Hey Guys & Gals,
I have only been aware of this site for about 2 months and have to say what a community and resource (thanks Steve).
Admission, I had seen Steve's book in the my partners library long ago and had never picked it up. Wow I really wish I had read it 10 years ago. I have since read the revised edition also and have very much taken to the 1% rule as a handy filter.
A little about Us/Me. (please scroll down if not interested)
With my partner we have 3 children and live in Sydney. We have a typical Robert Kiosaki, John Burley books Fin education (no accountants here) and have invested in RE in NSW and WA.
We sold our portfolio a few years ago when nesting to purchase our PPoR with a good deposit.
To be honest my partner drove the investments with me merely playing devils advocate over the final deals and signing where told. I was aware of RE I strategies but was just not that interested.
This is no longer the case and I am like a reformed smoker or born again Christian in regards to Investment. The boss is quite happy with this arrangement.
Anyway that is a little about me, in time I hope to be able to share the (somewhat limited) knowledge I have on RE I as much as I have absorbed from this site already.
Regards, Nath
Now for my 1st but definately not last stupid question.
Q. Topic, Creative Finance, Vendor Finance (getting Vendor Finance, not WRAPS).
I noticed doing some number crunching the other day that theoretically if I borrowed 80% from a bank or other standard lender and borrowed the other 20% from elsewhere (for example the Vendor) that the property would still be positively geared*.
My question is in regard to borrowing that additional 20%. Now I obviously want to avoid LMI so need to seek out the other 20% from another source rather than the 1st lender.
CAN YOU ACTUALLY LEGALLY BORROW THE ADDITIONAL 20% ELSEWERE IE NO MONEY DOWN?
I ASSUME THE PRIMARY LENDER HOLDS THE TITLE, SO WHAT HAPPENS TO THE 2ND LENDER ON A DEFAULT (IE WHAT IS THEIR POSITION OR SECURITY)?
Does anyone do this?
Regards Nath
* Working on an assumption of 7% interest rates from all lending sources
Hi Nath,
Your question is based on a legal nature …
Firstly you can do anything you want as long as it is in agreement … IE u can get 20 -50% deposit from an outside source in a separate agreement but this agreement should be in a legal format … like an option agreement an agreement is a contract between two parties … it should be a win/win otherwise why would you do it …
I borrowed money from a friend once on a land deal and gave them a share in proportion to my profit at the end which returned them 38% within 14 months …
Philip Sigglekow author … no I will not give u the details on the exact deal it would take toooooooo long.
Hi Nathopoly
Certainly not a stupid question and one we field regularly.
I noticed doing some number crunching the other day that theoretically if I borrowed 80% from a bank or other standard lender and borrowed the other 20% from elsewhere (for example the Vendor) that the property would still be positively geared*.
My question is in regard to borrowing that additional 20%. Now I obviously want to avoid LMI so need to seek out the other 20% from another source rather than the 1st lender.
CAN YOU ACTUALLY LEGALLY BORROW THE ADDITIONAL 20% ELSEWERE IE NO MONEY DOWN? Yes you certainly can and nothing illegal about it. Vendor provided finance is a growing market place and something like Steve i have been involved in for nearly 13 years.
I ASSUME THE PRIMARY LENDER HOLDS THE TITLE, SO WHAT HAPPENS TO THE 2ND LENDER ON A DEFAULT (IE WHAT IS THEIR POSITION OR SECURITY
The 2nd mortgagee holds very little security and is unable to enforce the first mortgagee to sell the property merely because of arrears or default on the 2nd mortgage. In practical terms and assuming the first mortgage was upto date the 2nd mortgagee would commence its own legal action and if judgement was passed would more than likely pay out the first mortgage and take possession of the property. Under his power of possession he could then sell the property and discharge the loan balance.
Ugly and faily expensive.
Biggest issue these days is finding a first mortgage lender that will knowingly allow the deposit funds to be borrowed.
I accept a lender may get kidded into the deal by not telling him and show funds from elsewhere but normally there is a condition in the sale Contract and lenders are not stupid.All in all very hard to do so unless you are doing it by way of a business and have higher credit authority approval.
Richard Taylor | Australia's leading private lender
'Biggest issue these days is finding a first mortgage lender that will knowingly allow the deposit funds to be borrowed.'Thanks for the responses guys. I thought the above might be the case. I can see some tasty advantages for the vendor to get them eager to do the deal.
Hmmm, assume I had the cash reserves (about the same as or more than the 20% deposit) do you think this would encourage the bank to to be more relaxed about the 2nd lender or have a negligible effect?
Really need to go see broker or lender huh
so many questions !Yes that would probably get you over the line with certain lenders i can think of.
Richard Taylor | Australia's leading private lender
so many questions !You must be logged in to reply to this topic. If you don't have an account, you can register here.
