We recently had a Mortgage Broker ask how we, as Vendor Financiers, could assist his clients. On the basis that an example is often more effective at putting across an idea, I wrote:

Hi Xxxxxx

Thanks for your email. For clarity, let me give you an example:

Tom, a Financial Planner, was the last finance professional to introduce one of his clients to our negative2positive concept. Tom’s client, let’s call him Dave, had a portfolio of two negatively geared properties in a regional area.

  • Property 1. Is located in an area that has had almost no capital gain for the last few years.
  • Property 2. Is located in a regional city and, over the last few years, capital gain has been reasonable, due to its proximity to a Capital city.

As mentioned earlier, both properties were negatively geared. Tom and Dave were looking to make the portfolio cash flow neutral. In consultation with us, it was decided to sell Property 1 with a vendor finance Instalment (Terms) Contract. With a view to generating sufficient positive monthly cash flow from Property 1 to balance the portfolio’s overall cash flow.

At the time, traditional sales in the area were slow. The online valuation had the value at $448,896. We sold the property with vendor finance within 6 weeks of commencing marketing for $460,000. As a result, Property 1 now generates $1,278 positive cash flow per month, after all costs. This more than covers the cash flow shortfall generated by Property 2.

As the example above occurred in {State}, I’ve included a de-identified copy of a {State} Instalment (Terms) Contract. Each State has slight variations.

To get a feel for the long acceptance of Vendor Finance in the Australian property market, I’ve included some links below from different sources (legal and commercial).

About Vendor Finance

Instalment (Terms) Contract

New Vendor Finance committee formed by FBAA 

While the above example shows a vendor finance technique that can be used to balance a portfolio’s cash flow, a very similar technique can be utilised to assist clients in mortgage distress, i.e. foreclosure is threatening.

I hope this example and the references above help. I look forward to your questions and working with you. Thanks.

All the best, Paul

Mortgage Brokers or Financial Planners

You may wonder why I gave the example of a Financial Planner’s client to a Mortgage Broker. Simple really; they both have clients that need to:

  • balance their portfolio’s cash flow, or
  • are suffering serious mortgage distress

Referral Fee

Yes, we do pay the Finance Professionals we work with a referral fee that’s fully disclosed to all parties. How you structure such a fee is your business decision J

Licensing Considerations

Let’s say you, as a Vendor Financier, the Mortgage Broker/Financial Planner and the Owner agree to sell the Owner’s property with a Credit Contract (Instalment Contract or Deposit Finance). It’s likely you will need Real Estate Agent Licence and Credit Licence coverage. Be it via your own Licence or Representative status.

If all parties agree to sell the Owner’s property with a Lease/Option (Rent to Buy), it’s likely you will only need Real Estate Agent Licence coverage, i.e. your own Licence or Representative status.

As always, check with your lawyer to confirm these licensing considerations.