Could anybody who has succesfully made an offer on a property for sale and had the vendor leave finance (say 20%) in the deal (perhaps tied to a second mortgage or loan), answer some q’s.
I am now running cashflow+ props, and want to speed up the process of acquiring more props.
How did you find a seller willing to do this deal, what sweettalking was needed?
How did you structure the offer?
Did you still get 80% LVR from a major lender?
What were the terms on the vendor finance?
Did you encounter any other traps(max lending power, minimum periods of history for existing rental income, trust traps?)[sunny]
lifexperience
It can be done.
Having said that, there are lenders who, as soon as they see details of vendor finance on the contract, will refuse to do it.
This is particularly the case with lo doc loans. So make sure your lender is happy to do them before proceeding.Keep smiling
Felicity
Adelaide Bank, Bank West….
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I only borrow lo docs nowadays MA, and I didn’t find any willing to do it!
I have found vendors willing to leave money in the deal though.Keep smiling
FelicityThanks Mortgage Brokers, you guys rule.
Felicity,
What were the terms you could find for vendors leaving money in the deal. Second Mortgage, separate Loan, interest?Terry,
What do the banks you mention need to approve a loan when there is money left in the deal. Will they still do 80%LVR of the TOTAL sale price?[sunny]
lifexperience
Hi lifex
Terms varied, but usually there was a 2nd mortgage involved, and mostly I paid around bank rates in interest.Keep smiling
FelicityFelicity,
Did you encounter any other hiccups with your deals.Could you give an example. I am just wondering whether i am stepping out into relatively unchartered waters.
Anyone else done this, it would mean almost 100% gearing, but would surely speed up process of acquiring cash+ props, waiting for equity is a bit slow lately.
[hat]
lifexperience
Hi LifeX, haven’t bought anything with partial vendor finance but I was talking with a mortgage broker and he mentioned using a particular institution (not sure which) where they lend up to 95% for IP aswell as lending the mortgage insurance. This means the lender is financing about 97%. Don’t know what the lending criteria was but hopefully its something you can use.
Matt[medieval]
Matt
Felicity and others,
If a person is going to sell a house, generally, in your opinion, why would the vendor leave money in the deal? They may make a bit of money on it (higher interest rate or something), but wouldn’t your average person want to take the money?
If they wanted to reduce CGT, the money they left in the deal would still be identified, wouldn’t it? What would the vendor get out of the transaction?
kay henry
Kay H,
A sale for one…
Maybe a better selling price for two…
In a slow market, a keen or desperate vendor maybe happy to realise 70% or 80% of the sale price immediately and forego the balance till some time in the future, just to sell and settle the property…Maybe? Maybe not?
KP
The aim is to get a property for minimum initial outlay.
If you use a lender to obtain over 80% of sale price, you pay Lenders Mortgage Insurance.
If you get vendor financing 20% or more, you may pay a bit more for the property (compromise)
Kay,
If you needed to sell a property which you had paid most of the mortgage off, would you sell if the only offer even close to your asking price required you lend back 20% of the sale to the buyer at a reasonable interest rate (secured by a second mortgage to the same property). Or would you wait for an outright buyer.How about 1 month later, still the same situation.?
How about 6 months later?
Any thoughts?
To Anyone, How would you feel if someone offered to buy your house, but asked you for a second mortgage on 20%?
lifexperience
If a purchaser was unwilling or unable to pay mortgage insurance and had no deposit, the last thing i’d be doing is handing over the title and retaining a second mortgage.
Most vendors don’t like finance clauses let alone not accessing their money, I’d feel this is a very unattractive offer to the vast majority of sellers.
Looks like your question to me has been answered kay!
Naturally this is not suitable for all vendors, but it can be done. I had one guy (an investor) who was cashing up prior to the boom ending, and he wanted to know why nobody had ever offered to buy a house like this before. He figured he more than paid off his mortgage, plus he got his extra money paying a better rate of return than a bank. He was happy!
I do reiterate, though, that you MUST know your bank’s feelings on vendor finance before even trying this. I had 3 deals lined up that all fell by the wayside because I couldn’t find a lo doc lender who would do it.
You also need a very good agent who is willing to take your different idea on board and sell it to the vendor – I’m astounded how many agents close off the second you suggest something outside the norm.
Heck, I even have trouble sometimes putting in a deposit less than 10% with some agents!!!Keep smiling
FelicityI have done many of these.
There are also a few other tricks, that may assist you also. Email me for details.
Anyway to answer your questions
1. Didn’t realy find the seller, just asked every seller for the properties that was being purchased.
Sweettalking – none really, just explaining it clearly and having it all prepared by a solicitor.
I will say this though, the vendors who were most acceptable to this method were business people, investor etc.. The general mum’s and dad’s didn’t like the idea, due to different reasons.2. 2nd mortgage Interest Only 1-5 yrs
3.Yes
4. As no.2 , but also the interst rates would vary, depending on the vendor, some vendors wanted quite a high interest.
5. Borrowing power has an impact if done as a 2nd mortgage, however if this is a problem, back to the vendor to renegitate.Any questions, please do not hesitate to contact me by email
Miracle
You appear to be an expert on 2nd mortgage Vendor financing with your lawyer arraning all the paperwork yet you sent me an email asking whether i would let you have a copy of a Put and Call Option.
Surely wouldn’t the same lawyer you use for all these 2nd mortgages have one for you.
And don’t you think the average mum and dad vendor is going to have the same problem with your Call Options as they do with leaving 20% of their sale price in the deal.
Cheers Richard
richard at fhog.com.au
http://www.fhog.com.auThere is no such thing as a problem.
Just a solution waiting to be foundRichard Taylor | Australia's leading private lender
Well, I tend to agree mortgage advisor, however
Richard, just trying to get something for free!Oh yeh, I’m not using put & call on properties from mum’s & dad’s, it’s for excatly what you use them for, development sites.
MA/Miracle
So what you’re saying is that because of the Privacy Act I cannot divulge anything that anybody sends me in an email to anybody else? Puhlease!!
I think Richard’s question was quite fair. If miracle’s solicitor is so clued up with 2nd mortgages etc. they should surely have a template of a put and call option already drawn up…..
without miracle’s explanation as to reasons, it also could show that miracle is ‘blowing smoke’ about previous transactions….
Cheers
MelRob, as far as I can see it, miracle was asking Richard for a FREE copy of a contract that Richard has paid his solicitor to draft up for him. There is no advice etc. given, nor asked for, so I don’t see how he was being asked in his professional capacity. Noting a comment on another thread, he would be charging a substantial amount of $$ for his time if he was being asked in a professional capacity.
Cheers
MelOriginally posted by lifeX:Thanks Mortgage Brokers, you guys rule.
Terry,
What do the banks you mention need to approve a loan when there is money left in the deal. Will they still do 80%LVR of the TOTAL sale price?[sunny]
lifexperience
Hi LifeX.
Sorry for the late reply – been away.
I have put a scenario to these lenders, but never actually done one of these deals. These banks have indicated to me that this scenario would be OK as long as the client can service the loan based on additional repayments for the second mortgage. max 80% LVR on contract of sale price.
ps what is happening – it seems there are many posts in this thread missing.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terry, Rob strikes again.
Cheers
Mel
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