Hi all, those who have seen me around here may know I recently had success with an offer on a property. It is not yet under contract but should be within a week. I am posting to try and get a better understanding of how vendor finance works. The reason for asking is that I am told conflicting things by a couple of brokers about my hopeful purchase so I am looking for a back up plan. I am trying to secure the property as a residential sale as I will be moving into the property. I am trying to secure finance at 5%. My broker is telling me this should not be an issue as my credentials stack up to be able to buy the property but another broker is advising me that this will not be the case and they may have good reason for that. The property is a kennel property. It is a 4 x 2 house with a kennel block attached to it. It is for these reasons that the second broker says that I will be very lucky for the lender to not decline me on the basis that it should be a commercial lend as it is a business. I am not applying in a business name, nor stating that I will be running a business from the property either but that does not necessarily mean that the broker is wrong. Assuming that the broker is correct I would like to know more about how I can offer the vendor a set up where by they can still sell the property to me, the bank will happily lend me the 70% I would need to satisfy the commercial loan, I find 5% (maybe more ) and the vendor lends me the remaining 25% at a rate higher than they could get from putting the money into a savings account, say 6% etc. How do these situations play out and how do I address the seller so that they become interested. How do I explain it to them so they get it when I do not understand it and what legal implications are there to cover. I would of course need a legal advisor to assist here in setting this up so could do with speaking to one if anyone is able to recommend one. I have reason to believe the seller would be interested in this if they understood the benefits to them as they are likely to struggle to sell the property otherwise since there is not a lot of demand for it and I know it had been on the market for a long time. I think they would consider this rather than lose a sale, if only I could help them to understand it. Thank you Paul
I think you will find it difficult to finance at 95% LVR. Vendor finance will be difficult as well - from both a lending pov and convincing the seller. To convince them you can offer to vary your terms - higher interest rate, shorter period etc and/or security - second registered mortgage etc.
Kennel = Dog for most resi loans if disclosure is made to the lender. esp if the place is currently registered as a business or has been so recently been there, done that, more than once. ta rolf
Id be interested to get an idea of the first brokers thinking. All I can assume is he is going to approach ANZ or a similar lender who use a contract of sale instead of a valuation for purchase properties. Firstly this isn't kosher in my opinion. to generate such a valuation the broker needs to answer some questions about the property 'creatively'. Secondly as Rolf said there are some check lenders do to weed out commercial type properties from residential lending, apart from a valuation. Vendor financing is pretty difficult to achieve. Most lenders specifically exclude it, so again you are going to have to get 'creative' in the first mortgage application, and secondly, its hard for many vendors to get their head around. there are specialty vendor finance companies that have a hard enough time doing it full time. Id suggest speaking to one of them and seeing if they can provide a 'kit' or some advice on how to set it up. Getting commercial finance is a whole other problem, which may be more difficult if the kennels aren't currently operating and you wish to live in the property instead of leasing the property.
Might be easier to buy acreage property first and add/build kennels after settlement if a kennel business is the ultimate aim....Just make sure you check state/local requirements before you start looking
I would suggest going and reading a book on it. Not really something you can learn from a forum post. It's not very common these days. And it's a PitA.
Vendor finance is not liked by banks at all from what I've seen of it but it can work in specific situations, generally requires some creativity though. The broker types will know far more on this side of things Generally the vendor is going to want something significant from you to do it though. Normally a higher purchase price (which really hurts the finance thing), very high interest rates (without complicating things it's an unsecured loan for them) or a very short repayment term (serviceability issues) or all of the above, they're essentially taking a lot of risk on if they don't know you. You can always discuss it with them and get a general idea, if its been on the market as long as you indicate they may be more willing to listen to the idea but it's generally pretty messy and there are probably other options to exhaust first like a guarantor or loan from a friend/family member.
Higher purchase price, higher interest rate, balloon payment after 5 years, 1 of your kidneys, your 1st born son...
Thanks all for your tips, advice and sharing your experiences. Sounds like this will be very tricky if it is possible at all. I am very happy to have a crack at it. I did not realise that the bank would have to know about the Vendor financing the deposit. I think the seller would be interested in a higher price for the property and I know that they already have a second property purchased elsewhere that they are waiting to move into so holding the pair of them must be hurting a little unless he has the money not to worry about it, which brightens the possibility of him becoming interested in my offer, if I need to make one at all. Rolf, am I reading this correctly? Are you saying that lenders are likely to see the kennel block just as a home for our dogs and so may consider the loan under residential? Would it help if we expressed with strong evidence, that my wife used to work as a volunteer for a local rescue for dogs for around three years and during that time we took into our own home many many dogs as the rescue would have had to turn them away. My wife successfully re homed a record amount of dogs according to the rescue. She would be looking to continue to do so. Thanks again everyone.
The problem with the security is that if it needs selling it's not going to appeal to the broader Resi market. Most people have no interest in a house with a kennel unless they specifically want a kennel - and mostly that's a business thing. It's got nothing to do with why you want the house so much as how much trouble they'll have selling it if things turn pear shaped.
I wish you didn't make so much sense but I cannot see any fault with your logic and the proof is in the pudding with the amount of time it has been on the market, another thing that no doubt the lenders will look into at the time of consideration. So with another approach, is commercial always 30% and what would I need to do to go down this route? Would you have any other ideas on how to secure it?
Do a ring around and find some animal activists or animal welfare organisations that may help with funding. Try registering the business as a charity and see if you can raise some funds yourself that way. There are quite a few people on here who love dogs. Maybe start a thread and see who is interested. Commercial finance is going to be difficult too I'm afraid as it's not a going concern and I'm guessing you don't intend to rent out the property to another business? If your normal income is enough to service a commercial mortgage (at higher rates and a shorter loan term) then the best you can get is usually 70% or so.
A couple of great ideas there and we already have a lot of contacts in the charity field although I am not sure how to approach them or why they may help out. JV maybe?
