Forums / Property Investing / Value Adding / [moved] Investing with Developers

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  • Profile photo of Michael RMichael R
    Member
    @michael-r
    Join Date: 2003
    Post Count: 302

    “If I buy a house for say 1M, and the vendor will lend me 100k, would he get a 2nd mortgage/caveat/joint venture/etc?”

    — a “promissory note” is recommended as confirmation of the loan arrangement between you and the vendor.

    If the vendors debt is subordinate only to a primary lender [i.e. bank] – there are no other institutional lenders involved, then a provision can be included in the promissory note whereby the vendor is second to the primary lender in terms of repayment.

    — Caveat: Latin for “let him beware.” in real estate transactions, it is a formal warning against the performance of specified acts.

    For example, a caveat is usually lodged by the purchaser to protect his/her interest soon after an option to purchase a property is exercised or a sale/purchase agreement is signed.

    — Michael

    Profile photo of wrappackwrappack
    Member
    @wrappack
    Join Date: 2003
    Post Count: 182

    Okay, I understand the caveat part, but am unsure as to the difference between a promissory note and a second mortgage.

    Profile photo of Michael RMichael R
    Member
    @michael-r
    Join Date: 2003
    Post Count: 302

    “unsure as to the difference between a promissory note and a second mortgage.”

    They are more or less one in the same.

    However, a “second mortgage” is more often defined as a mortgage obtained by way of a financial institution.

    A “promissory note” is typically a formal loan agreement/contract between the borrower and a private lender – or facilitator that does not specialize in mortgage products.

    In both cases the debt is subordinate to a primary institutional lender and is therefore at a higher risk to the lender. As a result, secondary loans generally demand a higher rate of interest [and fees] and/or equity participation.

    — Michael

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