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Vendor Financing 101
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So you’ve found a great development site.
It ticks all the boxes for delivering a profitable project. You’ve done your due diligence and you know you can get Council on board, the Builder lined up and the Buyers excited. It’s taken months of research and expert consultation.
But there’s one BIG problem.
You can’t get finance.
The banks have said no, your brother says no and your investment buddies don’t have any spare cash to send your way.
The property deal of the year is slipping through your fingers and it’s making you think this whole development caper is just too hard.
You could walk away. But I’ve got a better idea….
How about you get creative?
One of the strategies you’ll hear me talk about a lot is no (or low) money down deals. They’re a magical method for getting deals over the line when you don’t have enough of your own funds to put into the deal.
And one of the best no money down strategies is to get the Vendor to finance the deal directly.
It ticks all the boxes for delivering a profitable project. You’ve done your due diligence and you know you can get Council on board, the Builder lined up and the Buyers excited. It’s taken months of research and expert consultation.
But there’s one BIG problem.
You can’t get finance.
The banks have said no, your brother says no and your investment buddies don’t have any spare cash to send your way.
The property deal of the year is slipping through your fingers and it’s making you think this whole development caper is just too hard.
You could walk away. But I’ve got a better idea….
How about you get creative?
One of the strategies you’ll hear me talk about a lot is no (or low) money down deals. They’re a magical method for getting deals over the line when you don’t have enough of your own funds to put into the deal.
And one of the best no money down strategies is to get the Vendor to finance the deal directly.
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The first thought that probably pops into your head is “No way!”
“Why would a vendor put their property on the line for me? How do you even arrange that? I bet there’s a whole lot of complicated legal documents to read and a whole lot of impossible paperwork to fill in. It all just sounds too hard.”
What if I told you that the last Vendor finance deal I put together involved no more than a couple of heart-to-hearts with the Vendors, and a one-page variation to the sales contract.
I’m not kidding.
“Why would a vendor put their property on the line for me? How do you even arrange that? I bet there’s a whole lot of complicated legal documents to read and a whole lot of impossible paperwork to fill in. It all just sounds too hard.”
What if I told you that the last Vendor finance deal I put together involved no more than a couple of heart-to-hearts with the Vendors, and a one-page variation to the sales contract.
I’m not kidding.
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Want to know the secret?
Find out what your Vendor needs...
If you can figure out what problems they need you to address, you can take a look in your tool bag and see if you’ve got the kind of offering that will solve their problems.
Let me tell you about this deal. It’s a combination of Delayed Settlement, Early Access and Vendor Finance.
There were two properties side by side. Each one by itself would create a one into two lot subdivision. But by combining the two sites, we could get a fifth lot.
Each Vendor had different problems they needed to solve. The big thing here for me is that rather than me pushing what I wanted onto them, I listened to what they wanted first, to see what solution I could offer.
Vendor one had no savings, no nest egg for retirement. His home was his one and only savings plan and he wanted to maximise the amount of profit he could get for it. It would be a tax-free deal for him because it’s his principal place of residence. So he was keen to stay in the deal for as long as he could to maximise his return, which in turn would minimise my holding costs. He was prepared to give me as much time as possible so long as I gave him enough money to buy a caravan so that he could head off travelling around Australia.
Vendor two had a property that was slightly better quality than Vendor one, so it was instantly worth more, but what they needed more than getting top price was certainty of price and the flexibility to take their time to find somewhere else to live. They had a little Shetland Pony they needed to accommodate (yep that’s right, a Pony..).
Find out what your Vendor needs...
If you can figure out what problems they need you to address, you can take a look in your tool bag and see if you’ve got the kind of offering that will solve their problems.
Let me tell you about this deal. It’s a combination of Delayed Settlement, Early Access and Vendor Finance.
There were two properties side by side. Each one by itself would create a one into two lot subdivision. But by combining the two sites, we could get a fifth lot.
Each Vendor had different problems they needed to solve. The big thing here for me is that rather than me pushing what I wanted onto them, I listened to what they wanted first, to see what solution I could offer.
Vendor one had no savings, no nest egg for retirement. His home was his one and only savings plan and he wanted to maximise the amount of profit he could get for it. It would be a tax-free deal for him because it’s his principal place of residence. So he was keen to stay in the deal for as long as he could to maximise his return, which in turn would minimise my holding costs. He was prepared to give me as much time as possible so long as I gave him enough money to buy a caravan so that he could head off travelling around Australia.
Vendor two had a property that was slightly better quality than Vendor one, so it was instantly worth more, but what they needed more than getting top price was certainty of price and the flexibility to take their time to find somewhere else to live. They had a little Shetland Pony they needed to accommodate (yep that’s right, a Pony..).
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So I had two Vendors with fairly different problems, but with a similar solution.
I was able to give certainty to Vendor two that once they found a place I would settle within a month. We agreed on a nine-month time-frame for them to move out. I didn’t have to give them the massive premium I gave to Vendor one because they had the opportunity to settle at any time during the process.
