Hi there!
I was thinking of no-money down ideas and came up with this…
Say I manage to get a vendor to finance my PURCHASE of his property for $50K @ 7%.
And say, I structured it to NOT be a wrap but more like a regular home loan. ie. Title passes to me but the original owner has right to repossess if I default.
Now, can I go and wrap the same property to someone else for say, $55K @ 9%?
To me, there should be no problems since the original owner is acting as a private financier for myself. Similar to a bank loan.
My questions are as follows: –
1. Is it possible to finance the purchase from the seller with full title in my name? (Unlike a wrap where title does not move until fully paid)2. Are there any pitfalls which I have overlooked…
Thanks in advance!! [biggrin]
can’t see why it wouldn’t work.
If you received vendor finance for a poriton, and borrowed the rest, you could have the title in your name. You could then onsell via an installment contract.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
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
Thanks, terryw.
About the title, does the vendor finance portion have to be lower than the bank funded amount?
And, what is an instalment contract? My inexperience in the real estate field is really showing. [laughing]
Hi retire,
The simple answer is yes!
I would however use a lease-option agreement rather than an installment sales contract to formulate this approach. The terminology for what it’s worth is called sandwich financing and is an easy way to create cashflow.
I have completed a few of these but none have matured as yet, the jigsaw you have as a finance transaction must work for all parties, thats the key and is also the hardest part of making the sandwich work.
Good Luck
TB
I agree with TB.
Although in theory it sounds great, making it work in the real world can be very difficult.
A L/O (Lease option) would probably be the way to go. Just a quick note their can be serious repercussions if you do not structure it correctly. And of course always try to make it a win-win-win.
Rgds.
Lucifer_auThanks for all the info!! [biggrin]
One last question….
Say, if I got the property financed as follows: –
Vendor finance $100,000
Bank loan finance $ 50,000In this case, the vendor amount is more than the bank loan. How would this affect the title?
It seems to me like a wrap situation where the title remains in the hands of the vendor until the final payment.
Now, the “silly” question…. [blink]
If the above case is true and I bought the property using a wrap from the vendor…..
Can I then go ahead and wrap the wrap to another person?
I know this is stretching it… But I’m just a really curious guy! [buz2]
Hey There,
Say, if I got the property financed as follows: –Vendor finance $100,000
Bank loan finance $ 50,000In this case, the vendor amount is more than the bank loan. How would this affect the title?
It seems to me like a wrap situation where the title remains in the hands of the vendor until the final payment.
Now, the “silly” question….
If the above case is true and I bought the property using a wrap from the vendor…..
Can I then go ahead and wrap the wrap to another person?
I know this is stretching it… But I’m just a really curious guyI think there may be conflicting ideas here…
If I understand you correctly, the vendor is lending you 50% of the house purchase price and you are sourcing the remainder from a lender. then this is not a wrap as the bank will want the title deeds and therefore the Vendor will have to agree to lend you equity in the house and stand in line on the mortgage frontier while the bank sits in as first mortgagor giving them first rights to ghte property if something goes wrong and they call the loan. – if the above is the case you can then happily Wrap the house as it is in your name…..
However if the vendor does a vendor finance agreement with you (Installment Sales contract) then you are not able to Wrap it to another person(s) as you are not the legal owner of the home you do however have equitable title and may let or sublet if your contract terms allow you to do so.If you do a lease option you have much more flexibility and access to many exit strategies (as long as you do not wrap it-as not allowed by law).
Some of your possible strategies could be… flipping the option contract, flipping the property outright, sandwich lease option, standard lease… the list goes on
****************************
I have a couple of other things for you to consider also.1. If a vendor is financing you a portion of the property (10-95%) and the rest is being financed by a lender… then the main stream lender will nearly never agree to sitting in behind a first mortgage as that places them in a risk range they fear to tread. – See if the vendor is happy this. (just a suggestion).
2. Be sure to Factor in stamp duties, legal costs, management fees and capital gains into your buy sell spread calculations (or soft terms in your contracts) as you don’t want to go through this whole thing to just break even – as there is a lot of work ahead to get this all going smoothly.
3. The market will determine what is a good price and how much interest they will pay – as Steve Mcknight says-Problem + solution = Profits
cheers.
KiwiLooking for Positive cashflow solutions?
Look no further
Wraps-Lease Options & JV’s
http://www.kiwilogic.biz
We are investing in NZ so if you are looking for + cashflow properties…contact: [email protected] to join our database.Again I would suggest a sandwich lease-option (SLO) agreement as if you use vendor terms agreements to acquire and re-sell you have due on sale clauses that effects the resell of the property and maturity upon the sale being finalised…
These are eliminated entirely using a correctly structured SLO as you have the right to call the option and you’re not entering into a sale agreement.
I looked at both a sandwich purchase and sandwich L/O about 12 months ago and I suggest you be aware that there are some fairly sizeable problems using the purchase agreement.
TB
“Vendor finance $100,000
Bank loan finance $ 50,000
In this case, the vendor amount is more than the bank loan. How would this affect the title?”> Really it’s up to how the deal is set out. However usually Banks will demand a first mortgage. So either the seller can resisted a 2nd mortgage or a caveat over the property. Of course the seller still has title.
“Can I then go ahead and wrap the wrap to another person? “
> Yes you can, but it can get very messy and it is something that is not really recommended for a number of reasons. These include what happens if the new buyer (or the 2nd wrapee) defaults and you can’t find a new buyer in time. Another problem is if the owner of the property goes bankrupt. The bank may reposes the property, have fun having that sorting out that mess!
I would speak to a good solicitor about these issues first.
Rgds.
Lucifer_au
You must be logged in to reply to this topic. If you don't have an account, you can register here.
