Low and No Down Deals

I even had one valuer who commented without any hesitation that if there was vendor finance involved, he’d only value the house at 80% of the contract price – that’s what the lender he was working for had told him to do.

What does the type of finance have to do with the valuation on a property? I thought banks use independent valuers to get just that, an independent valuation, or am I being naive? And now that the (I think it was) Commonwealth bank is trialing a software-only valuation package that requires no inspection of a property, are we likely to see even more financial sleight of hand, in dissapearing V of the LVR?

B2

Hi Rob
I was talking about vendor finance in relation to the VENDOR who is selling the house to ME leaving 20% in the deal so that I don’t have to find it out of my own pocket. The idea is that I borrow 80% from a lending institution and the vendor’s 20% is a loan with a 2nd mortgage. I am still buying the house at market value, there is no hiking up of the price involved. This is a classic “no money down” deal for buying a house.
This has nothing to do with wrapping the house, that would come later. There would be no bank valuation involved then, because there are no banks involved.

Keep smiling
Felicity

Rob, Yes for commercial second mortgages, but we’re talking vendor financing here. ie where the vendor lends the deposit to the purchaser and takes a second mortgage as security.

Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email me

Anyone looking for a “flexible” vendor might
be interested in a 2b/r apartment in Sydney’s North Shore. It’s part of a beautiful strata complex built about 4 years ago, with common areas, gym, lifts etc. Ideally located very close to the new Lane Cove tunnel project and proposed Chatswood/Parramatta rail link, it was originally purchased off-the-plan as a long term buy and hold investment.
The combination of relatively low rents and the quarterly body corp. fee is squeezing me a bit too much at present, and I’d like to sell it. Happy to consider j.v., vendor finance, etc.

Junkers
It depends on the loan you’re applying for, whether or not you get asked about the deposit.
My experience with lo doc loans is that financial institutions are a little bit keener to see evidence of the 20% coming out of the buyer’s pocket. This is probably because they’re handing over their 80% with very little concrete evidence of the buyer’s ability to pay, and therefore the 20% represents the buyer’s hurt money. If I have no hurt money in the deal, what’s to stop me getting fed up and walking away? Maybe even going bankrupt to get out of the deal?
I’m not saying I’D do these things, I’m just looking at it from the view of the financial institution.
And basically, that’s why they don’t like to see the vendor (or anyone else, for that matter!) financing the deposit.

Keep smiling
Felicity

hi Junkers,
How did you go with the banks/lenders and your mum’s place. i want to do the same with my folks. Mum is really into the idea, but dad’s a bit funny about it (too far from the “normal” way of doing things). He keeps going on about how investment property interest is tax deductable – but if he vendor finance someone it wont be.

What was your mum’s experience like?

Also a question to Felicity – I would like to get into doning vendor finance myself. I know people in SA got done for not being registered, if you are in NSW – do you know how you take the first steps to get set up???

Thanks heaps[biggrin]

Challange the Norm

Hi
I feel that this maybe a good way of getting into the property market but like everything you must make sure you show due diligence.

2nd mortgages are usually restricted to 80% LVR anyway. Why not just get an increase from an existing lender. Alternatively, some lenders will just use a caveat which does not require approval.

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The poster formally known as The Mortgage Adviser

When I grow up, I want to be a Storm Trooper!

My comments were in reference to lenders.

_____________________________________________

The poster formally known as The Mortgage Adviser

When I grow up, I want to be a Storm Trooper!

I would like to enter into the conversation and present a scenario I am currently doing thorough due diligence on, if you don’t mind? And would appreciate any comments and suggestions on what I could do! I’m not sure how to go about the finance?! And would really appreciate how I or someone else could negotiate a low or no money down deal, because the info may help someone else as well, for the discussion. particularly with a FHOG that could be thrown into the scenario as well , to cover the deposits cost or something? I would really like to secure this property in my own name on the title. It is a debacle going on with the selling of the property and it is the reason it is going so cheap! The following explains more and the financial details of the property itself.

