I’ve been approached by vendor finance company that promises cash on cash return of more than 15% on metropolitan Melbourne. They make money on interest margin and also on future house price. However, the contract is only valid for 7 years, after which the title of property passes onto the tenant. In the meantime, I can access the equity of property (and possible capital gains) to fund more property purchase. My question is then can i claim my interest payment as tax deduction during the 7 years? Does anybody thinks that it is a legit investment?
Any comments are much appreciated..
Want to join financial independence before 31 years old, currently 25
I am wondering what happens if the tenant does not pay for the property within the 7 years and title passes – how do you get your money?
If you access the equity above the tenant’s purchase price, how will they be able to finance the purchase if there is not enough equity in it for them?
Regarding tax deductibility of interest, it is always deductble if the money borrowed is used for investment purposes.
Legitimacy of this type of deal is a debate that could go on forever!
Get a good solicitor to look at it.
Robert Bou-Hamdan
Mortgage AdviserM: 0414 347 771
E: [email protected]
W: http://www.mortgagepackaging.com.auComments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd
Rob
thanks for answering my questions, from what I understand, if the future owner defaults on payments, the VF company will repay me out of their pockets (in the meantime, they will find another future owner – possibly within a week) but thats questionable.. Also, they make money by charging a lump sum fee for arranging the vendor finance. I shall be meeting with them next week, will keep you all posted.
Cheers
Want to join financial independence before 31 years old, currently 25
Sounds like they are using your money for deposits to buy properties with loans you apply for, and sell them on lease-options. That would be the way you could refinance during the 7 years to access any capital gains.
Nothing wrong with that, but if you refinance, then watch the difference between what you owe on the property and what the option strike price is (what the buyer is going to pay for it) as you might not get any back end if you borrow too high.
That might be OK to you if you re-invest the drawn funds during the 7 years I suppose – do your own numbers.
Like all due diligence, check on the arrangements for all cash coming in, i.e. the inital option fee, the rental and the back end, to make sure you are happy with the distribution or split.
Cheers
skippygirl
That sort of COC return is very low if it is you that is getting the loan in your name. You are taking all the risk. If you did it on your own, you would be making much more – around 60% COC return.
I would be interested in knowing who this company is.
Terryw
Discover Home Loans
Mortgage Broker
Click below to email meTerryw | 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
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