Riddle Me This

If I offered to pay $95,000 for something you’ve been struggling to sell for years for $75,000 (and will probably have to discount further) but the one condition is that I will pay you 10% now and the rest over 8 years, what would you say? 

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6 thoughts on “Riddle Me This

  1. I would say yes, as long as the contract for future payments was considered legally binding. We got our block that way; by borrowing half the total cost and vendor financing the rest. All on a non existent income. I can be very persistent when I need to be.

  2. i think u have hit on an age old question. why people dont want to deal directly with each other ,and prefer to go through a middle man… because this is what it is… people prefer to go through a bank to get finance. is it the security? the bank will deal with both parties so there is a bit of safety there. neither party can abscond as the bank acts as the bond holder. u might say but the land is permanently there and the owner can get it back, but it is not so simple as that. you might resist being moved, even after u have stopped payment , asking for time to pay… saying u have hit a temporary setback. and u might stay there for years and the law wont take sides. unlike with a bank which is properly licensed to lend money and so when u dont pay , the law is on the bank’s side.

    • Absolutely understand that. Vendor finance certainly is an unconventional option. It’s also a very creative option. One that can provide great benefit to both the vendor and purchaser. For example: Vendor wants to sell the property, put the money in the bank, and live off the interest. At the moment in Australia, a good rate might be 4.3%. Under most vendor finance contracts the buyer will pay 5-10% interest.

      I appreciate the reservations of a vendor selling a desirable property, for which a prospective buyer could obtain traditional finance, that is in demand. Traditional finance makes for a straight forward, low-risk transaction. For properties that are destined to sit on the market for 3-4 years, costing the owner in rates and lost opportunity, I think vendor finance ought to be considered. Especially if the outcome sought is compatible with it. It really comes down to the motive of the vendor.

      A property that I was negotiating to buy on vendor finance, until the vendor got cold feet, is still for sale. It’s been for sale now for almost a year. It has come down in price from $40k to $36k and now $34k. I offered (including interest) $35k (when it was listed for $36k). Apparently the owner paid $10k for the block 5 or so years ago. Most of the locals think he is dreaming trying to charge so much for it seeing the town has long been in decline. If I had paid $35k for it I would have been ripped off. But hey, that’s his opportunity missed and knowledge gained for me.

      I have discovered something really interesting in my research. The Google Street View car drove around Australia several years ago. Many of the properties I have looked at had “For Sale” signs on the fence way back then. Either they have changed hands a couple of times or they have been on the market all this time.

      As for the risks – they are certainly there for both parties. But a choice needs to be made and the risks lessened through proper legal process by way of contracts.

      • logically, all that u said is a strong case for vendor finance for those properties. there must be a psychological factor that is preventing them from doing it. i think it is that they dont own the land anymore but at the same time are not yet paid for it.

        Usually the conventional way is to lease it , with a leasehold, u can in the lease impose maintainance and usage clauses so that the property is kept in order, and u can oversee its maintainance, etc.

        In a vendor finance. the property is legally sold, even though the seller have to wait 8yrs to get all the money. the seller dont have any say in how u use the land, and during that 8yrs anything can happen. for eg, a bush fire may come and destroy the land, or the new owner may deliberately set it on fire to get out of the deal; and the new owner can simply walk off, and u are saddled with having to sell that property again, and unable to get rid of it with it being unsaleable. whereas if u have sold it in the usual way, it is not your problem anymore.

        or the buyer died, before the 8yrs , and his heirs are not interested in paying the rest of the money and u cannot force them as they are not a party to the vendor finance agreement.
        i am sure there are a lot more risk than we think to vendor finance, that is why it is not done at all, as far as i can see. usually it is only done when the parties know each other v well and trust each other.

      • Hmm, I am not sure how true some of the things you mention are here under Australian law. What you say about inheritance, for example. A vendor contract would be handled like any other.

        In short, the contract reins supreme.

        At the end of the day, there are risks. Some people are keen on it, some others aren’t. It is a done thing here. Sure, it’s not the mainstream but it is certainly common.

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