Have been looking at a property for sale for 145k. Too much. Now is down to 135k. I wanted to get it at 128k, now it is getting closer so maybe I need to get it cheaper then what I originally thought, so I can add some to wrap price.
Owner will not go below 135k. I want to consider alternative offers but am unsure of sums.
I thought to ask for 2nd mortgage. I would buy the house for less than what he wants, but he will eventually get what he wants over time with his interest payments on the second mortgage.
Can anyone advise what methods are available?Do you buy property at less because you are paying the second mortgage interest, or do you buy it for more because they are being flexible with sale terms?
If the latter it cuts down cash flow due to higher interest rate, how much interest rate do you offer for it?
Originally posted by Jeff Butters:I wanted to get it at 128k, now it is getting closer….Owner will not go below 135k. I want to consider alternative offers but am unsure of sums. I thought to ask for 2nd mortgage. I would buy the house for less than what he wants, but he will eventually get what he wants over time with his interest payments on the second mortgage. Can anyone advise what methods are available? Do you buy property at less because you are paying second mortgage interest, or do you buy it for more because they are being flexible with sale terms? If the latter it cuts down cash flow due to higher interest rate, how much interest rate do you offer for it?
Hi Jeff,
I’m sorry I don’t have specific advice to offer you, because I’m facing a similar position myself and want to know the answer to your questions from more experienced forumites. However, if I understand the process correctly, you / we make 2 written offers, for example:
1. Cash 128k. OR
2. $135k in 2 parts:
a) 120k /125k cash (whatever you can get away with) PLUS
10k / 15k as a 2nd mortgage.To me, the goal is to get the vendor to pay your deposit for you, thus allowing you to buy a 2nd (different) IP.
My key concerns are:
1. How do the banks view this sort of deal?
2. Will asking for a 2nd mortgage prejudice your chances of getting bank finance?
3. Do the banks (or more specifically the mortgage insurers) put more onerous terms/vary their servicibility formula in some way?I’m particularly keen to hear comments re the role/attitude of mortgage insurers (can we use 2nd mortgage vendors finance to allow us to avoid paying MI if the collective deposit: cash plus vendors 2nd mortgage, is above 20%?
Looking forward to the comments of other forumites.
Greg FA couple of points (based on experience!)
If you want someone to leave money in the deal, then I would almost overwhelmingly suggest you need to pay a better price to do it. They’ve got to see that they’re gaining something too. Asking for a lower price and terms convenient to you is probably not going to work. But hey, you never know!
Also, the main problem I struck with all this was lenders. I was borrowing lo doc, and the second they saw that vendors were leaving money in as a second mortgage, finance was impossible. I didn’t find a single lo doc lender willing to do it. Unfortunately I can’t borrow full doc at the moment, so I basically had to give up at that point.
I’m sure it can be done though! I’d certainly recommend that you shop around for a lender who will do it before you go too much further.Keep smiling
FelicityHey you have to look at it in terms of the current market and the vendors position….ie is he motivated to sell ( what is the real reason for selling ), and is it a buyers market where you are looking.
It may be enough for the vendor to know that the property is sold ( certainty )even if he has to wait some time to gett 100% of the sale price.I would first offer the price he wants (135k) and ask for vendor terms for the balance you can’t get finance on.
If this is not acceptable, then you can sweeten the deal by offering a margin above the asking price for the inconvenience of not receiving 100% proceeds at the time of sale.
Same with the interest rate.
Offer bank rates initially for the vendor finance.
You can always negotiate a higher rate to make it more attractive if that is not acceptable.Al you are doing is asking the question. All they can say is “NO”
The key to your success is to find out the vendors motivation for selling
KP
Yes if you can get a second mortgage of about 20% of the value you may be able to completely avoid mortgage insurance.
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
Thankyou for the replies.
Now more questions though.
If I pay full price 135k with 2nd mortgage, I have now bought the property at retail, not wholesale. Correct?
Because of this I can’t add as much on to sell price as I would if I had bought it at wholesale.
I assume that if this deal went ahead like this I would add a slight amount to cover purchase costs and a small profit, and just make my money on the interest rate difference?
eg 135k + 8k costs = 143k @ 7% 30 yrs = 216 pw
sell 147 – 12fhog – 5 dep = 135k 9.5% 30 yrs = 252
Make 36 pw for 8k investment.
Any comments, am I on the right track here?
ThanksIf you are getting the vendor to leave money in like that you could be getting 100% finance, so you can’t expect too much discount.
If you are going to wrap, then it shouldn’t really effect how much you charge. It should be basically market rates (for wraps). The wrappee should expect you are making a margin on the price and interest rate to cover the extra risk involved (in lending to someone that can’t get finance). SO I would still add 20% to the market value and a margin on the interest rate. If you wrap for $147,000 you will be making hardly any profit after you factor in purchase costs.
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
10k / 15k as a 2nd mortgage.
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