any thing else . He'll either find a way to rebadge what he's doing so it complies or do something else or retire ..

Cliff

 

[Lofty]

Both Sides

In the interest of hearing both sides:
- The WA Consumer Protection press release is at; CLICK HERE, and
- Rick Otton's press release is at; CLICK HERE

Cheers, Paul