Web are self emplpoyed with 2 businesses- 2 seperatePty Ltd- trading 5 and 2 yrs respectively) but are unable to borrow from bank because of running overdrfts (speed bumps). Can anyone point me in the direction of someone to vendor finance?
We currently pay $430 per week rent on a property which we don't want to buy( have done for 18 months) but have found a property we would love to buy at asking of $369000 in Wagga Wagga.Can probably afford rent of up to 550 per week.
Let me know what you think!
Sharon
Hi Sharon
Hate to say unless you have a half decent deposit the interest on a $369,000 loan will more than $550 / week let alone a P & I loan.
You say that you are unable to get finance thru a traditional lender due to having an overdraft but in small business this is normal and as long as you have a good savings pattern or sufficient deposit then running your own business and also running an O/D will not have any bearing on the application.
Richard Taylor | Australia's leading private lender
Hi Richard,
Just wondering what makes you say that the loan from a $369,000 property would be more than $550/week. If you have just a 5% deposit and a 95% loan ($350.550) at 8% (which to my knowledge is higher than lenders at the moment, but seems to be where interest rates are heading) then your weekly I/O repayments will be around $539.
$350,550 x 0.08 / 52 = ~$539/weekYes, they would definately be higher if it was P&I, but if it was interest only would it be more? Is there something I am missing that would make the payments higher? Maybe fees, or did I calculate wrong?
@ Sharon – Correct me anyone if I am wrong (because I could be), but I thought vendor finance was where the vendor of the property you are buying holds back some of the cost of the property. Eg, on a $400,000 property you might pay $300,000 on settlement and the remaining $100,000 over 5 years at whatever percentage. I don’t think you can pick a house you like and then ask someone else for vendor finance. If you found a house you like then you would need to approach that vendor (the current owner) to hold back some of the finance. I know there might be other tricky way to do it, but I thought this was how vendor finance usually worked. Am I right or wrong?
Ryan McLean | On Property
http://onproperty.com.au
Email MeSorry Ryan you are wrong.
I spent 14 years running and owning First Home Owners Group Pty Ltd (A specialist wrap company) and thats all we did.
Take applications from people like Sharon who wanted to buy a house and had traditional finance declined.
We then purchased the property and wrapped it to her the same day.The point i was making on the repayments was normally people seeking instalment finance dont have much by the way of deposit and the repayments on an installment contract will always be principal & interest so on a loan of $369,000 the repayments at say 1.5% – 2% would be $665 / month (not allowing for any interest rate increases).
Richard Taylor | Australia's leading private lender
Oh ok. So let me understand this (I am new to wrapping so would love to learn more). Someone else (Mr A.) buys the property for Sharon, and then sells it back to her. Sharon then pays Mr A. principle and interest on the loan, and Mr A. pays the bank for his loan out of Sharon’s payments? How does Mr A. make money? Is it by charging a higher interest rate than the bank? Or selling for an inflated price and thus collecting more interest?
I understand now why you said it would cost more than $550/week. I was thinking an I/O loan with a traditional lender…not a vendor finance contract like the one you mentioned. Thanks for helping me understand.
Ryan McLean | On Property
http://onproperty.com.au
Email MeMr A negotiates a lower price than Sharon was paying for the property as her finance has been declined and she has lost her power of negotiation and then onsells the property to her at a higher price.
Buys property for $200,000 and onsells if for $220,000.
Charges her a margin over bank rate or whatever yardstick rate he uses and she pays P & I on the higher loan figure.
Richard Taylor | Australia's leading private lender
Richard,
I remember reading a previous forum thread saying that it is difficult to get lending for wraps. That banks won’t lend to people onselling the property through a wrap. Is this true? Do you have to run a company like First Home Owners Group Pty Ltd to get involved in wraps?
Also, just to understand the legal obligations better. Does the bank have a first mortgage on the house and Mr A. has a second mortgage on the house? What happens if Sharon pays Mr A. but Mr A. doesn’t pay the bank? Can the bank take the house from Sharon?
Ryan McLean | On Property
http://onproperty.com.au
Email MeRyan
Yes i would agree with a comment Terry posted some time ago that most lenders wont lend knowlingly where the property is being onsold by a way of an instalment contract.
We have to have National Credit Approval to do so with FHOG Pty Ltd.
Mr A holds Title to the property and if he has a mortgage this is secured against the property. Sharon can register a Caveat against the property but you are right if she makes payment to Mr A and he doesnt pay his mortgage then the property can be repossessed by his Bank even though her repayments are fully upto date.
Richard Taylor | Australia's leading private lender
Okay guys- so from what I have read it would be impossible? The property we are after is a reno- only cosmetic which would be valued at 550 once the job was done. Our businesses are a freehold pub in a country town (5yrs) and a Michel's Patisserie (2 yrs) we are both over qualified (MEd and MBA) so if all else fails we go back teaching. Our strike out with the bank is mainly our 4 kids!!! 13,11,9,8.
Cheers
Sharon
….and I just read Richard's last comment word for word- so I do understand. DOn't worry about any further posts on the matter as I do know we will have to work another few years before buying. Thanks for your input guys.
Shaz
Ryan,
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