hi all,
i'm just wanting to know a little bit about vendor finance for a deposit on a investment property. i have found a few potentially positive geared properties but don't have a deposit. is it possible to make an offer on a property with vendor finance for deposit and how would i go about it
thanks for any replies.Hi Ben
Certainly possible but couple of issues:
1) You will have to assume that the 20% – 30% vendor finance is not more than the mortgage owing on the property.
2) You will need to find a lender in the current climate that will allow you to borrow the deposit.
As long as the vendor will also fund your legal fees, stamp duty etc you will be fine.
Richard Taylor | Australia's leading private lender
thanks richard,
so say i wanted to purchase a property for $80000 does the vendor loan me the 20% deposit plus purchase costs which would be $20000 does the vendor get a loan for that amount and i pay it off over and above the rate of interest that he is paying. also would i have trouble getting finance for the rest of the loan because I'm a student on government benefits. the properties i'm looking at are well positive would that help with serviceability
cheersI Ben
Yes assume the purchase price was $100,000 and your costs came to $5000 then you would obtain a loan for $80,000 and the vendor would lend you $25,000 by way of 3nd mortgage.
Course the problem comes if the Vendor has a bank loan of $80,000 or more. (even slightly less as he will have costs and possibly Taxes to pay)
Secondly lenders wont allow the deposit to be solely funded by a vendor loan so this will be your next problem and finally as you have mentioned serviceability.
Irrespective of the cash flow lenders will only take a proportion of the rent into consideration so your income will be important. Qualifying for the $80K seem unlikely as well.
Richard Taylor | Australia's leading private lender
Hi Ben
While I applaud you for thinking outside the square on this one, I think you've probably got a snowballs chance in hell of getting this one across the line the way you're thinking about it at the moment. (Sorry!)
Also, you seem a bit confused with your comment "does the vendor get a loan…". As Richard alluded to, this sort of deal needs a few ducks in a row for it to come together, the first one being your ability to qualify for a loan with the bank in the first place. Banks don't hand out money to everyone at the best of times, and now is certainly not the best of times. The fact that the property should be cashflow positive if all works out properly is not enough reason for a bank to invest their money with you.
The second duck you need is that the 70 or 80% loan that you get has to be enough to pay out the seller's mortgage/s on the property. They then "loan" you the deposit. They don't get a separate loan and help you out that way, they loan you what you owe them, out of their available equity in the property.
I'm just reading this and I'm not sure I've explained it well – ask me again if I'm not making it clear.
The other issue is convincing the vendor to loan you the deposit. Why is it in their best interests to leave 20 grand in the deal? What can you give them, how does it benefit them, why would they do it? In my limited experience in this sort of thing, cashflow positive houses are very difficult to buy this way. All I can give the vendor for his 20% he leaves in the deal is an income stream. If he's selling the house, which was already giving him an income because it is cashflow positive, then why would your offer interest him? Now, there are always exceptions to this, and the vendor may just need 70-80K now for something, and be happy to carry back the 20k. Just remember though, he's going to need a compelling reason to do so.
If purchasing a property with none of your own money is something you want to do, it can certainly be done in your situation. However, it's not something that can be taught in a few hundred words!
Find me on facebook if you're really hungry. If it's just "something you're thinking about" then don't worry – it's too much work!
http://profile.to/andrewbuyshouses/
Andrew
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