Hey Everyone,
I just want to encourage everyone on this forum that vendor financing is possible in Australia, and it can also be a great creative strategy for increasing the cashflow of your property.
I have recently had a vendor finance offer accepted on a property in rural NSW. The property was on the market for $75,000. I offered full purchase price and agreed to pay them $60,000 on settlement day and the remaining $15,000 over 5 years.
I thought I would just get a no back, but I go a counter offer. They offered $70,000 with $65,000 paid on settlement date and $5,000 paid back over 3 years.
Let’s look at this creatively to see how you can use vendor finance to help make a property positive cashflow.
If I was buying $100,000 and I had $20,000 for the deposit. Rent is $150/week. On my initial calculations (with 6% interest, and $3616/yr in fees, rates, maintenance and vacancies) you would be negative cashflow by around $12/week. If you can establish vendor financing and pay only $80,000 on settlement date, and the remaining $20,000 over the next 3 years, for the first 3 years you are positive cashflow $11/week. After 3 years rents will go up, you will pay the vendor back and you will still have a positive cashflow property.
I am currently in final negotiations on my first vendor finances deal. If anyone else has had experience in vendor finances, or wants some help for me in making a vendor finance offer then don’t hesitate to add to the thread.
Ryan McLean | On Property
http://onproperty.com.au
Email MeHi Ryan
Congratulations on your purchase. In the current market just watch out for the lender requesting you to substantiate your deposit has come from real savings.
Also, don't be afraid to go in a little harder. I recently got a property in Newcastle for $320,000. Paid $256,000 at settlement and the vendor accepted a $64,000 carry back, interest free, over 5 years. I pay them $420 per month and will make a balloon payment of $38,800 after five years. Helps to keep my monthly payments down
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Hi Ryan,
It is always great to see someone give something new a go as the first time, as it is always the hardest and you learn so much from doing instead of talking about it.
Be careful when buying rural properties … I had one offered to me in Feb 2010 for $50,000 that rented for $150 per week. Research showed me that I would spend a large proportion of my weekly rent constantly repairing the house due to the demographics that lived in the area.
Paul Dobson is a seasoned vendor finance operator with a large number of deals under his belt … It might pay to check out the other 428 posts that he has written to see if there are any more gold nuggets in there for you.
All the best …
Property Trader | Boston West Pty Ltd
http://bostonwest.com.au
Email Me | Phone MePrivate money lending opportunities available paying upto 12%, secured by bricks and mortar!
I will definately check out Paul’s other posts. Might be interesting.
I was excited to get some vendor finance offers accepted, because now I know it is possible. The only problem I have now is that I have multiple vendor finance properties that look like good investments, but I don’t have the borrowing power to capitalise on the opportunities.
Does anyone know any ways to get more borrowing power without earning more money and without drawing on equity?
Ryan McLean
http://CashFlowInvestor.com.au
Positive Cash Flow Properties Are Just A Click AwayRyan McLean | On Property
http://onproperty.com.au
Email MeRyan i understand that you dont like mortgage brokers but can i just ask did you disclose to your financier that the Vendor was leaving in a second mortgage on your first deal and if you did what was there reaction.
For someone who has been involved in Vendor Finance running First Home Owners Group Pty Ltd for nearly 15 years i can assure you that lenders dont like lending on deals where they are subsequently onsold by way of an instalment contract or where a SMCB is being taken by the original vendor unless you are doing it by way of a full time business.
As you first deal i can only assume that your lender was not advised that the Vendor was providing some of the funding and that the application was lodged fraudulently
Richard Taylor | Australia's leading private lender
Sorry I didn’t explain myself very well. I have reached my borrowing capacity when it comes to normal deals (eg. Me putting down the 20% deposit with my own money). So I have not yet approached a bank (either by myself or through the lender).
I am looking to start another business in the next month or two that will increase my borrowing capacity.
You say that lenders don’t like vendor finance unless you are investing as a full time business. May I ask how much they don’t like it? What are the restrictions on lending when using vendor finance?
