My Hubby is away and out of phone range and he was talking about vendor financing a property we own.
I had a call today from a interested buyer and they asked me if it was possible to do the below?
" 40% Vendor Finance over a 2 year period..
10% interest paid over the VF period."Can some one please explain basically what this means?
I'm clear on the 40% but a little confused on the 10% area.Possibly could some one inform me of the risks of vendor financing , the market is dead so my hubby was considering it.
He knows more about it them I but I just want to catch up on knowledge before he returns and hold a conversation about it.Any help would be great
Katie
On the date of settlement the purchaser would settle giving you 60% of the agreed purchase price and you would carry a 2nd mortgage for the 40%. You in turn would charge them interest at 10% PA on the 40% of the purchase price.
After 2 years they would agree to discharge your loan in full either by refinancing or selling the property.
Couple of downsides:
1) What happens if he never makes a repayment. You have to instigate proceedings and although you have a mortgage security will end up costing you time and money.
2) If he is unable to refinance or sell in 2 years time you need to be able to carry the loan for a longer period.
3) I assume 60% of the purchase price would be enough to repay your current mortgage secured against the property otherwise you will have an issue.Personally i would try and push them to 80% and 20% so at least you get more of your required funds upfront.
Done properly it can be an effective strategy to move property in a stagnant market.
Richard Taylor | Australia's leading private lender
Thanks Richard
I will explain a little better and I welcome your input and others
The property is ready with a DA for development of 18 large commercial units in an industrial area , vacant land.
Yes 60% will cover current mortgage but due to the market being flat and the large costs of the development my hubby is considering the VF .
From my understandings if the developer pulls out we will possibly be in front as all going well he would of commenced development of the property. But then again he could possibly just plan to re-sell the land and do nothing.
I'd love to hear some ideas about the possible problems and negatives?
Thanks Katie
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