During the day to day operations of Vendor Finance Management. we’ve noticed some vendor financiers getting confused about how to handle the costs involved with getting your vendor finance transactions managed by a specialist vendor finance administration company.
In the main this is being caused by making these management costs visible to the buyer and showing them as an ‘add on’ in the legal paperwork.
Rental Property Management
When you decide to rent a property, you also decide if you’re going to self-manage or get a rental property manager to do the job. If you decide to use a rental property manager, you also mentally adjust the rental charge to help cover the property manager’s fees. I have yet to see a property offered for rent, with property management fees shown as an extra cost.
Second Tier Lenders
While banks and other first tier lenders manage their own loans, many second tier home loan lenders use large specialist, home loan administration companies. However, as a home loan borrower you’d never know it. Because all statements and other correspondence looks like it comes from your lender and there is no mention of the management fees the second tier lender has to pay the home loan management firm.
This is achieved by the second tier lender simply adding a few basis points to their interest rate to cover these costs.
How to Make Your Management Costs Invisible
Like a rental property manager, Nexus Admin’s fee is a percentage of what we collect. Unlike a rental manager, we charge 4% as against their standard 7% or 8%. Although a rental manager does inspections and we don’t. However we have to administer your vendor finance buyer’s loan and they, as rental managers, don’t. Like them, we also have a small monthly admin fee, i.e. $4.
Here is an example of how to adjust your weekly Lease/Option (Rent To Buy) payment so management fees are included:
- Say the full amount you want each week, in your hand, including any amount for rates & insurance, is $500. To cover our fee, you would amend the weekly charge to your buyer to $522. The calculation goes like this:
- $500 divided by 0.96 (adding 4%) = $520.83. Say $521.
- $4 per month = $0.92307 per week. Divide $0.92307 by 0.96 (adding 4%) = $0.9615. Say $1.
- Therefore your buyer’s amended weekly payment is $522.
We suggest you don’t mention admin costs to your buyers. It just confuses them. Simply advertise your property, from the beginning, at $522 and the whole process will be much easier.
PS. The Vendor Finance Management website will be rebadged as Nexus Admin in the near future.