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Advice on How to Find Vendor Finance?

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  • Advice on How to Find Vendor Finance?

    Hi Guys,

    I'm a beginner investor with little money and I'm trying to find properties where vendors are willing to, at least in part, finance the purchase of the property. I'm wondering if anyone has tips or methods of locating vendors willing to finance? Any advice would be greatly appreciated.

    Thanks

    Joe

  • #2
    Howdy Joe

    Are you aware that the banks; if that is where you will be obtaining your 1st mortgage; treat vendor finance as a 2nd mortgage and not as part of your deposit.

    IE: If they require a 15% deposit from you, then vendor finance won't reduce this amount.
    Vendor finance is debt, not equity.

    Comment


    • #3
      VF can be hard to get through the Banks. - you need a good mortgage broker to help you with this.

      Te best way is to find a property which the vendor has large equity in it, it would help if you can give some deposit or get a loan for say 50% of the value.

      I would recommend asking all the agents you talk to "if the vendor would considering leaving some money in? and for how long? "

      It may be easier to find a joint venture partner then VF.
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      • #4
        Orkibi has the right advice here. I have a sweet vendor finance deal on my PPOR - we were deadlocked on price until the agent said "How about you leave some money in the house?". After that I was able to negotiate a long-term, reduced rate interest only mortgage with the vendor which more than compensated for the price gap.

        In my case the vendor was more fixated on getting a deal through at a certain price and not really aware of what he was giving away to get that price.

        To cut a long story short, only the agents will know enough about the vendors circumstances to know if a deal is possible, likely, or economic.

        Also, what speights boy said. Vendor Finance should be an alternative to bank finance, not an addition to it.

        Comment


        • #5
          Today will be a good time to try VF as you can offer them higher interest rate then the bank.

          Say 5%-6% for 3 years or more.

          Look for properties that been on the market for long time. say more then 3-4 months
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          • #6
            Hi Guys,

            Lots of good insights here, thanks again for the advice. After a bit of research I've found some common factors regarding the type of people who offer Vendor Finance. From what I understand they are typically sellers with free-and-clear homes which have been listed for sale for several months. They are more often than not by elderly sellers who want a fast sale or a higher price than the market will bare and that otherwise the money from the sale would be destined for the bank.

            Anyone one else have anything to add to my stereotype?

            Cheers,

            Joe

            Comment


            • #7
              Originally posted by JoeA View Post
              Hi Guys,

              Lots of good insights here, thanks again for the advice. After a bit of research I've found some common factors regarding the type of people who offer Vendor Finance. From what I understand they are typically sellers with free-and-clear homes which have been listed for sale for several months. They are more often than not by elderly sellers who want a fast sale or a higher price than the market will bare and that otherwise the money from the sale would be destined for the bank.

              Anyone one else have anything to add to my stereotype?

              Cheers,

              Joe
              Surely this is telling you the property is too expensive.
              If people really want to sell, they'll have to lower their price. Its as simple as that and will do us all good in the long run

              Comment


              • #8
                Interesting thought here.

                If one has a bit of an appetite for risk and is working on putting together the money for a deposit, you could possibly negotiate interest only vendor finance for say 6-12 months, then get a mortgage to cover it.

                What do people think about the feasibility of this?

                Comment


                • #9
                  Neon

                  How would you be able to get a mortgage later on to cover it?

                  Comment


                  • #10
                    damage,
                    In my case, it's literally a waiting game - in six months time I'll meet all the bank's criteria and won't have trouble getting the mortgage(I believe).

                    But then the question should really be what happens if I don't get the mortgage?

                    Comment


                    • #11
                      Neon

                      What happens if the value of the property you bought under vendor finance decreases?

                      Comment


                      • #12
                        That's a very good question and one which will require much thought.

                        Comment


                        • #13
                          Like you say it is a risk that you can take. But for me, I'd wait untill sales volumes increase before launching into something like

                          Comment


                          • #14
                            Joe

                            The BIG risk you run is not be able to refinance at the end of the short term vendor finance.

                            Perhaps Ma & Pa Kettle leave 85% in as VF for 12 - 18 months.
                            What happens at that point?

                            No ability to refinance means mortgagee sale, perhaps Ma & Pa buying the property back from you for less than you owe, bankrupting you for the remainder; all the while keeping your deposit of course.

                            Perhaps if you have "little money" then property investing is not for you at this stage.
                            Invest elsewhere until you qualify with a bank for your mortgage, as opposed to trying to find a property with VF.
                            Even if you find VF, if it's not a good rental property it will still be a poor investment.

                            Comment


                            • #15
                              Call me old fashioned ...call me irresponsible .... but I've never really been able to see the WIN for the vendor with Vendor Finance.

                              I understand the THEORY of course but it seems that all of the win is with the purchaser and none for the vendor. As the vendor is wearing all the risk, by let's face it, lending money to somebody who is unable to borrow money elsewhere.

                              Cheers
                              Spaceman

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