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VTB

tweetypilot

tweetypilot

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Sep 14, 2007
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Hello
I would like somebody to explain to me clearly what a VTB is: the advantages for the vendor (home owner or investor). I need it to
I would like to make an offer with a VTB but I need to explain clearly what it is and for that I need it to be very clear in my head first.
thank you for your help.
Sylvie
 
QUOTE (tweetypilot @ Nov 4 2007, 01:22 PM)
Hello

I would like somebody to explain to me clearly what a VTB is: the advantages for the vendor (home owner or investor). I need it to

I would like to make an offer with a VTB but I need to explain clearly what it is and for that I need it to be very clear in my head first.

thank you for your help.

Sylvie


Hi Sylvie,



I've just recently gotten my head around VTBs, so I'll do my best to help.



VTBs can benefit both sides quite a bit, in the right situation. For the buyer, it can reduce your monthly carying costs, since you can provide the seller with interest only payments, or even fully deferred payments (just a lump-sum balloon payment at the end of the term). If the property has appreciated at the end of the term (a safe bet), then you would just refinance the property, increasing the mortgage amount, and taking those extra funds out to pay off the VTB principal (or principal plus the accumulated interest). Some sellers will even just renew the VTB, pushing that payout even further into the future.



From the seller's perspective, there are several benefits. First, they will likely get a higher selling price if it includes a VTB. They also can get a monthly/quarterly/yearly interest payment from their investment, providing truely hands-off cash flow. Of course, their investment is fully secured against the title of the property (in a 2nd mortgage position), so there is very little risk to them.



Another significant benefit to the seller if they are an invester (ie; this is not their principal residence), is that they will be facing capital gains tax when they sell the property. With a VTB, they can choose to defer the portion of capital gains tax that would have been due on the portion that they carry. This lets them spread that tax over the term of the VTB option, rather than pay it all immediately! For many sellers, this is a HUGE benefit.



One side note to VTBs is that if you are taking a mortgage on the property, the financial institution will likely have a minimum amount of cash that is put into the deal, meaning that the 1st mortgage cannot be 75% if the VTB is 25%. My understanding is that most banks usually require 15% cash down, so if a seller carried 10% of the price, and you put 15% down, then your mortgage would be 75%. If the seller would carry 20% for example, you would put 15% down, and then your 1st mortgage would be 65%.



I hope that helps,



David.
 
Thamks David it does help a lot.
Who is in charge of setting the 2nd mortgage though?? My lawyer, his lawyer..??
 
QUOTE (tweetypilot @ Nov 4 2007, 08:17 PM)
Thamks David it does help a lot.

Who is in charge of setting the 2nd mortgage though?? My lawyer, his lawyer..??


Hi Sylvie,



I'm not 100% sure, so I'm hoping someone else jumps in here to correct or confirm.



My understanding, however, is that the lawyers take care of it as a normal part of the paperwork. They register the 2nd mortgage/caveat, and only if you do not hold up your end of the deal (ie; you don't send a monthly cheque if that's what you agreed to) would lawyers ever get involved again.



I'm not sure witch lawyer would be 'responsible' for it, but I suspect the seller's laywer is more interested in it being done correctly than your lawyer would be.



Can someone please correct/confirm that?





David.
 
I am not by any means a lawyer, but do have experience on both sides of this fence. My experience is that the Lender will typically want to control the writing of the Mortage itself, and it is often easier to do it that way. The Buyer`s lawyer will be there to ensure the document is not lopsided in favour of the Lender.

Most Lenders already have a mortgage template. But if not, there is certainly an opportunity to volunteer to have your lawyer wite the draft and forward it to the Lender`s lawyer for review.

In my experience the costs for both are usually borne by the Borrower.
 
QUOTE (Chaps @ Nov 4 2007, 09:21 PM)
I am not by any means a lawyer, but do have experience on both sides of this fence. My experience is that the Lender will typically want to control the writing of the Mortage itself, and it is often easier to do it that way. The Buyer's lawyer will be there to ensure the document is not lopsided in favour of the Lender.



Most Lenders already have a mortgage template. But if not, there is certainly an opportunity to volunteer to have your lawyer wite the draft and forward it to the Lender's lawyer for review.



In my experience the costs for both are usually borne by the Borrower.




What is the current going interest rate for VTB?
 
It is a negotiation between the parties, with many many factors involved. For example, the motivation level of the Seller will enter into this, the other terms of the sale, the Seller`s tax consequences of the sale, what else they could do with the money you propose that they to lend you, etc, etc.

Given this is a buyer`s market now in Alberta it would seem to me that now would be a great time to negotiate favourable terms on a VTB.
 
QUOTE (Chaps @ Nov 5 2007, 08:17 AM)
It is a negotiation between the parties, with many many factors involved. For example, the motivation level of the Seller will enter into this, the other terms of the sale, the Seller's tax consequences of the sale, what else they could do with the money you propose that they to lend you, etc, etc.



Given this is a buyer's market now in Alberta it would seem to me that now would be a great time to negotiate favourable terms on a VTB.




I realize that this is negotiable but would like some feedback on what kind of rates are being used by members who are currently doing VTB's
 
Depending on the situation (terms, price etc). I have heard of 2% to 10% being used. Interest only payments with a `balloon` payment at the end of the term that pays them their full amount due.
 
