Vendor Take Back

[tmacdonald]

Hello fellow REIN Members,

I`m a relatively new invester and new REIN member as of Nov. `08. I`ve managed to get a seller to agree to a VTB and would like someone to review what I`m setting up. I am in unfamiliar territory and need counsel in a big way. Please help...

Details:
-this purchase is for a personal residence with a twist (subdivision in future) and we are converting our current home to a rent-to-own, and we do have one other rental property
-the agreed purchase price should end up at $260,000.00 ...just waiting as we speak to hear back on the counter offer
-possession won`t be until June 1st, 2009
-vendor is willing to do 15% take back and is uncertain about what rate to charge...he`s suggested 4.7% but I`m not sure where he got that from...current banking rates I would think. But should that raise flags because we haven`t discussed terms, i.e. how the interest is calculated and payments etc.

Can someone give me an example of what would work best for this situation? Our goals are to keep our carrying costs to a minimum for two years while my wife completes her nursing degree. That`s why I would like the reduction in mortgage and to make a balloon payment at the end of two years.

Thoughts, questions, clarification....anything would be helpful at this point. The call back is coming soon. When I wrote the offer yesterday I did not write it up as a VTB as I wasn`t sure how to do it and didn`t think the seller would go for it...now he would like to and wants a higher price. I offered $250,000.00 with conventional financing at 5% down. SHould I be re-writing the offer to reflect this now? I`m in Winnipeg...

Thanks,
Troy MacDonald

 

[Thomas Beyer]

Can you get a 95% mortgage from a bank ? Then no VTB is required nor recommended as a 1st mortgage would be high 4`s/low 5`s % range .. cheaper than a VTB or at least similar.

If not, can you get 75% to 80% 1st mortgage AND would the bank allow a 15% 2nd behind it ?

You need the seller on board AND a lender !

 

[tmacdonald]

QUOTE (thomasbeyer2000 @ Jan 6 2009, 10:24 PM) Can you get a 95% mortgage from a bank ? Then no VTB is required nor recommended as a 1st mortgage would be high 4`s/low 5`s % range .. cheaper than a VTB or at least similar.

If not, can you get 75% to 80% 1st mortgage AND would the bank allow a 15% 2nd behind it ?

You need the seller on board AND a lender !


I have applied for 95% mortgage through Canadian Mortgage Co. Rob Macdonald (REIN Member), with the Peter Kinch team...we spoke twice so far but I can`t reach him now until tomorrow. If my 2006/07 NOA`s showed enough income then we could do it fairly easily however I looked tonight and they don`t quite make what`s required but very close. I`ve only been fully self employed for just over a year. 2008 was a decent year for my personal income as a Realtor, however it is not reflected as of yet, only as stated income. So I`m not sure where I stand at this point, at least not until tomorrow morning. My thinking was that VTB would lower the amount of carrying costs for 2 yrs and then once our incomes, (my wife and I), are both strong again we could refinance or use a line of credit to pay out the VTB. But still, I`m not sure he`ll go for just the balloon payment as he is retiring and new to the VTB concept as well. He is consulting his lawyer tomorrow. I am consulting REIN members, perhaps I should phone my lawyer but I`m not convinced he is a real estate expert either. That`s why I`m asking for your advice. I`m sure I could get the seller onboard if the deal is reasonable for both parties, I just need to clearly explain it. At this point I`m unsure of what the options are as I`ve never done this. I want to be able to clearly explain the best option by tomorrow so that I`m prepared. I can only do that with your help. Guess you should be charging fees for this advice eh!

 

[GarthChapman]

QUOTE (thomasbeyer2000 @ Jan 6 2009, 09:24 PM) Can you get a 95% mortgage from a bank ? Then no VTB is required nor recommended as a 1st mortgage would be high 4`s/low 5`s % range .. cheaper than a VTB or at least similar.

If not, can you get 75% to 80% 1st mortgage AND would the bank allow a 15% 2nd behind it ?

You need the seller on board AND a lender !

If you want to save the CMHC fees you might want to offer to give the Seller his 2nd mortgage on another of your properties, and thereby allowing you to put conventional financing on this purchase. If the LTV% would be lower this way you could pitch him on his security being stronger than it would be on the property he is selling you. Careful though, if he doesn`t go for it you will have planted in his mind the security issue...

But then again, if you are paying a premium to him for his giving you the 2nd mortgage then why not just pay the CMHC fees and get his price down.

 

[tmacdonald]

QUOTE (GarthChapman @ Jan 6 2009, 10:47 PM) If you want to save the CMHC fees you might want to offer to give the Seller his 2nd mortgage on another of your properties, and thereby allowing you to put conventional financing on this purchase. If the LTV% would be lower this way you could pitch him on his security being stronger than it would be on the property he is selling you. Careful though, if he doesn`t go for it you will have planted in his mind the security issue...

But then again, if you are paying a premium to him for his giving you the 2nd mortgage then why not just pay the CMHC fees and get his price down.

Thanks for the advice Garth, btw, I grew up in Chestermere! Graduated high school there back in 93...now I find myself way out in Winnipeg??? What would be the best way to structure the VTB in order to keep my carrying costs to a minimum?

 

[Thomas Beyer]

QUOTE (tmacdonald @ Jan 7 2009, 12:19 AM) What would be the best way to structure the VTB in order to keep my carrying costs to a minimum?

a balloon payment .. or 0% interest .. HOWEVER you need a 1st mortgage lender that is on board with it !!

use one of these 2 options here in contract ! .. Chat with your lawyer before waiving conditions !

a) Seller will provide buyer with a mortgage in 2nd position behind a first mortgage not exceeding YYY $s at 0% interest, with 0 monthly payments until XXX, fully open at the sole discretion of the purchaser.

or

b) Seller will provide buyer with a mortgage in 2nd position behind a first mortgage not exceeding YYY $s at Z % annual interest, with 0 monthly payments until XXX, fully open at the sole discretion of the purchaser. The accrued interest will be added to principal payable on discharge, no later than XXX.

XXX is a date 2 or 3 years out ..

usually the buyer pays for the legal fees to set up the mortgage .. probably about $1000 !