Vendor finance

I've got a house advertised on Gumtree and have had several requests for vendor finance.

It strikes me as a Very Bad Idea from every angle. I have the house rented out at $110pw at the moment, assuming someone did the vendor finance thing they'd give me $15,000 as a 20% deposit and then pay at, say, 7% or more for the rest of it - barely $80pw interest, plus some principal, and I'd assume the only thing that is different to being a landlord is they pay the council rates and maintainence not me. And where does the vendor finance money come from, anyway? I don't own this house freehold, I do owe money on it.

At those kind of figures, why not just get a normal loan already! Then at least I'd get a big fat lump sum to put on my new house.

Mumble grumble @ financially challenged people looking to buy cheap houses. There are slightly cheaper houses than mine for sale on the same STREET, they are just not as nice and don't have the whole brand new roof, brand new tanks and completely rewired thing happening. If I was getting a house between $65k and $75k I'd take one with the new roof/wiring/tanks (worth about $30k new) over the one without for $10k less anyday.
I've got a house advertised on Gumtree and have had several requests for vendor finance.

Nice to know that the spruikers selling "secrets" on the seminar circuit are doing their job.
If you get lucky, someone will offer you an "option" contract.
The trifecta would be a JV offer from some wannabe developer.
I have the house listed at below market value (the sale price is the bank valuation figure from two years ago when our bathroom was a ripped up mangled pile of stone and dirt with not a tile in sight) and of course the gross rental yield vs that value is 7.6% so it would have to be vendor finance on a much higher rate than that to make it better than renting the place out.

Maybe if the place was vacant, or my loan was bigger than $20k, or the rent was considerably less than the mortgage, or I desperately needed the cash from selling Right Now I'd consider it ...

I had a look at the Homestart website and they'll lend $84k to a FHB on a $20KPA income with $7k in savings. Homestart accepts Centrelink payments as income, most banks don't. People with almost no money *can* afford this house *without* vendor finance. Gah!
Theres a reason they came to you. In may not be inline with your opinions of whats acceptable ...i dont see how that matters in the end. If you are making money and theres low risk... whats the problem? Do you have a problem with the idea of vendor finance maybe?

Im finding the more i learn about it the more indifference i see towards those two oxymoron like words
Hangon... I thought that you can't do vendor financing in South Australia (ie, the state government prohibits it)? Or did that used to be the rule?

Vendor Finance doesn't exist

It is Vendor Terms and it is the Poisoned Chalice.

Do not consider this at all, ever, not for one moment.

This thread is really weird.
Vendor finance means the vendor sets the terms.
What could possibly be bad about that for a vendor? :confused:
Geez set your terms and if they like it great, if not goodbye.
Just do a hire/purchase at 150pw for 20 yrs or sumthin.
This thread is really weird.
Vendor finance means the vendor sets the terms.
What could possibly be bad about that for a vendor? :confused:
Geez set your terms and if they like it great, if not goodbye.
Just do a hire/purchase at 150pw for 20 yrs or sumthin.

We have purchased 2 properties using Vendor Finance.It is the same owner for both properties.The Vendor hadn't really considered it, and we offered full price.The first property was on the market for 2 + years. He asked for a certain percentage as a downpayment.We offered him higher than the going rate for the interest rate. In the vendors case he was self employed and ready for retirement, and this was his retiement package.He wanted a certain monthly income, and we adjusted the amort to satisfy him.Vendor pays CG over a longer period of time.
It is a win win deal.

We have offered our tenants a Rent to Own for certain properties. Totally different concept. They are buying an Option.We offer our properties at higher than market, as we are required to sell even if it doubles in value.We require a small downpayment,market rent, and Option payment. This Option payment, if there is a successful purchase, goes towards the downpayment when they attain finance after the option period.(defined in the contract)

Last year we had 2 tenants do the Rent to Own.
One was 15 months into it, and walked away.We kept the downpayment, and option and it is considered rent for tax purposes.(this didn't end well. They damaged/stole a lot..and we are going to court if they don't pay)

The other tenant has been there a year. They have financial trouble at times, and we always offer to work with them.We offered to extend the Option period, but the rent will increase a set percentage each year.

For us it is a win win situation.
We have a house that we do not need to do any maintenance and repairs.

