Vendor financing

[House_Keeper]

I have read in quite a few books from american authors, notably Robert Allen, the concept of "vendor financing", where the vendor would agree to take a note as part of the settlement. This note can be secured by a second mortgage and paid out based on a mutual agreement.

Has anybody purchased any property under theses type of "vendor financing" arrangements? Is there any legal restrictions on how can this be done in Australia? Is there any hurdles in practice when trying to negotiate such an arrangement? What are the practical issues with this?

Thanks,

 

[geoffw]

It's not unusual here, and has been discussed often.

Seaches non "vendor financing", "wraps", "Rick Otton", "Steve McKnight"- as well as searches for posts bbe wrapper Michaelg should give you an answer.

 

[House_Keeper]

Sorry, I seem to have confused people.

I didn't mean wrapping. I meant using vendor finance when purchasing a property, when you get the vendor to carry out a second mortgage on the property instead of getting a full payment in cash.

 

[qaz]

I think thats wrapping, just being the wrapee instead of the wrapper. Anyone have any ideas as how to generate income or invest in residential property zero down and with zero servicability. Such as flipping (onselling the contract to buy a property at an agreed price).

 

[michaelg]

Hi,

Buying property on vendor financing is possible only because how else could wrappers sell property?

However if you question is whether its possible to buy property via vendor finance from a non-investor/financier then yes.

I personally have not tried it often nor have had much success - however I have been told scenarios where this works.

In essence it comes down to what people want to do with the money when they get it. Do they NEED it now - or are happy to have it paid out.

One of the biggest barriers is the seller's solicitor - regardless of whether the deal is good for their client - their viewpoint they perfer a straight sale where settlement means close of business - on the other hand a terms contract means a long period where they remain engaged until the last instalment - the uncertainty of the success of the deal would put many off. That and the fact that many would not know how to manage it.

Best to relate it in terms that are more common - car finance, phone plans etc.

And ensure you can answer all their questions - thats best done upfront in an info kit.

Regards
MichaelG

 

[qaz]

So in other words, it works best with motivated vendors in a sluggish market?.

 

[saskatoon]

Housekeeper,
this concept is probably well over a century old in Australia. We bought our first home in the early '70's [no, not the 1870's ] using this method. Bank qualifying was much harder then (12 months continuous saving with the bank you wanted to borrow from??). We put down about 10% deposit (all the money we could scrape up), the bank lent about 70% (max. lend) and we took a 20% second mortgage with the vendor through his solicitor. Big aim was to pay off 2nd mortgage first!
Terry

 

[mitchmakhan]

Housekeeper,

I suggest a search on the Topic there has been stuff posted before on this, if you cannot find it pm me and I will furnish you with a annexure for contracts that you can place as annexure a that sets the terms etc...

Mitch

 

[House_Keeper]

Thanks to all the forumites who have responded.

I will do a search on this topic from previous posts.

Cheers,

 

[juzz]

I'd like to add one more note.
Not many solicitors are experienced at 2nd Mortgages and somties I've experienced some solicitors recommending against it to their clients because they probably don't know it.
If borrowing on vendor finance terms with the security of a 2nd mortgage, the
Vendor must use a solicitor who does it every day.
Then the vendor should feel more comfortable that they've obtain the right advice and they'll probably proceed with more confidence and with the right solicitor who will know all the potential problems.
(Also, be wary of any agents or be that anyone in the network involved, as they can wreck the whole process if they even have an inclination that you may not abe able to settle on appropriate finance)

Justin

 

[Rolf Latham]

Hi Justin

You are soooooooo right.

Often, unwitting solis have scuttled many of my clients good win win deals, simply because they were too chicken to tell them "I dont know this stuff". Simple option deals, caveat and second mortgage lending has been around for ages bit isnt an everyday thing.

Its not just solis though, often I find many accountants are also clueless on legal holding entities and transfer their conservatism ( or radical) approaches to their clients.

ta
rolf