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vendor finance or leaving in the deposit

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  • vendor finance or leaving in the deposit

    Hi all, I have a tenant keen on buying the property and I'm keen to sell it to her and we've talked a little bit about the possibility of part vendor finance as her deposit probably won't be sufficient. I've never had any dealings in such matters, and I do recall vendor finance got a bad name ages ago due to some unscrupulous players. Can anyone tell me if it is still common for vendors to leave in part of the deposit for an agreed time? do people still do vendor finance? is vendor finance and leaving in the deposit considered the same thing? do lenders throw their toys if you suggest it?
    I was considering leaving in 15% for 5 years and making the overall purchase price reflect 3% interest per annum on that 15%.
    am i crazy, ignorant or just naive?

  • #2
    Has she got KiwiSaver and does she qualify for the homestart loan and the first home owners grant ? This is her best option as it is free money from the government, and if she does she would need to discuss with them vendor finance as they have some strict rules on what’s allowed. I don’t think co ownership with someone is allowed as a model anyway.


    • #3
      Why do you want to sell the property? If a long term rental, why not keep it?

      Apart from that

      1) Will you get more just selling on the open market? if so , then why sell to your tenant?

      2) If you give vendor finance, this is normally only for a year or two, or a set period. Why would you want to bother with this, unless you are getting a huge excess on the sale price? And if you are doing that, how much is that screwing over your tenant?

      3) You can have a second mortgage, but most banks lending to your buyer won't want your second mortgage, or will set their priority sum that high that your second mortgage is less valuable. You can get personal guarantee's and other forms of security, but if they are strugglnig and in trouble, what good will that do?

      Overall why would you be bothered with the hassle, unless you can't sell your house by other means.

      Another option rent to buy. For example
      - they pay $5k deposit
      - they pay an extra $100 per week, that goes toward the purchase
      - you set them up so that they can buy in say 5 years. Key part is you need to make this work for both parties and need to be virtually certain that in 5 years they will be able to get a bank loan and purchase.
      - for you generally higher sale price, and good cashflow as getting extra $100 per week. For tenant, they are hoping house goes up over 5 years, and also a savings plan into buying a house.

      Book a free chat here
      Ross Barnett - Property Accountant


      • #4
        Also remember she can use her kiwisaver - that could be a substantial amount too.


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