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Rick Otton’s Top 10 Tips
1. Remember, you don’t need to own real estate in order to profit from it
2. It’s not the price you pay but the terms in which you pay the price
3. If you don’t know your exit, don’t go in the entrance
4. Make your house easier to buy so it becomes easier to sell
5. Buy property for the cash flow, not the tax deductions
6. A strategy that provides monthly cash flow provides you choice
7. Rely on you research to support why a deal is a ‘good deal’
8. A property with financing attached becomes an opportunity that will sell more quickly
9. Add value by changing the finance structure under which a property can be purchased
10. A new way created by one but followed by all becomes the new standard
Rick Otton’s Guide To Alternative Property Solutions
What do ABC Learning Centres, Sydney’s Luna Park and Barings Bank all have in common? They were all sold for $1 through an evolving technique that has been around since the 1800’s called vendor finance. As a point of fact, many parts of Australia where settled using vendor finance including North Sydney, Newcastle and the Blue Mountains. Meriton, one of the largest property developers in Australia, built their empire by selling their units with vendor finance to buyers. In the past couple of years, with bank financing becoming more difficult to obtain, this alternative form of finance is undergoing resurgence in popularity as more buyers and sellers discover how vendor finance works and how they both can benefit.
Vendor finance or seller finance is when a seller moves the financing on a property from themselves to a prospective purchaser. Vendor finance has and continues to solve two property problems – it aids sellers who need to sell a house quickly, without massively reducing their price and helps buyers who have the dream of home ownership and can afford to pay a mortgage payment each month, yet they may not qualify for a traditional bank loan because they haven’t saved enough deposit to satisfy the banks new lending criteria post Global Financial Crisis. Now that banks require 20% deposit and the First Home Owner Grant is disappearing, the power of seller finance is that it opens the field of potential buyers from 60% to 100% of the market.
There are many forms of vendor finance. Here’s an example how vendor finance works if a buyer is keen to purchase the property yet is a bit short of the deposit. If a buyer is purchasing a $600,000 property, and the bank said they would lend $480,000, then the buyer is required to pay a deposit of $120,000. Is it possible the buyer may be short of some of the $120,000? Perhaps if the buyer paid $60,000 and if the seller financed the other $60,000, the buyer could purchase the property. Once sellers understand that it’s not the price they ask buyers to pay but “the way they ask them to pay it” sellers can reach a much larger pool of prospective buyers who are able to purchase the property for their asking price, in a faster time frame. Most people can get financing at some time in the future, yet when sellers finance the buyers up front, it solves problems for both buyers and sellers.
The old way to sell a house was asking the potential buyer if they had finance in place. The new way is sellers to ask buyers if they would they like their help to finance them into the property.
Vendor finance is fast becoming an important a part of the house buying and selling process. Historically, whenever bank loans have been difficult to obtain, buyers and sellers have talked directly to each other with no bank middleman. In fact, people have been using seller finance to support their property sales for hundreds of years. It has been forecast that banks will settle about 80% of loans, credit unions providing 10%, and the growing seller finance sector to supply the remaining 10%.
There are many aspects of vendor finance. A seller benefits by achieving their asking price and realizing a faster sale. A buyer benefits by achieving their dream of home ownership even if they don’t have enough deposit saved.
In Rick Otton’s new book “How To Buy A House For A Dollar” he demonstrates why consumers should look beyond the traditional selling process when buying and selling property.
Disclaimer: While due care is taken, the viewpoints expressed by sponsors do not necessarily reflect the opinions of Your Investment Property.
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