Howdy, you may want to refer to your 22 Secrets for Street smart negotiations booklet, for some tactics in your negotiations.

The key thing when you are looking at this is to get the seller to name their number first.

This is a tough one to peg down, because there are many different variables involved
i.e.
- Length of Mortgage
- Timing of payments (quarterly, semi-annually, annually, or balloon)
- interest only or amortized
- interest rate

If you are just looking at the interest rates being offered, the numbers I have heard from members ranges from 0% (yes zero- rare but has been done. might want to ask Jeremy Flemming about that one) to 15% that I have heard.

When your are potentially negotiating with a seller, ask them what type of interest they are earning on their bank deposits, and would they like a better rate? If yes, what rate would they like? Get them to name the first amount, and no matter what that amount is... say "that seems a bit steep" "What would your second choice be?"

Listen to their answers, you will be surprised if someone is motivated to sell, and offer second financing you will be surprise how quickly they lower their number, and saving your money
 
QUOTE (RussellWestcott @ Nov 5 2007, 04:15 PM)
Howdy, you may want to refer to your 22 Secrets for Street smart negotiations booklet, for some tactics in your negotiations.



The key thing when you are looking at this is to get the seller to name their number first.



This is a tough one to peg down, because there are many different variables involved

i.e.

- Length of Mortgage

- Timing of payments (quarterly, semi-annually, annually, or balloon)

- interest only or amortized

- interest rate



If you are just looking at the interest rates being offered, the numbers I have heard from members ranges from 0% (yes zero- rare but has been done. might want to ask Jeremy Flemming about that one) to 15% that I have heard.



When your are potentially negotiating with a seller, ask them what type of interest they are earning on their bank deposits, and would they like a better rate? If yes, what rate would they like? Get them to name the first amount, and no matter what that amount is... say "that seems a bit steep" "What would your second choice be?"



Listen to their answers, you will be surprised if someone is motivated to sell, and offer second financing you will be surprise how quickly they lower their number, and saving your money






My question is on the buyer's point of view. Here's a scenario. There's a property that is being sold for $1 million. The seller is willing to do VTB, but has not mentioned how much yet and what the interest it. Considering the lenders in the markert that are willing to accept VTB, could you provide me some possibilities on the minimum downpayment I would be putting in from my own pocker. I would just like to get an idea as to how much I should prepare for. Thanks.
 
Hi,

Typically, you should plan to put at least 10% of your own funds towards any purchase involving a VTB. If you are looking for best rates, and to deal with an `A` lender, the institutions that allow for VTB`s will normally allow up to 90% as a VTB.

Rob Macdonald
General Manager
 
QUOTE (tweetypilot @ Nov 4 2007, 08:17 PM)
Thamks David it does help a lot.

Who is in charge of setting the 2nd mortgage though?? My lawyer, his lawyer..??






usually the seller's lawyer does it .. paid by you, the borrower .. but it is negotiable like many things in life !



benefit of VTB: lowers your cash in .. and is usually cheaper than a conventional bank loan with 3-5% upfront and 9-14% annually !!



can also be a balloon payment .. i.e. 0% for 2 years .. then BOOM .. one big balloon payment .. so can improve cash-flow !
 
In making an offer you need to decide up front what you are prepared to pay, $ down, interest, monthly etc. to suite you not the seller. What is normally done or what is the common practice is not important if it dosn`t work for you personally or for this property. If 0% interest X$ per month is what makes the property work then that is what you offer.
There really are no rules or guidelines when making an offer beyond what is a good deal for you.The seller simply has to say no if it dosn`t work for them..
 
QUOTE (RussellWestcott @ Nov 5 2007, 04:15 PM) Howdy, you may want to refer to your 22 Secrets for Street smart negotiations booklet, for some tactics in your negotiations.

Is there an online link to this document?

Thanks
 
QUOTE (tweetypilot @ Nov 4 2007, 01:22 PM)
Hello

I would like somebody to explain to me clearly what a VTB is: the advantages for the vendor (home owner or investor). I need it to

I would like to make an offer with a VTB but I need to explain clearly what it is and for that I need it to be very clear in my head first.

thank you for your help.




Upon sale of an asset, the Vendor (aka seller) Takes Back a mortgage, i.e. he becomes part of the financing. Usually this means that the seller holds a 2nd mortgage behind a 1st .. but could be a 1st or a 3rd mortgage or even a delayed 3d deposit.



You add terms in the offer to purchase under 'other" or "Vendor financing" or in an apendix, with words such as



'Vendor agrees to carry $125,000 at a 4% interest rate, paid monthly, interest only, for up to 3 years, open to prepayment without penalties"



usually the bank (i.e. 1st mortgage) holder has to agree to it ..



Benefit to seller is three-fold:

a) he gets his asset sold, and

b) he gets a tax deferral on his gain, and

c) he gets a monthly cheque for some time



Drawback to seller: you may default, and he has to foreclose on the asset to get his money.



Benefit to buyer:



You need less cash to close, and you may get a lower interest rate than a bank would give you.

drawback to buyer: you have to pay interest on 2 mortgages, not just one.



more here: http://myreinspace.com/rein_members_only/Members-Only_Discussion/81-8159-Vendor_Take_Back.html
 
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