Basically, if you own the property, you can do a Venodor Finace.
If you still have a mortgage, do a Rent to Own (or whatever terms you call it in Australia..wrap?)
Hi Kathryn

You are overseas and this is not how Tax law operates in Australia.

mja has also commented that Vendor Terms may not be legal in South Australia

In Victoria, enter into one of these contracts, either as buyer or as seller, at your own peril.

These arrangements are a legal minefield and although selling on a Terms Contract is certainly legal in Victoria, no lender will pick them up for settlement as they are considered to be a refinance of a personal arrangement, and the purchaser can at any time request for the Vendor to provide Mortgage back to them to enable them to become the Registered Proprietor of the property.

If the Vendor already has a mortgage on the property, how are they going to satisfy their existing lender to enable their mortgage loan to be paid out so that they can provide a mortgage facility, on the same terms and conditions as the Terms Contract, to the purchaser?

So is the Vendor going to renege on their legal obligations to the Purchaser? Has the Purchaser then paid money with no security?

It looks easy. It looks too good to be true. The Sale of Land Act provisions were never designed for commercial arrangements such as people buying property to on-sell on terms contracts.

Both Vendor and Purchase can find themselves in a dreadful situation from naively stumbling into a Terms Contract.

Australia has quite specific property laws which protect both parties. There are no short cuts worth mentioning.


There are ways to word any contract to make it legal and enforcable.
We had our lawyer write up the contract, we just told him what we required.

Our mortgage company knew we purchased these properties as a rental.Until the day our tenant completes the "Purchase and Sale " contract, it is just a rental.
Only difference is, we are not considered to be under the Residential Teanacy Board, according to our Director here. We think she is wrong, but she gave us a ruling :) which gives even more rights and authority.

Maybe in Victoria but in both Qld and NSW the Purchaser is required to have a lvr of 66% before this can occur. The Property Act is quiet specific in relation to this.

the purchaser can at any time request for the Vendor to provide Mortgage back to them to enable them to become the Registered Proprietor of the property.

Also i must admit i have been the seller of 101 of these financed with full Bank consent (and yes it was 2 of the majors where we flew to Melbourne to present the business plan with the support of the State Credit Office) as well as having refinanced many of our clients who purchased through our Wrap Company and then refinanced them away from us to traditional style finance.
I'm kinda thinking I need to put a link to Homestart in the ad on Gumtree. When I had the house for sale pre-September the FHOG was a 24% deposit, now its a lot lower. I think Homestart is the only place where, say, someone on the disability pension ($15k a year - my house is far too big for a single so I'd expect a family to buy it not a single) could get a loan for a house. Even for a single that's barely 4.5x multiple of income.

$150pw for 20 years would be a total ripoff and far more than any bank would charge. That's almost $160,000 in total. IO after the FHOG is only $91pw at 7%. I'm currently paying $45pw P&I for this house.

Need to inspect it this week - hopefully the tenants haven't destroyed the house or my chances of actually selling it go down even further. I know the tenants are in constant trouble with the police and are selling drugs, I'm just hoping they aren't growing them inside. There's a room with no window that would be perfect for growing under lights ... previous owners had drugs in the roof and ended up with a fire up there.
Many times the price isn't the biggest issue.
It's all in the terms.
We could go to the banks and refinance our 2 Vendor Finance properties without penalty.We don't want to.We are happily paying 7 % for the entire amort, and we could get a mortgage for 4.39% or a vaiable for 1.75%.

We feel safer dealing with the Vendor.
We like that all of our mortgages aren't with the same lender.

If you do a Vendor Finance or a can set the terms.
We were the ones actively pursuing these deals, so we offered the least amount, that we thought they would accept.

On our first property we didn't quite have enough for the downpayment, which we needed 20% so we require LMI. (LMI wasn't approved) so the Vendor provided a second mortgage, at our terms of 5% for 5yrs. Be inventive. Do research. It seems we are very rare even with our lawyer, who is very experienced. Most purchasers of houses are owner occupiers, and buy with a basic standard mortgage.
Hi Kristine

May I suggest you have a talk with the President of the Vendor Finance Association of Australia ( ) or the most experienced vendor finance lawyer in Victoria, Lewis O'Brien of Lewis O’Brien & Associates, (03) 9888 6388.

In a nutshell they will tell you that what Richard mentions as being correct for NSW and Qld, also applies in Vic.

In relation to the long history of Vendor Finance in residential real estate in Australia, you may like to refer to:

Cheers, Paul