Ryan McLean
http://CashFlowInvestor.com.au
Positive Cash Flow Properties Are Just A Click AwayRyan McLean | On Property
http://onproperty.com.au
Email MeWith a Second Mortgage CB facility the fact that the Vendor loan is not disclosed and if it is the vendor repayment would be consider as a liabaility (Haven't come across a lender that accepts these but could always be wrong if you like to let us know more).
With an Instalment Contract the simply wont lend where the property is being onsold under such an arrangement.
Most lenders clearly state this in the Credit Policy.
Do you disclose this ?
Richard Taylor | Australia's leading private lender
Sorry you need to explain this in layman’s terms.
Are you saying that you simply need to disclose the vendor loan to the bank and they count it as a personal loan (if it is not secured against the property), or they count it as a second mortgage if they the loan is secured with the property.
What are you saying about the installment contracts?
As I said before I haven’t done anything fraudulently. I haven’t yet applied for any vendor finance loans. Only regular loans.
Ryan McLean
http://CashFlowInvestor.com.au
Positive Cash Flow Properties Are Just A Click AwayRyan McLean | On Property
http://onproperty.com.au
Email MeAre you saying that you simply need to disclose the vendor loan to the bank and they count it as a personal loan (if it is not secured against the property), or they count it as a second mortgage if they the loan is secured with the property YES.
Most wont like as there is no saved deposit even if LMI is not involved.
I haven't yet applied for any vendor finance loans.
Sorry your opening post stated you just had agreed $5000 paid to the Vendor over 3 years.
Richard Taylor | Australia's leading private lender
no comment
A few months ago I tried to find someone finance, they had the deposit offered by the vendor – no lender that I approached would accept this arrangement as the client had no hurt money in the deal.
Terryw | 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
Hi Terry
The carry back option or deposit offered by the vendor… Why can this not be seen as a personal loan? Sure the vendor had to do a 2nd mortgage but lets say the vendor for one reason or another gave that money to a family member to do what ever they wanted…
…and lets say that "whatever they wanted" happened to be a small percentage towards (key word here as this would assume they have a savings history already) a deposit?
Some lenders certainly agree that people come onto "extra" money when supllying a deposit. Im certainly not obliged to tell lenders that "moms" gave me money. As long as they can see i have a reputable savings history for "a portion" of the funds then it would pass id imagine.
Certainly not always the case but its is a common occurance to borrow(even simply just get given) money top put towards a dep.
To conclude i suggest ryan not say that it is vendor finance. This would only work of course if the savings history was there and if the deposit is advanced into the purchasers account. *Not likely but you never know. Depends on the person. Family?*
Reeco, Hi
It seems many lenders are concerned more if a person has not put any of their own money into a deal – no hurt money. It seems if people have 'nothing to lose' then they are more likely to default and just walk away if things go wrong.
But, there may still be ways around this. eg if you have a bit of cash in your account you can use that and then be reimbursed after settlement by the vendor. Keep repeating the process without actually using up your own money.
Terryw | 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
ryan mclean wrote:I thought I would just get a no back, but I go a counter offer. They offered $70,000 with $65,000 paid on settlement date and $5,000 paid back over 3 years.
Hey RyanPlease understand, this is not a critisism, just a question…
Do you think that the vendor being willing to accept a Vendor Finance sale, is an indication that the property to date has been a difficult sale ?
If so, are you concerned that when it is your turn to sell the property, you too will have difficulty exiting ?
Terryw wrote:Reeco, HiIt seems many lenders are concerned more if a person has not put any of their own money into a deal – no hurt money. It seems if people have 'nothing to lose' then they are more likely to default and just walk away if things go wrong.
But, there may still be ways around this. eg if you have a bit of cash in your account you can use that and then be reimbursed after settlement by the vendor. Keep repeating the process without actually using up your own money.
Agreed certainly.
Ironic isnt it that banks require one to put up money personally.
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