Wraps: Unethical Extortion or Helping Those Who Can't Get Finance

Alright guys, I'm back to peel away the layers of polite conversation, see what people really think and cause an irreparable divide between the masses whilst watching the world burn.

Also known as creating a poll...

I know that there are many different types of vendor finance but I'm referring to "lease to buy" for the sake of this poll.

So there seems to be two very opposing schools of thought here.
One is that buying a property (whether purchased on vendor finance or not) and selling it on vendor finance is a handy way to make a bit of cash flow and a small amount of capital whilst allowing someone who can't get conventional finance, to get into a home they can then keep purchasing through vendor finance (lease to buy) or refinance once they have shown the banks that they have a solid repayment history etc.

The other school of thought seems to be that those who buy properties to sell under a lease to buy arrangement are ripping off those who have no other choices. It often gets labelled as a scheme being promoted by spruikers and run by greedy people who are preying on people.

I know you get good ones and bad ones in every strategy but I'm curious to see what everyone thinks.

 

Is it that black or white?

 

Bit of both here. Depends on the situation. A binary poll doesn't correctly cover it.

 

I'm torn on this one as well. There's a lot of good that can come out of vendor finance, but it's so easy to abuse as well. I've seen people who wouldn't have been able to buy a house get there eventually and I've seen people throw thousands of dollar at rent to buy and eventually walk away with nothing to show for it.

The problem is that many of the people using vendor finance to buy a house have little understanding of property or finance and are easily taken advantage of. The personality type needed to run a successful VF business is also the type that walks a fairly fine line of willingness to take advantage of others. Most aren't actually bad people, but it's not for someone with a bleeding heart.

On balance it's not something I'd recommend, but there's a lot that could be done to improve vendor financing. Further regulation specifically targetting this is needed, but that would introduce sigificant costs which would be passed onto the tenant, making things tougher for them.

 

Agree no black and white answer.

Same as the 105% finance of a decade or so ago. I know of more than a few young people who got into the housing market with virtually no deposit, and have gone on to bigger and better things.

However, I am sure there are some where things went wrong.
Marg

 

Depends on who is using it. Capitalist or Socialist.

 

Probably a bit of both.
A bit old fashioned these days, have read about them in the old books (5+ years old).

 

I have actually done lease options in the past myself, and the tenants made much more money out of it than I did.

 

^ ^ this.

 

Same here - but I've also had tenants walk due to personal circumstances and lose their money.

Not a big fan of them - to much work for the return - and to much out of your control

 

Not voting! It really depends on the individual situation!

If done fairly in a balanced way it can be a great opportunity for the purchaser! But it is certainly possible that the purchaser could be taken advantage of!

 

If Westpac wanted to do this and took 50% of all value increase while they held a mortgage would you do it ? No way. There is a reason they dont. It exploits.

Its like arguing its good value to buy to rent a 55inch TV from Radio Rentals. The $1k TV would cost you $4K. (maybe that why they call them 4K TVs

 

I always had the impression rent to buys are unethical as there is a good chance the tanant/buyer will stuff up and finish in the gutter.

It's not only unethical but exploitive preying on strugglers in our society. An easy way for some one to make money from someone elses hardship. It's seen as a despicable act to some.

Does anyone know to get involved in these schemes as a seller/landlord?

 

Find someone that is having trouble getting finance and offer them finance yourself? Maybe tack on a couple of percentage points? If they can't pay, you keep the house?
Sounds a bit too wacky to ever take off.

 

This is a great read on the topic: Rent-to-buy houses – is it legal?

 

It's not illegal. Vendor finance has been around forever. I believe there is some legislation in SA that makes certain implementations of vendor finance illegal, but there's implementations that aren't.

The problem is these strategies make it very easy to ingore various consumer laws and people often implement the strategies in an illegal manner.

It's like saying that it legal for a licensed driver to drive a car, but it's very easy to do a lot of illegal things whilst you're driving, either deliberately, through negligence or through ignorance.

 

Purely as a rental scam oops scheme without protection on title it can be exploitative however if run as a mortgage where purchaser gains equity and is on title it can be less corrupt.

 

Reading the article is worthwhile - it's more about the grey areas then a straight out yes or no. Too many unethical, or at the very least uneducated, operators do exist in this space.

 

Lender of Last Resort Finance....Risk margin ? Consumer credit laws still apply as well as ACCC and Fair Trading rules.

 

i thought nccp didn't apply to lease options? but only term contracts?