May 1, 2013 at 1:55 am #57438
Do you think property would sell if you could get the finance from the seller and not a bank??
Food for thought
May 1, 2013 at 9:26 am #83181
Yes, it would help a lot. Most resales today are cash purchase, unless they are bank stock (in which case banks bend over backwards to offer finance).
But I’m not sure vendor financing is very practical. I can’t see how it would work. Private vendors sell to get money, not lend it. What’s the point of lending the buyer money? Interest payments on the capital? They might as well just rent the property out (rents are a kind of interest payment on capital), with the potential for capital gains if property values increase (which they would lose if they sold).
May 1, 2013 at 10:05 am #83183
If that were the case Vendor financing wouldn’t have been invented, People sell for a multiple of reasons, yes they all what their money, Every seller wants their money but ask them what they need and its a different answer., vendor Finance offers flexibility, Property can be sold above market value to build in the gains you speak of in a rising market but the purchase price can be above what the property is worth because you are selling a package. i.e House and finance
IN Australia our market is stable mostly but some areas it is very slow, I help sellers sell that cant sell the traditional way. They are prepared to try something different to get a sale, they also get cash flow and they get more for the property that its current value. The buyers are happy to pay more because you have given them an opportunity they may never have got through the banks.
A common scenario is a mortgage stressed property, They need the payments made or you know what happens. The banks dont care where the money comes from as long as they get it. So why not get someone into the house that wants to buy their own home buy cant get a loan through traditional means. The seller wins and the Buyer wins.
Anyway it was just a thought and I may well come over and see who wants to take up my help.
May 1, 2013 at 5:17 pm #83164
Rob, I’m not familiar with vendor financing. Pls explain how it works and the benefits to each party.
May 1, 2013 at 9:17 pm #83165
It is done in the USA too, mainly for small businesses which are advertised as owner financing 50% etc. Some in Spain who are desperate to sell may consider it.
May 2, 2013 at 7:54 am #83158
Katy is right, it is used in the USA, and it has gained momentum, If you research on Craigslist which is a free forum to sell anything in USA there will be hundreds offering Vendor Finance or Rent To Own homes.
To explain Vendor Financing is really quite difficult to cover every aspect and it has taken me 2 yrs to learn it and I’m still learning, because every seller has a different circumstance and what I am is really a problem solver. If I go to see a seller I explain the end solution not how Im going to do it. Imagine you have a bad heart and you go see the Doctor, he tells you he will perform a bypass and the end result will be….He doesn’t say well I’m going to take this scalpel and open you up and then…….people want the result that vendor financing can give them. I just explain the end result.
I have worked with sellers that are upside-down, mortgage stressed, bad investment properties, damaged houses the list goes on. People want to move away from the pain and if the end result means they can get their money in the future they would rather that than to take a loss in the present.
I will try to explain briefly a transaction I’m doing right now with a seller.
They have had a property on the market for 6mths, no offers because the market is flooded and they want more than the property is worth. They have a mortgage for 175k, they want 200k. They called me and I said I could get them 225k If they were willing to accept repayments for 3 years. They agree as they do not want to rent the property out. Rent would not cover the mortgage payments and they would have to carry the loss. They also have taxes such as council rates and insurance.
I have found a buyer that can’t get a bank loan at the moment but will be able to in 3 years. They are willing to pay a deposit to move into the property and make monthly payments to the seller which is enough to cover the mortgage and rates and insurance. There is also a little bit of cash flow as you are selling the property on a higher interest rate. The higher price is agreed upon because it is a valuable asset, house plus finance is very popular. Contracts are drawn up by a commercial solicitor and detail the payments and term of the agreement. The title stays in the sellers name until completion of the contract.
Each PARTY WINS IN THIS SCENARIO.
Seller wins because he gets what he wants, price, mortgage taken care of, and no running expenses.
Buyer gets what they want, not paying dead rent, Get to buy their own home when the banks are not lending. They are willing to pay more for a property because it is the only way to get into a home.
Hope this makes it a little easier to understand but probably opens up more questions, and I understand that as I went through the same thing when I was learning. Lots of what ifs and I understand that, but measures are put in place to circumvent any problems.
IN most cases with stressed sellers, I can come up with a solution to solve problems.
May 2, 2013 at 12:47 pm #83131
I’m not sure if this is the same as the seller providing the mortgage to the buyer. If it is, it does happen in the US. I almost did this for the sale of a home. Why?
*Because it is a secure investment with a reasonable interest (in today’s world anyway).
*Selling the house this way prevents the transfer of a large sum of money, other than the down payment, meaning the tax bill is probably less.
*Most importantly, it is a secure investment – if the buyer stops making payments, I could repossess the home. I know this is probably not easy, but it is doable.
May 2, 2013 at 12:51 pm #83132
Maybe in a first world country where honour and trust are standard. This would be very risky in Spain as everyone is out to con the other? You’d have sitting tenants and a solicitor telling you that there is nothing you can do?
How do you clear the mortgage at the registry, the house would still be in your name even though other people are now living there? What if they run into financial trouble after a year or so and can’t keep paying? They are just renting aren’t they in the eyes of the law?
May 2, 2013 at 1:10 pm #83128
What if they run into financial trouble after a year or so and can’t keep paying? They are just renting aren’t they in the eyes of the law?
All of this is a guess: Say you sold the place for 200k, took a 20% down payment (40K) and then financed the remaining 160k for 3% over 30 years, which would make the payments 675. 12 months of payments = 8,100, so after 1 year, you have taken in 48,100. But you had to pay a lawyer 5,000 to set up the title and mortgage to protect you and they buyers, so the net is 43,100.
Now I’m guessing – you have to spend 5,000 to pay a lawyer to evict the owners, another 10,000 to fix the damage the people did to your property, after 1 year you still have a profit of 28,100 and that is if things go wrong.
I’m sure there are holes in my analysis – this is just to provide a framework for the concept. I didn’t include any of the fees associated with buying or selling as they are the same regardless if the owner provides the mortgage or not.
May 2, 2013 at 1:44 pm #83124
so a rent to buy option.
simple and straight forward in Southern Spain.
May 2, 2013 at 1:48 pm #83125
May 3, 2013 at 12:55 am #83117
People tend to get the two different strategies mixed up.
Yes there are Lease Options or Rent to Own, this is more commonly used in a growing market, a potential buyer pays cash for the option to buy, the option locks in the price and he pays a higher rent. A portion of the rent goes to the purchase of the property and can be used as a deposit if they chose to take the option and buy the property. Obviously they will need to get a bank loan to buy the property and that can be the issue.
Vendor finance or Terms Contract can be used where the buyer may not be able to get a loan in the short term (1-3 yrs), but may after that. A seller can sell this way even if they themselves have a mortgage on the property.
If the buyer ceases to pay there are a couple of options that can occur.
1. The buyer can sell the property if they have built up some equity.
2. The seller can remove the buyer with conditions stated in the contract, you can always work out a remuneration plan.
Remember you get to choose who you put into the house so when I do it, I want to see their credit record, their employment, salary and past rental history. They also will pay a deposit and once they do that they have invested and take “ownership”. people have a different mindset when buying their own home as opposed to renting.
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