Selling a poorly performing IP with Vendor Finance

Hi

In the recent past I've noticed a increase in the number of people 'having a go' at selling a poorly performing IP with vendor finance.  There are some important compliance issues involved in this process, so I've started a newsletter to help cover these issues.  It's called 'N2P News', short for negative2positive News.

I've posted the contents of the first issue below.  It has a bit of self promotion at the bottom so 'mods' please feel free to edit as necessary.  I hope it's helpful.

In the current market many investors are looking to convert their investment property from negative gearing to positive cash flow by selling with vendor finance (VF).  Interestingly a lot of investors have decided to undertake this VF sale on a ‘do it yourself’ (DIY) basis.

Selling your own property with VF normally involves a Lease/Option (Rent To Own), an Instalment Contract or Deposit Finance.  Lease/Options are regulated by the various State Residential Tenancy Acts.  Instalment Contracts and Deposit Finance are regulated by the National Credit Code.

Selling with VF can be divided into three sections:
1.    Marketing & Qualifying,
2.    The Legal Paperwork, and
3.    On-going Management.

Most DIY’ers are getting the Legal Paperwork done exceptionally well by our excellent VF specialist solicitors but some are forgetting about their compliance requirements in sections one and three.

Marketing & Qualifying

When marketing a property you own, for sale with a Lease/Option, you need to make sure you abide by the Australian Consumer Law and don’t make false or misleading claims and/or statements.

When marketing a property you own, for sale with and Instalment Contract or Deposit Finance, you need to make sure you abide by Australian Consumer Law and the National Credit Code (NCC).

On-going Management

When managing a lease on a property you own that you’ve ‘sold’ with a Lease/Option you need to abide by your State’s residential tenancy laws.  As with standard residential tenancies, some landlords self-manage and some outsource the management to a licensed property manager.

When managing a loan that results from an Instalment Contract or Deposit Finance arrangement, you need to abide by the National Credit Code.  You, as the title holder, are the credit provider and may manage the loan yourself (in accordance with NCC requirements). 

However, if you wish to outsource the management of this loan, you must choose a management company that operates within the requirements of an Australian Credit Licence.

Two easy ways to help with your Marketing & Qualifying and On-going Management are:

• The Vendor Finance Institute sells their NCC Application Pack (Click Here) and their Qualification Pack (Click Here)
• Vendor Finance Management Pty Ltd provides loan management services for both Instalment Contracts and Deposit Finance.  Click Here to visit VFM.

In coming editions of N2P News we will cover the requirements of both the Australian Consumer Law and the National Credit Code, including information regarding Australian Credit Licence coverage and whether your transaction is being undertaken 'in the course of a business'.

Cheers,  Paul