Vendor Finance

[Brizzyb]

Hi, I am new to this forum and could do with some help.
I am purchasing the upper part of a duplex as an investment. Finance in place, all progressing smoothly. Both duplexes (2 bed up, 1 bed down) are currently owned by the same person. 1 bedder also on market but is not selling due to current layout not being the best.
I am interested in purchasing the 1 bedder as well but am not in a position to get finance at the moment. Would it be a good idea to approach the vendor re the possibility of vendor finance? In the long term there are many advantages of owning both duplexes - the main one being the possibility of turning it back into a 3 or 4 bedroom home. Currently rents are high & stable in his area so getting a tenant into the 1 bedder to cover the repayments to the vendor is not an issue. As a deposit for this place is my issue, I am wondering what people think of a vendor finance proposal whereby I agree to purchase the property for their current asking price in 3 years (current asking price is about 10% over value) & monthly repayments based on 1% above the standard variable mortgage rate?
Any thoughts/ideas?

 

[thatbum]

In the long term there are many advantages of owning both duplexes - the main one being the possibility of turning it back into a 3 or 4 bedroom home.

I'm very surprised to hear that turning it back into one home is somehow an advantage.... How sure are you of this?

 

[Brizzyb]

An agent said family homes are in short supply in this particular area and it would be an advantage to turn it back into one.

 

[geoffw]

It looks to me as if you have two concepts in one.

With vendor finance, you buy it now and in effect borrow the money from the vendor. You own it immediately and have full control as if you had used a bank loan.

The other concept is an option. With that you pay the vendor a fee now, and in return, you have the right but not the obligation to buy it at an agreed data in the future for an agreed price. Until then the property belongs to the vendor- however he cannot sell it to a third party.

 

[thatbum]

An agent said family homes are in short supply in this particular area and it would be an advantage to turn it back into one.

Well you should have a look at how much family homes go for in the area (and rent for). And then find out whether it is more than the sum of the two dwellings individually.

I'd be very surprised if it was the case (especially rent wise).

 

[Terry_w]

Sounds like a installmen contract. 3 year settlement with you given possession after exchange and before settlement. Could work out well, but the risk is that you may not be able to get finance in 3 years.

 

[impala67]

...but the risk is that you may not be able to get finance in 3 years.

Generally from what I read about Vendor Finance - it is mostly a win-win for the seller. Usually the rate is 2% higher than standard and 1% seems like a bit of good deal, however the clincher is Terry's comment.

 

[Brizzyb]

All very good points to consider. Thanks everyone for your opinions. Does anyone know if the repayments made to the vendor would be tax deductible?

 

[Terry_w]

All very good points to consider. Thanks everyone for your opinions. Does anyone know if the repayments made to the vendor would be tax deductible?

Interest component may be deductible if it is an investment property