vendor finance

[young_starter]

Hi all,

As mentioned in a different post, I am thinking of selling my property under vendor finance.

This would mean that the buyer will sign an agreement to buy my property at a future price at a future date (3 years from today). On top of that, they will also agree to an installment plan over the 3 years they are "renting" from me.

Do anyone see any issues with building insurance companies? Will they be able to insure the building (landlord and building insurance) with the vendor finance agreement in place?

Cheers,
SK

 

[Lofty]

Hi SK

At this early stage it would be a good idea to get to know the difference between an Instalment Contract (IC) and a Lease/Option (sometimes called a Rent To Own). Have a look at:
http://www.propertyinvesting.com/strategies/wraps
http://www.propertyinvesting.com/strategies/lease-options

Everything you're contemplating is available with an IC, except the 3 year term. The new National Credit Code (NCC) has a real challenge with a short term IC finishing with what is effectively a balloon payment. However there are ways of writing up an IC for a longer term but, at the same time, inserting various mechanisms into the IC to 'movtivate' the buyer to refinance into a traditional loan within, say, the first 5 years. However all such 'motivating mechanisms' must be taken into account when initially qualifying an IC buyer. If you are not locked into a 3 year term an IC may work.

A 3 year Lease/Option may work, except you would remain responsible for the council rates, the water rates, the insurance and the maintenance on the property. Of course you can estimate these costs and add them to the rent and the 'ongoing option fee'.

With a Lease/Option you can use a standard Landlord's Policy. With an IC a Landlord's policy won't do. However there are two specialist IC policies available.

More information on this concept is available at www.negative2positive.com.au (Disclosure - this is our website)

Cheers, Paul

 

[charlieraly]

Paul

You said 'With an IC a Landlord's policy won't do. However there are two specialist IC policies available.'

I'm looking for a specialist IC insurance company for a house in VIC. What are the 2 insurance companies you are talking about?

Thanks
Glenn

 

[Lofty]

Hi Glenn

1. http://www.allianceinsurance.com.au/ and

2. DMA Insurance Brokers
8/1 Pioneer Avenue
Tuggerah NSW 2259
1300 856 657
ask for Megan and mention that you're looking for a vendor finance policy.

Cheers, Paul

 

[charlieraly]

That's awesome Paul.

Can you tell me from your experience, would insurance companies like NRMA insure houses against damages to a house (IC in place) when a normal NRMA landlord insurance policy is in place?

Thanks
Glenn

 

[Lofty]

Hi Glenn

Unfortunately I can't answer that question. You'd have to enquire through the relevant insurance companies legal department. We feel it's easier to grab a policy that contains full disclosure regarding the Instalment contract, rather then trying to deal with and change legal departments ;-)

Cheers, Paul