I gave Vendor one a portion of the agreed sale price so that he could buy himself a custom-built caravan with all the bells and whistles. And, he was all set to travel, but then COVID hit…
I was able to give certainty to Vendor two that once they found a place I would settle within a month. We agreed on a nine-month time-frame for them to move out. I didn’t have to give them the massive premium I gave to Vendor one because they had the opportunity to settle at any time during the process.
I gave Vendor one a portion of the agreed sale price so that he could buy himself a custom-built caravan with all the bells and whistles. And, he was all set to travel, but then COVID hit…
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He’d already quit his job and had a small mortgage that was costing him money, so during the deal we renegotiated and went into a Vendor Finance arrangement. I gave him $290,000 to pay out his mortgage and then he became my bank for the balance of the project. I owed him another $297,000 which I paid with interest at the end of the deal.
I didn’t have to get a mortgage.
I didn’t have to get a credit check.
I didn’t have to prove my serviceability.
I solved the problems of two different Vendors just by having a conversation and listening.
We used layman’s language to write down the terms we were both happy with, then I took that agreement to a Solicitor to create a legal document. That one-page document was inserted into the contract as a variation.
I didn’t have to get a mortgage.
I didn’t have to get a credit check.
I didn’t have to prove my serviceability.
I solved the problems of two different Vendors just by having a conversation and listening.
We used layman’s language to write down the terms we were both happy with, then I took that agreement to a Solicitor to create a legal document. That one-page document was inserted into the contract as a variation.
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Complexity-wise, it was extraordinarily simple. We didn’t need long, drawn out legal documents.
Every Vendor’s circumstances are different but at the end of the day it’s about sitting down and working on a win-win solution.
From the outside looking in, it seems overwhelming and difficult. That’s because you’re looking at the elephant, wondering how am I ever going to be able to eat that elephant? Well, you eat it one mouthful at a time. When you break the elephant down into individual components, it starts to look much more achievable.
There are three key requirements you need to address when you’re funding a deal: the deposit, the serviceability and the liquid cash to run the deal. We don’t always have the funds we need, and when we want to borrow funds we rely too heavily on traditional lenders.
It’s like having only one tool in your toolbox, and that tool is a hammer, so every problem starts to look like a nail. With more tools in your toolbox, you’ve got the ability to solve so many more problems.
It’s a matter of looking at all the no money down solutions we have and figuring out which ones will work for your Vendor and which ones will work for you.
Every Vendor’s circumstances are different but at the end of the day it’s about sitting down and working on a win-win solution.
From the outside looking in, it seems overwhelming and difficult. That’s because you’re looking at the elephant, wondering how am I ever going to be able to eat that elephant? Well, you eat it one mouthful at a time. When you break the elephant down into individual components, it starts to look much more achievable.
There are three key requirements you need to address when you’re funding a deal: the deposit, the serviceability and the liquid cash to run the deal. We don’t always have the funds we need, and when we want to borrow funds we rely too heavily on traditional lenders.
It’s like having only one tool in your toolbox, and that tool is a hammer, so every problem starts to look like a nail. With more tools in your toolbox, you’ve got the ability to solve so many more problems.
It’s a matter of looking at all the no money down solutions we have and figuring out which ones will work for your Vendor and which ones will work for you.
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Don’t force a solution down your Vendor’s throat. Play back your Vendor’s problem so that they can’t help but think the solution you’re offering is the best possible solution.
For many Vendors, time and money are powerful negotiating tools. And for me, holding costs are one of my biggest problems. If we can find a contractual way that I can minimise or avoid those costs, I can pass those savings back to the Vendor. Maybe your Vendor would be flexible enough to make a similar agreement?
Listen to your Vendor’s needs and you’ll find if you can offer them a great, logical solution – one where they say “Yes, that would make me really happy”, it’s very hard for them to say no.
Vendor Financing doesn’t have to be complicated, or scary, or high risk.
And Vendor Financing is just one option - we teach six no-money-down strategies, including setting up a Joint Venture with the Vendor and negotiating a Delayed Settlement with Early Access.
Don’t let the banks decide whether or not you can make your way to financial freedom.
Get creative, and learn about no (or low) money down deals.
For many Vendors, time and money are powerful negotiating tools. And for me, holding costs are one of my biggest problems. If we can find a contractual way that I can minimise or avoid those costs, I can pass those savings back to the Vendor. Maybe your Vendor would be flexible enough to make a similar agreement?
Listen to your Vendor’s needs and you’ll find if you can offer them a great, logical solution – one where they say “Yes, that would make me really happy”, it’s very hard for them to say no.
Vendor Financing doesn’t have to be complicated, or scary, or high risk.
And Vendor Financing is just one option - we teach six no-money-down strategies, including setting up a Joint Venture with the Vendor and negotiating a Delayed Settlement with Early Access.
Don’t let the banks decide whether or not you can make your way to financial freedom.
Get creative, and learn about no (or low) money down deals.
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"I've set myself a personal goal of setting 1,000 people financially free by the year 2030 through my education and mentoring programs.
I'm looking forward to you joining us."
I'm looking forward to you joining us."
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Rob Flux
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