- Selling your property too far above market price. Because vendor finance (VF) buyers are often quite annoyed at being locked out of home ownership, they’re open to paying well above market price just to ‘get in’. The problem with selling too far above market is it takes longer for your VF buyer to be able to refinance with a traditional lender. Thereby delaying access to your ‘back-end profit’.
- Not properly qualifying your VF buyer.Prospective VF buyers want their own home and are out to impress so they can get the property. On the other side of the coin, you as a vendor financier, are always concerned with holding costs. These two factors often lead to newbie vendor financiers doing insufficient due diligence on theirVF buyers. Leading to major challenges with your buyers when they work out they can’t really afford the repayments. To get your due diligence started early, we suggest the use of our Application Guide and Qualification Pack.
- Not using a vendor finance specialist management company.There are rules around the on-going management of vendor finance transactions. Make life easy for yourself by handing over your VF transaction to a specialist vendor finance management company when you have VF buyers ready to move in. Sure the management company charges for its service but you simply pass this charge onto your VF buyer as part of their regular payment. Vendor Finance Management can help you out with this.
- Not insisting your VF buyer gets independent legal advice. ‘Stuff’ unexpectedly happens in buyers’ lives,sometimes leading to some form of financial hardship. When this happens, we’ve found it’s easy for memories to become a little ‘foggy’. Having a certificate from the VF buyer’s lawyer indicating s/he explained the legal paperwork to the buyer is a very reassuring document to have. Not every vendor financier does this but we now have a list of vendor finance savvy lawyers we can recommend to our buyers, making it easy for all concerned.
- Trying to do the legal paperwork yourself. A lot of people come across sample VF legal documents. These important documents are used to direct buyers’ and sellers’ actions in relation to expensive assets, i.e. properties. They needto be drawn up and executed correctly. Using a sample you’ve picked up somewhere, leaves the whole transaction in danger of falling apart because the paperwork wasn’t setup correctly.
- Not getting some basic vendor finance education. We see people trying to put transactions together who don’t even know the difference between the three most popular VF techniques. You wouldn’t jump into a plane and try to fly it without some instruction. Crashing a vendor finance transaction will be expensive. Get some instruction. There are a number of great VF educators out there in the market place.
- Not networking with like-minded investors. You would not believe the gems you will pick up each time you attend a Vendor Finance Association (VFA) meeting or just about any property investing meeting you can find. We started out in the VF business in 2003 and we pick up something new at each VFA or Meetup meeting we attend.
- Not doing sufficient due diligence on a Seller. Vendor financiers often take control of properties. When you take control of a property the existing owner’s loan normally stays in place and their name remains on the Title. It’s important you know your Seller’s actual financial position, so take the time to find out. This includes making sure you’re dealing with the person(s) named on the Title.
- Not recognising that there are rules around vendor financing. There are also rules around driving your car but do they stop you driving? No. It’s the same with VF. There are rules you should know about and work within but they won’t stop you building a great VF business. This is where the Vendor Finance Institute can help
- Not understanding the benefits of Joint Ventures with experienced vendor financiers. Our first VF transaction earned us $19,000 and we made all the newbie mistakes. Trouble was, we didn’t know we were making these mistakes and kept on making them. If we’d done a JV with an experienced vendor financier, we would have made around the same but, more importantly, we would have been spared the losses associated with our on-going newbie mistakes. Think of it as essential on the job training.More information is available at Negative2Positive and JV Property Partners.