Forums / Property Investing / Creative Investing / Optimal allocation of vendor finance

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  • Profile photo of Mgs4Mgs4
    Participant
    @mgs4
    Join Date: 2013
    Post Count: 13

    Hi All,

    I've been reading up on on vendor finance and have a couple of theoretical summary questions. It seems much of the purpose to sell properties via vendor finance is to achieve a higher price than could be achieved through an ordinary cash sale. Because if you could achieve cash for the desired price I think you would ordinarily do so. 

    From the buyers perspective it seems than the opportunity through vendor finance is to buy a property you couldn't ordinarily achieve through relaxing various constraints, most typically the deposit requirement, sometimes other particulars. And it seems to achieve that  you often need to be willing to pay a higher price than for an ordinary cash sale or perhaps higher interest rates. 

    Given this are most buyers of vendor finance properties buying for a principal place of residence (PPOR)? Alternatively have any people target investment property buyers through vendor finance? For example buy a house $500k renting for $500pw, doing a reno for say $10k looking to sell at $600k where you can now get $650pw rent? In this case the rental yield at the higher sale price is higher than the original purchase, could you look to sell this through vendor finance marketing it to investment property buyers?

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    Hi Mgs4

    Yes you could certainly market the property to investors however remember if you intend to offer them either an instalment contract or second mortgage carry back for the deposit you need to hold a credit license other wise you are breaking the law.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of Tamara43Tamara43
    Participant
    @tamara43
    Join Date: 2012
    Post Count: 57

    Hi Mgs4 The purpose from a seller's perspective is to achieve the "retail" price for the property as opposed to selling it wholesale for cash….a la Harvey Norman. Attaching financing to a property is like doing a renovation – it's value add – and therefore you can sell at 7-10% above market value. You don't need to do a renovation as you can sell the property as a Handyman Special. That's why we advertise "We Buy Houses…..in ANY condition etc…" If you attach financing to a property it makes it easier for someone to buy it. A lot of people these days cannot ordinarily purchase property due to a number of reasons: employment situation (ie: only work casual, part time), bad credit record (ie: missed paying a bill or late paying a bill), don't have enough deposit etc… Vendor financing assists these people for an "interim" period of time so they can purchase a property they would otherwise not be able to. The purpose from a buyer's perspective is to be able to get into a property without having to get a bank loan, paying a small deposit, making repayments over time, and then refinancing with a financial institution to shift the loan back to bank rates within 3-5 years OR they can sell the property and pay out the remainder of the money. The majority of people who take up this opportunity would be home buyers. Some may be investors (as in the Handyman Special indicated above who buy, renovate, then on-sell). Whilst the price of the property may be higher, it's a set price and stays that way over the term of the contract. If a buyer was to save up over a period of time for a deposit, by the time they did property prices would have gone up again…..in other words they would be chasing their tail. In terms of marketing a property for sale via an instalment contract or deposit finance, correct me if I'm wrong Richard, but I was under the impression you don't necessarily have to hold a credit licence but you can work with someone who has one in order to sell it. Cheers, Tamara43

    Profile photo of justahousewifejustahousewife
    Participant
    @justahousewife
    Join Date: 2012
    Post Count: 6

    Hi Mgs4 , as an investment strategy if you are i/e selling houses to Investors on a Terms Contracts then you most defiantly need a credit License. The paperwork you set up (-the Installment Contract) would need to be in your name, that is your protection. ASIC is definate in their view that the person on the paperwork is the one that has to hold the License if they are doing this 'in the course of a business'

    Profile photo of Danielle.AllanDanielle.Allan
    Member
    @danielle.allan
    Join Date: 2010
    Post Count: 8

    Otherwise do it as Lease Options and no licence required

    Danielle

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