Where are all the Deals with VTB? so far none found!

[Nir]

Hi All,

I heard a significant portion of apartment buildings are sold with a VTB option. around a third of the sales(!) another agent told me closer to half!

I viewed many buildings and NONE of the sellers so far were willing to include a VTB option!

Is this estimate of number of VTB deals being around 50%, totally wrong!?
OR maybe it`s closer to 50% for larger buildings, say 50 units or more worth 2 Million or more?

Also, regarding VTB:
- Terminology question: is VTB described sometimes as "seller holding a mortgage for the buyer" or is it not the same?
- Does it increase the seller`s legal risk by somehow being connected to the building when providing a VTB? I understand the risk of not getting the principal back at the end of the term but any other legal risk related to condition of the building for example where it is easier to sue a seller whose money the buyer kind of holds till end of term?

THANKS.

 

[housingrental]

This will vary from owner to owner but:
Most owners will not consider
Some will consider
Properties that are hard to sell (have issues - tenancy / maintenance - or weak demand (smaller towns, unique property type) / have been sitting awhile sellers are often more agreeable
Most (but not all) selling want to get cash out of the property beyond what can be done through reasonable financing cost - so anticipate few will provide large % but 10% second, etc.. are much more doable... Anticipate needing at least 15% cash in for most sellers.

 

[housingrental]

Sorry last two questions:
Yes - Vendor take back
No - but yes if you get a judgment as you know what $$ are available and where.

 

[Nir]

Thank you Adam!

 

[Thomas Beyer]

QUOTE (investmart @ Aug 11 2010, 11:37 PM) ..

Is this estimate of number of VTB deals being around 50%, totally wrong!?..
A tad high .. maybe 25% would consider it .. but only about 10% actually do it.

Of course if you offer a HIGH price, above market, more seller would take one.

We sometimes send 2 offers (as buyers):
one lower, all cash (to seller) .. and one a bit higher with a VTB.

VTB is a 2nd mortgage. Related is an agreement for sale which is occasionally done to align purchase date with 1st mortgage discharge date to avoid a mortgage payout penalty.

The risk if you hold a 2nd is that you have to go to court and take property back if seller doesn`t pay. The risk is that you now have to assume the first, likely in arrears by then as well, plus some upgrades as the owner might have run the asset in the ground. However, if the LTV is low enough it might be an OK option for 2nd mortgage holder !

 

[Nir]

Thank You Thomas!

"only about 10% actually do it" - Yes, that`s probably the most accurate estimate.

"one lower, all cash (to seller) .. and one a bit higher with a VTB." as you know, the nice benefit for the buyer, with VTB, is you buy more for less!
for example you put 50K less and can even offer 50K more to the seller as shown in the following example:
asking price: 500K
bank provides 65% --> downpayment required 175K
it`s interesting what happens with buyer offering 550K - 50K higher than asking(!) to "tempt" seller to agree to 100K VTB:
offered price: 550K
bank provides 65%: 357.5K
seller provides: 100K
buyer puts only: 92.5K
with VTB buyer is able to put almost half down - 92.5K instead of 175K(!) although buying for 50K more!

Regards,
Neil