Vendor finance

[rdpd3]

Hi All,
first post so here goes, I am selling my property to the current tenant and as he is 25 k short with the loan that can be provided to him, I need to know if there is a legal process I can enter into with him to finance the short fall or can some one recommend a lawyer who is good and familiar with these process and scenario, the property is in Auckland
All help or guidance appreciated

[spurner]

2nd mortgage time...

Hi

You should draw up a basic agreement confirming the loan amount, repayment dates, interest, penalty interest, and reserving the right to secure a 2nd mortgage over the property (he should pay). Then you should get a registered second mortgage over said property to help protect yourself from him selling and not repaying you, or him getting another mortgage on it using your own equity!

Hopefully he has a good job and has the ability to make all payments and on-time. If it's for his own residence, then he should be able to borrow 90-100% through a broker. Part of it might be on a 2nd mortgage with a higher interest rate, but it's better to let the bank take the risk than you.

Vendor finance is great when you are buying, but not good for selling.

Every situation is different though, if you are getting top dollar for the place from him, or the market you are in is very slow with few buyers then it is a good move. If you could achieve a similar price through an agent then you're taking risk, incurring time, expenses and opportunity cost solely for his benefit. Make sure your emotions aren't coming into it.

P.S. I have purchased 2 investment properties using vendor finance, when I was building my portfolio. In both cases it was I that proposed it to the vendors. I offered them full asking price, and in return asked them to loan 10% of the purchase price to me, at 10% interest, secured by a PG from myself, and a registered second mortgage prepared by their solicitors which I would pay for. The funds would be repaid in full with accrued interest within 12 months of settlement. Fortunately the vendors knew and trusted the agent, and the agent knew and trusted me, and everything went perfectly. That was 5/6 years ago and the 2 properties are worth more than $1m more now. Vendor finance in a rising market is great (when you're buying).

Hi All,
first post so here goes, I am selling my property to the current tenant and as he is 25 k short with the loan that can be provided to him, I need to know if there is a legal process I can enter into with him to finance the short fall or can some one recommend a lawyer who is good and familiar with these process and scenario, the property is in Auckland
All help or guidance appreciated

[Emblaze Pete]

Spurner - the 2 properties are worth more than $1m more now

nice work Spurner ... cant wait , only another 10 years for the next bull run then. Great post - explained VF well.

[xris]

Hello spurner,

Yes, a purposeful, rambling free and informative post.

xris

[captaincrab]

Creating a Memorandum of Terms is a good start. Also use the Auckland District law Society Mortgage document and get your lawyer to draw it all up. One word of warning. Spurner is right in that a bank should be able to lend 90-95% finance. If he cant get that , then it may mean that he has reached the Income qualifying threshold with the bank, ie they think he cant afford to pay any more than they offer. Now there could be something about his income stream which knocks him back but I would reccommend you sit down with them and go through the costs and see if he can actually afford to repay both you and the bank.

[Dean@Massiveaction]

Hi rdpd. As you are the one being the bank the vendor finance canbe on any terms/conditions you deem appropriate. Your solicitor can draw up a second mortgage for you. This is often the simplest. At the very least you want the property caveated and personal guarantees from the tenant. If the risk is not your bag put your tenant in front of a good broker. They may be able to get them some 12 month money from a second tier lender, then you're not exposed. If however as Spurner said you are getting top whack for the property by providing the VF, then the risk is fairly minimal.