What is Vendor Finance?

Vendor finance is not new. It has been used for a very long time for the sale of real estate in Australia.

Vendor finance is popular when the banking system is rationing loans for homebuyers and investors.

It works better at times when there are lots of properties on the market, and buyers are hard to find.

When everyone else is advertising real estate on price like motor vehicles For Sale $X – Make us an offer! And dropping the price to meet the market, vendor finance stands out because it is advertising on terms For sale on affordable terms to attract buyers who have a low deposit or don’t have bank finance as yet but can afford the monthly repayments to pay for a property advertised at any price.

Contributing to the resurgence in vendor finance is the Basel II implementation in Australia of tighter banking system controls resulting in less home loan money being available.

Also contributing is that the wholesale lending market is not providing banks the cheap and easy funding that it provided before the GFC (the 2008 Global Financial Crisis) and other sources of housing finance, namely the non-bank and low doc lenders which had a 20% share of new home loans have not made home loans since their securitised funding dried up with the GFC in mid-2008.

Vendor finance works for vendors by allowing them to sell a property quickly and easily, for a good price. For buyers it allows them to escape the rental market, provides other solutions to obtain the finance (vendor finance) required to buy their own home on affordable terms.

Vendor finance provides a service which matches and betters what the banking system provides because it is tailored to meet the circumstances of both the vendor and the purchaser.

Vendor finance focuses on the purchaser’s capability to make regular payments, rather than the banker’s ‘tick the boxes’ approach. Vendor finance can also “step in where bankers fear to tread”, by accepting purchasers who are self-employed, or with low deposits, or with “black marks” on their credit file (meaning minor blemishes, not bankruptcy).

Vendor finance is “the bridge to the banking system”. That is, it encourages purchasers to obtain mainstream bank finance in a 1 to 5 year time frame, as soon as the purchaser establishes a good track record of making payments (“creditworthiness”), capital growth is achieved and or builds equity in the home by making home improvements (“also known as sweat equity”) which increases capital gain.

Recently, vendor finance has become popular in Australia not only as a way of selling properties at a good price, but also as an attractive real estate investment strategy. If we accept that a real estate investment with a superior rate of return and a locked-in capital gain is an attractive strategy, then vendor finance can deliver on this strategy!

Want to know more?

For a CONFIDENTIAL DISCUSSION on how you can use Vendor Finance to sell or buy your property contact our directors, Daniel Baran (0418 243 093) or Reece Coleman (0418 455 355).

We will be happy to introduce you to advisors and solicitors that can assist you through the process.