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Finance for tenant

Discussion in 'Property Finance' started by melbournian, 29th Nov, 2015.

  1. melbournian

    melbournian Well-Known Member

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    Long story short, tenant approached me and wants to purchase the rental. Tenant purchasing with partner give or take combined income gross 100K. Has a default in the veda report of $669 most likely cleared up now. Savings maybe give or take 10K. i intend to let go around 425K-430K.
    What are the options? an absolute "No" or is there ways to pull it through? 105% or 95% or any creative way for the deal to go through.
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    Vendor finance if not in SA
    Alternatively they have to save more deposit I'd say
     
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    If they are an ideal finance prospect, take the 10 k as a deposit,pay the balance of their transaction costs and do a wrap mortgage/ rent to buy arrangement perhaps ?

    A 105 % lend isnt really possible unless a family member or friend stumps up equity for a family guarantee.

    The default should be able to be got around if thats the only issue

    ta

    rolf
     
  4. melbournian

    melbournian Well-Known Member

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    thanks rolf. i had a look at rent to buy arrangement, it is tricky (can cause issues as many ppl had logged cases with consumer affairs vic) etc. i've not heard about wraparound mortgage how does it work?

    i did have a think abt possibly to take the 10K and get an unconditional contract with long settlement date but i hope to close by july 2016 not any longer. i presume the minimum she needs to 45K to pull i through which should be ok with 100K combined salary.
     
  5. melbournian

    melbournian Well-Known Member

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    i'm be looking into vendor finance tomorrow. all these is new to me with trying to get finance for the tenant but good to learn.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    a 'wrap' is an instalment contract. i.e. they pay you in instalments with title changing hands once the amount has been paid in full.
     
  7. melbournian

    melbournian Well-Known Member

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    so for e.g. 45K is needed to get the loan approved. They throw in 10K and sign a standard contract of sale to purchase with fixed settlement date of say 15th July or Aug 2016 unconditional and they keep paying the difference 35K within 7-8 months.

    Is this more a lawyer related transaction or mortgage broker kind of setup?
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Instalment contracts are not standard. You need various clauses to allow the purchaser to take possession prior to settlement. Settlement may be in x years.

    You need to speak to a property lawyer to get advice on the legal side. A broker can advise on the likelihood of the tenants qualifying for finance now and in the future based on some assumptions.

    BTW, this would also be a breach of your loan agreement with the mortgagee. You will need their permission.
     
  9. melbournian

    melbournian Well-Known Member

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    why can't it just be an unconditional contract of sale and let put a longer settlement period ?
     
  10. MattA

    MattA Well-Known Member

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    What advantage to you is the above scenario ?

    Unless the tenants are willing to pay an above market price or your worried about a market correction why not just tell the tenants to keep saving and come back to you when they have the financials to secure traditional finance...
     
    Last edited: 29th Nov, 2015
  11. melbournian

    melbournian Well-Known Member

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    I initially got a real estate agent in and then the tenant offered me to purchase. Not worried abt market correction however i can free up nearly 300k to do other projects or purchases. Hence also going through the tenant saves the agent fees and keeps the lease going till end of next year
     
  12. MattA

    MattA Well-Known Member

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    I'm not saying don't sell, what I am saying is that signing a traditional contract with an extended settlement is full of risk for both parties.

    Let me explain;

    A) Tenant signs contract to settle in 12 months and can't secure finance. They're stuffed...

    B) You sign contract to settle in 12 months and due to changes in circumstances you need to sell early ( think illness, job loss etc) but because of the signed contract you can't. Thus your now in trouble...

    My advice is as follows;

    A) If you want to sell immediately, list with the current agent and pay the commission as part of business

    B) If you're happy to wait, tell the agent you've decided not to sell and then tell the tenants they can purchase the property at the agreed price once they secure finance. If you need to sell before that time, see point A :)

    Edit: Signing the contract with the tenants using a long settlement clause won't get you access to the $300K until settlement day anyway...
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    That is what it will be.
     
  14. Elives

    Elives Well-Known Member

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    in victoria stamp duty must be paid upfront if its a rent to buy. do a instalment contract. stamp duty isn't payable until title goes in there name (at the end of the deal)

    also speak to Lewis O'brien he specialises in vendor finance in victoria.
     
  15. melbournian

    melbournian Well-Known Member

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    thanks will do. i didn't realize stamp duty needed to be paid upfront (which would mean she got nothing really) strange though being if they failed to settle due to some unknown circmstances then it would be free money for SRO.
     
  16. wylie

    wylie Moderator Staff Member

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    Are your tenants going to be paying you a premium for the mucking about this sort of thing will mean to you. Or does the tenant want (or expect) to get it for "market price" and you discount a little for the agent fees you are not going to pay? It just sounds messy to me.

    If the tenant cannot organise a loan to buy your place I would not be entering into any wishy washy sort of arrangement, documented or not.

    We have a tenant who has requested a "rent to buy" arrangement but we've said a clean sale is what we would need. It is too messy any other way.
     
    Terry_w and MattA like this.