Forums / Property Investing / Creative Investing / banks don't see income from instalment contracts as income

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  • chris schumann
    Participant
    @chris-schumann
    Join Date: 2011
    Post Count: 6

    Has anyone reached the point where you’ve done a couple of instalment contracts and they’re returning a good amount of money apprx $600 a month each. Since they’re going well you want to do more so you start to look for financing only to find that the banks don’t like vendor financing. The banks want to see this money as rent and if the rent is above the normal rate then they see it as a problem and start asking more questions about why its high?

    Is there any way around this that anyone knows about- other than making the payments appear on bank statements as rent or getting a real estate agent to give you a rental appraisal or having a residential tenancy agreement stating the rent.

    Basically I’m wondering if through the Australian credit laws do banks see these deals as viable for us to do and create passive income or are they frowned upon in the eyes of banks and APRA?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    Yes.

    The repayments are not income but part payment of capital and part income.

    Also it would generally be a breach of the mortgage agreement to onsell a property via an instalment contract without express approval from the mortgagee.

    They are basically frowned upon.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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

    If you have 2 Years Tax returns and pay Tax on the income then lenders will consider it even if it a Wrap contract.

    When one of the Companies I own being First Home Owners Group Pty Ltd was in full swing doing Instalment Contracts we had a number of lenders who would lend on the income.

    If it is part time income or you only have a few of them then unlikely to be accepted for a number of reasons.

    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.

    chris schumann
    Participant
    @chris-schumann
    Join Date: 2011
    Post Count: 6

    Hi Richard,

    I appreciate your input.

    I don’t know from what school of thought you come from but I’ve always studied the John Burley property investing model where he buys undervalued homes and sells them on vendor terms. Do you feel that this is an investing model that can be used in Australia or does it just get tougher once you get past a few deals to find the lending?

    Of course since 2010 we have more licensing issues that we need to have in place- is this type of investing becoming a thing of the past?

    I’d love to hear about your experiences with it.

    Also, please tell me more about this API interview and 0-40 properties.

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

    Chris Yes over the last 20 years that is all we have done.

    Buy low sell high… repeat.

    If you mean the introduction of the NCCP legislation then Yes you need to hold an ACL to offer such a product.

    Email me and I can send you the API interview.

    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.

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