When it comes to selling your property, the majority of people consider only one option and that is to sell your home for a lump sum cash amount - the amount paid by the buyer is used to pay off any remaining loan on your own mortgage on the property plus any other fees with any excess remaining placed into your bank account.
There is another option though, and it is called vendor financing or house wrapping. What this involves is selling your property to a buyer who, instead of giving you a lump sum cash amount, pays you the agreed sale value in instalments over an agreed period of time. Although you may still hold the mortgage repayments in your own name, and therefore ownership of the property, these payments are made directly each month from the new buyer, with the final transference of ownership papers made when the last instalment has been made.
This turns out to be an absolute boon for all the Australians who are facing a battle within the rental crisis happening right now. Prices have been soaring so high that the Aussie dream to own your own home is near impossible to achieve; once the average one-third of an Australian's average wage is spent on rental payments, there's little left over to save to buy their own place.
Just recently it was reported that rental prices in the Sydney area has seen the amount of people looking to pay over $400 a week double from 20% to 40% in the past four years alone and it's taking them on average two months to find somewhere suitable to live.
People are almost falling over themselves to offer more than the asking price for rent in a desperate bid to put a roof over their head and even paying a month or two in advance to secure the rental agreement.
So you can see why the idea of not only finding a place to live, but finding a place that offers them the security of permanence is more than a dream come true.
Both the vendor financier and buyer are free to negotiate on the price and terms of the financing as long as they adhere to any laws and regulations in their state. A down payment or deposit is required and is often set at around the 2% to 5% mark. The buyer can pay more if they choose.
It has to be noted that in South Australia, house wrapping is illegal (only the government can offer vendor finance). Apart from that though, every other state in Australia basically runs along the same rules though it is very wise to talk to an expert in property wrapping such as myself to ensure that you do not breach any laws or settle on an agreement that cannot be seen through.
Thanks to Tony Cordato for this bit of advice:
There are no specific restrictions on the use of Instalment Contracts in New South Wales or in Western Australia. Restrictions apply in Queensland, Victoria and South Australia.
In Queensland, once one third of the Contract price has been paid, the title to the property must be transferred to the purchaser, and unless repaid, the vendor finance is to be converted into a mortgage. See section 75 Property Law Act 1974 (Queensland). It is standard for the Contract for Sale in Queensland to provide that the balance price must be repaid at this time.
In Victoria, terms contracts (as they call them) are prohibited for residential land (that is, houses, home units and land) where the price is less than $750,000. See section 29EA Sale of Land Act 1962 (Victoria). The vendor cannot mortgage or refinance the loan secured by mortgage over the property after entering into a terms contract.
What are the benefits to house wrapping?
The benefits to house wrapping are seen on both sides of the transaction making this a great way to achieve a win-win situation for everyone.
First of all, the new buyer has the opportunity of owning their own property whereas they might not get that anywhere else - self employed people can struggle when it comes to financial institutions lending them money for house purchases.
Secondly, until the final payment is made on the property, the current owner remains the legal owner of the property - this minimises the risk that you will lose your biggest asset if the new buyer fails to make payments.
Thirdly, once entered into the agreement, you as the vendor financier are no longer responsible for any repairs to the property. You are also no longer responsible for rates or any other taxes that a home owner is required to pay on a property. The responsibilities for all of these are transferred to the new purchaser.
Fourthly, instead of acting as a landlord in this regard with all of the responsibilities that that holds, you are instead acting as the bank or financial lending institution. Each month you receive money to pay the mortgage and also have enough left over as clear profit for you.
And finally, the profit you make from this arrangement is locked in at the beginning of the contract. For the purchaser, at final settlement, they keep any increase in the property's value.
To Your Success Paul Zalitis The Aussie Wrapper
About Paul Zalitis, the Aussie Wrapper
What I’ve been doing is helping mates create positive cash flow and helping them achieve their dreams of owning property and building their finances through Property Vendor Financing.
Subscribe to our YouTube channel to learn more about Property Vendor Financing - https://www.youtube.com/@paulzalitis