About the Situation of the Property!
The owner of the property (an investor with already 10 properties and been in the game a long time) done a private sale X? amount of years ago (a wrap transition), and also X amount of dollars (I haven’t been able to find out how much!).
The person currently living in the property and renting it, up until a few days ago, a wrappee from hell (and a neighbor from hell reports the next door neighbor).
The wrappee has declared bankrupt and tried to sell the property by putting up a ‘private sale’ sign up, out the front! This private sale has been unsuccessful for her and recently listed with LJHooker.
Here’s where it gets interesting, the original owner or the “wrapper” apparently has had a fallout with LJHooker before and has an ‘personal conflict’ with someone in local office. Because of a some money transaction some time or years ago. And at sometime in the last few weeks the wrapper has contacted his good mate in the RE industry, who owns an office and they have agreed to sell the property, “as well”.
I came about finding the property by approaching the mate of the wrapper in the agency when i originally sort the property and it was explained to me that they had the prop on the market. Once I had inspected the property they were shocked that LJHocker had listed the property.
The original owner the wrapper in just sick and tried of the whole ordeal and things going with the property that he is just throwing his hands up i the air and apparently is just saying ” all I want is my money” owned from the wrappee, who is supposed to be finishing off paying for the property.
So we asked LJHocker and they have said they have a a third contract on the property for 70. And that two others have fallen thru. Yet I am able to put a contract on the property for $45,000 if LJHocker didn’t have it listed. This is where I’m uncertain what to do. The agent is saying he will go around and try to talk to her about listing it with him and selling it to me for $45,000.
In the meantime I’m doing this due diligence on how I could secure the property using a low or no money down deal! I know that the numbers stack up and that I can easily rent this house for 130 a wk and do my own maintenance etc.

A few of the actual problems with the property.
Property is in a flood zone. But no floods since 1940 and also lots of council drains and things etc put all around the area, since 1940.
Some council work has not been approved, such as a shed, bathroom.
House needs probably $2000 paint job and some small repairs.
1/2 acre flat nicely grassed area, with one or two trees but otherwise all clear on two deeds!
Fences probably good enough for the next ten years.

The Actual Figures If Bought and Rented

11 Second Solution:
Rent = 130
Occupancy rate ‘4 Weeks’ = 92.31 Percent
Solution = $60000.00
Asking price = $45000

Closing costs:
Deposit 20% = $9000.00 (-$7000.00 FHOG) = $2000.00
Legal fees = $700
Stamp duty = $862.50
Mortgage app fees = $475
Mortgage insurance = $0
Valuation fees = $0
Other borrowing costs = $400
Clean up costs = $2000
Inspection costs = $120
Other costs = $0
Total closing costs = $6557.50

Mortgage details:
Loan Principle and Interest = $36000.00
Interest rate = 7.5 Percent
Term = 25 Years
Weekly mortgage repayments = $61.39
Total repayments for life of loan = $79812.00

Annual costs:
Management fees 0 Percent = $0.00
Letting and advertising = $0
Body corp fees = $0
Rates = $400
Utility rates and fees = $0
Insurance = $350
Miscellaneous costs = $0
Land tax = $0
Maintenance 10 Percent = $624.00
Other ownership costs = $0
Total annual costs = $1374.00

Summary:
Total annual rent = $6240.00
Total annual mortgage = $3192.48
Total annual costs = $1374.00
Total annual cash flow = $1673.52
Total funded costs = $6557.50
Risk free return = $262.30 Bank interest rate of 4 Percent.
Annual Cash On Cash Return = 25.52%
Cash flow Positive Weekly = $32.18

There the figures if someone was normally purchasing the property. However I would be interested if I could ask the original owner if he would carry some money back and then take on paying off the “Now bankrupt wrappee”. Help Me Can anyone help me with some answers and some possible solutions to this strange mixed up problem but good opportunity!

How We Want To Solve The Problems
Because it’s such a nice big block and the house is on a side of the block there is a few possible things that could go on with it.
1). Is to subdivide.
2). There is a further 1/4 acre right next door that might become available soon, to make the existing 1/2 acre 3/4 acres.
3). To put a retaining wall on the block which we have figured out a way to do this with recourses locally for very cheap, indeed.
4). Then once it’s officially not a flood zone, instantly increases the value of the property, makes it look slightly better, because previously was on a slight two foot hill slop (this is where is went down to ‘flood zone’ area!).
5). Then the possibility of relocating a second home once subdivide for approx $30 grand (ruffly) but this would come later or with a money partner?
6). And or put one big Queenslander on the 1/2 acre block and sell the little existing house for maybe ($6.000), landscaping the garden over a 12 month period? (this would be the best way to make the most money). I estimate a neat Queenslander on a ‘Not flood zone’ with it garden landscaped (by ourselves really cheaply !) would fetch anything easily from $200,000 to $300,000.
A little bit to do and a few steps involved, but all manageable!

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Footsteps in the sands of time weren’t made sitting down.
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