Vendor finance commercial deal

[Terryw]

BD,

You've lost me.

Assuming the purchaser can come up with $500,000 cash without using this property as security, the vendor already has a $500,000 loan, so if they get a second mortgage for another $500,000 this will make it 100% LVR.

This $500,000 is then on-lent to the purchaser who will take over the property. The title would still have to be in the vendor's name as they have a $1mil debt. So the purchaser pays back the $500,000. The vendor pays this back to the bank. Title can the transfer when the purchaser comes up with $500,000 more?

Doesn't make sense to me. Am I missing something?

 

[ugotadollar4me]

I kind of see what your saying but I don't think it would work for me as my main goal was to drag out 20% cash so that I could use it for other property purchasers

 

[Bird Dog]

BD,

You've lost me.

Assuming the purchaser can come up with $500,000 cash without using this property as security, the vendor already has a $500,000 loan, so if they get a second mortgage for another $500,000 this will make it 100% LVR.

This $500,000 is then on-lent to the purchaser who will take over the property. The title would still have to be in the vendor's name as they have a $1mil debt. So the purchaser pays back the $500,000. The vendor pays this back to the bank. Title can the transfer when the purchaser comes up with $500,000 more?

Doesn't make sense to me. Am I missing something?

Sorry Terry, let me clarify.
The above suggestion comes from the (hypothetical) assumption that the property is hard to sell and the purchaser cannot raise 100% of the purchase price, hence the need for Vendor finance for say the remaining 50%.
This is based on 50% vendor finance and not 100% as per the original question.

So the $1mil could come from the following:
* $500,000 loan the new purchaser takes out on the property. New Lender has security on the sale of the property if it all goes belly up.
* Remaining $500,000 comes in the form of a second mortgage from the vendor. The disadvantage to this of course is he will need to take a back seat to the original lender if the property needs to be taken back and sold. He would only get his money once to bank has theirs.

Obviously there is additional risk to the vendor but they may be happy with this by increasing the interest charged on the second mortgage.

Contract is drawn up stating the above with perhaps a 5 year term at which time the finance is bundled to pay off the second mortgage

It may not be applicable in this instance as it depends on how much equity the Vendor has in the property. I was merely suggesting other ideas for anyone reading the thread, that's all..
I was merely posting an alternative to 100% vendor finance as others has posted that this was not entirely a great idea.

IMHO, I wouldn't be lending to someone who didn't have the ability to at least secure some finance as in the end, all you may end up with is the same problem in 5 years time when your loan is due and they cannot get finance to settle with you.

It was a very long way of saying.. "you get your $500,000 and I'll finance the rest to you over 5 years". I hope that clarifies..

B.D


cheers

B.D

 

[Terryw]

B.D.

Thanks for the clarrification. That makes sense now.

You were just proposing that the purchaser borrows 50% LVR from a lender, titles change, and the remaining 50% still owing to the vendor is paid off as a separate loan over 5 year. The vendor would secure their loan by second mortgage.

 

[Bird Dog]

Exactly..
Mine was a little more long winded....