Paul at Resicert does a good job. His number is 1800 737 423.  He also has a website at:  http://resicert.com/

Cheers,  Paul

Hi Michelle and Ade

I'd also suggest you get another accountant's opinion regarding the Trust structure.  As a Trust is not a legal entity under the law, a clever solicitor that wants to 'have a go' at a Trust will attack the Trustee.  If the Trustee is you, ouch.  If the Trustee is a $2 company, I'd be feeling much more comfortable.

I believe the extra cost for a Corporate Trustee is well worth it.

Cheers, Paul

G'day Mark

Welcome back and thanks for the PM.  As I mentioned in my answer to your PM, just because you're currently living in SA may not rule out your interest in Lease/Options.  We live in NSW and now do vendor finance transactions throughout Australia so, if that's the way you want to go, don't let SA rule it out 

Cheers,  Paul

Hi Dkb87

That's how we started, i.e. we had some equity in our home and we bought some properties and on-sold them with vendor finance (VF).  However it didn't take us long to realise that we were just setting up a cash flow business.

We always believed that our long term wealth would come from the equity we own in property.  So, initially, we used this positive VF cash flow to support our buy and hold portfolio building.  It was later, as the cash flow accelerated that we were able to use the cash flow to support our buy & holds and our lifestyle.

Cheers,  Paul

Hi Scott

We find that the primary goal of our buyers is home ownership and, once they're on their way towards that goal via a purchase with vendor finance, their secondary goal is getting the Title in their name and refinancing into a traditional loan, with a lower interest rate.

NSW has had a pretty abysmal capital gain environment since 2004 (sure, not everywhere), so our clients move towards their secondary goals via the deposit they paid and the gradual equity increase they achieve via their P&I loan with us.  We usually find our clients are able to apply for a 90% LVR loan, from a traditional lender, at around the end of year 3 to the end of year 5.

If our buyers had Interest Only loans with us, they would have to rely on capital gain to help them refinance in the future.  As capital gain has gone 'missing in action' in a lot of areas we stick to only offering P&I loans to our buyers.

Cheers,  Paul

As far as I know, no traditional lender, i.e. bank, building society, etc, will allow you to 'compromise their security', i.e. breach their loan agreement.  If you look at most standard mortgage documentation, you need to get their approval to renovate the property, sell the property and rent the property, among other things. Obviously both they and everybody else ignores these requirements but the 'banks' put these conditions in the paperwork so they remain in complete control, i.e they like to remain in a position where their mortgage documentation allows them to 'call in' the loan when they feel they need to.

On the other side of the coin, a delinquent loan is bad for a traditional lender's balance sheet. The reality is, if the traditional lender gets paid each month, they remain happy and everybody goes about their business.  For example, it's is estimated that 25 to 50 homes per week are sold with vendor finance and this has been happening for years

One of the strange things about traditional lenders' attitude towards vendor finance is the fact that, if you go to any 'branch' you will be told they will not approve what you are proposing. Yet, I have two business associates that got $7 million and $5 million lines of credit from two of the big 4 banks, to purchase residential properties and then on-sell them with Instalment Contracts, while the bank's underlying loan remains in place.

I guess that's the difference between consumer and commercial banking, i.e. one section says no, the other yes. We have built our vendor finance business since 2003 and have never had a challenge with an underlying loan lender. Why? Because we make sure they get paid each month

Also, when asked the following question by an PI insurance underwriter, i.e. '"How does the lender (vendor financier) overcome or address the issue of assignment of property under a mortgage with the financial institution?" the following legal opinion was provided by arguably the most experienced vendor finance solicitor in Australia, Tony Cordato:

'The answer to your question is a technical one – there is no assignment of property in an instalment contract. What happens is that the vendor is entering into a Contract for Sale. It is only on completion that an assignment (known as a Transfer) takes place.

An Instalment Contract is a Contract for Sale with a delayed completion.

The Bank / Lender’s consent is required for all Contracts for Sale, so there is nothing different here from standard procedure.

In terms of timing, a vendor notifies their Bank / Lender that they require a Discharge of Mortgage (by providing a Discharge Authority) shortly before completion is due. I find that Banks will hold open their discharge arrangements for a limited time, each Bank being different. The point is that the Banks do not like being notified a long time beforehand – some like the NAB require completion to take place within about 4 weeks after notification

Therefore, it does not accord with Bank practice to notify a Bank that a discharge is required under a Contract for Sale with a delayed completion until completion is imminent.

I trust that this answers the enquiry.'

Cheers, Paul

Hi grimnar

All go straight to your questions:

1.  Most people starting a real estate vendor finance business start off using regular residential investment loans.  There has been on-going discussion here for many years on the need for 'full disclosure'.  An earlier posting regarding this issue is at;  https://www.propertyinvesting.com/forums/property-investing/creative-investing/4344196?#comment-260266

2. All the JV partners we work with keep their existing loans in place.  This seems to be the norm.

3.  To answer this question you need to know what sort of vendor finance business you will be operating, i.e. will you be selling properties you own or will you be assisting people to sell their properties with VF?  More information on this point is available at:  https://vendorfinanceinstitute.com.au/home/acl-pack/

4.  Have a chat to you accountant about how CGT is handled when selling your PPOR with VF.  Do date we haven't run across anyone that's done it.  However, regarding the sale of an IP with VF, I believe you're on the right track, i.e. it's treated on an emerging profits basis.  There are some ATO rulings to back this up, so check with your accountant.

5.  As with the purchase of most IP's, most investors seem to opt for as little money in the transaction as possible.  We have some JV partners with 90% LVR loans on their properties and it has certainly increased their cash on cash return.

6.  All States except S.A.

7.  We use a Family Trust Structure for properties we've sold with VF.  As they are positive cash flow, this precludes locking up negative gearing benefits in a Trust.  Have a chat with Richard and/or Terry who are regulars on this forum and really know their stuff.

Cheers,  Paul

Hi Josef

As your property is not as 'negative' as some I see, I would definitely look into the PAYG tax variation mentioned above, along with some research into how much a depreciation schedule may help.

To help with get your head around vendor finance and where to start, our website  http://www.negative2positive.com.au may help.

Cheers,  Paul

Hi Mick

We don't utilise traditional real estate agents to market our vendor finance (VF) properties but we've heard of a handful of VF'ers that do.  Unfortunately I don't have any real feedback on how that's gone for them.  I guess it would depend on what commission rate you could negotiate.

Our marketing consists of:
Signs
Classified ads in local community newspapers
http://www.renttoownhome.com.au
http://www.vendorfinancedirectory.com.au
http://www.gumtree.com.au
a friend that is able to get our properties on realestate.com.au and Domain

If I went with a real estate agency I'd make sure I didn't sign an Exclusive Agency.  This way no commission is payable if I find the buyer.

Cheers,  Paul

Hi Dkb87

The Vendor Finance Association is a great place to meet vendor financiers in Perth.  Dates and details of Perth VFA meetings are available at:  http://vendorfinance.asn.au/meetings-and-memberships/

I believe it's important to build a good foundation to your vendor finance knowledge and there are numerous educators to choose from.  Some that spring to mind are:
Sean Summerville  –  http://www.thepropertyking.com.au/
Rick Otton  –  http://www.rickotton.com/
Dave & Julie Siacci  –  https://vendorfinanceinstitute.com.au/home/siacci-system-of-vendor-finance-1997/
Paul Zalitis  –  http://www.aussiewrapper.com.au/Cash-Flow-Investing.html
Gordon Ku  –  http://gordonku.com/
It is worthwhile researching all these educators and choosing one that suits your style.

May I also suggest that you do some research about buying with VF.  Some suggested places to start are:
https://www.propertyinvesting.com/strategies/wraps
https://www.propertyinvesting.com/strategies/lease-options
http://negative2positive.com.au/information/about-vendor-finance
http://www.vendorfinancelawyer.com.au/vendor_finance_intro.htm

Cheers,  Paul