A VTB or Vendor Take Back, is simply where the seller (Vendor) of a property is willing to provide some or all of the mortgage financing on that property. As a real estate investor, I ask for a VTB on most deals. Even if it's only a smaller 2nd mortgage, it doesn't hurt to ask if the vendor would be willing to carry the mortgage. There are significant benefits to both parties. And that simple question could provide you with an additional $5,000 - $10,000 in financing just for asking!
As long as you aren't over-extending yourself too far, then using other people's money is a great way to use leverage and enable you to buy other properties. Or, to have money left over to renovate, refurbish, or spend on marketing to rent out your new purchase.
There are other potential benefits from obtaining a VTB (for you, the purchaser):
- As with bank financing, there is generally no pre-payment penalty if you pay off the mortgage early;
- Vendors rarely ask for all of the documentation that banks require so it makes it quicker and easier to finance your property; and
- The mortgage, and it's value, will not show up on your credit score as is now becoming more common with the big banks and credit unions.
The benefits of a VTB for the seller (vendor) include:
- By offering financing on the property, a way has been found to make a difficult deal or a distressed property more attractive to an investor ;
- The vendor could increase the money they get from the property if they charge a higher than market value interest rate and collect it back over time;
- Even after they've sold the property, it continues to provide monthly cashflow;
- Currently, a vendor with a VTB can obtain a 5% or higher interest rate return on their equity in the property (the % will depend on the structure of the deal) rather than putting that money in the bank and getting a 2% or 3% savings interest rate;
- As the mortgage is secured against the property, the worst thing that can happen to the vendor is that they will have to foreclose on the purchaser and will get their property back (if it's a first mortgage, that is).
Your real estate lawyer will create the VTB documentation, in most cases. Always ensure that your lawyer has thoroughly reviewed the Purchase and Sale Agreement and the mortgage documents and all of their associated conditions. You will also want to speak with the vendor to determine if the term can be extended (if required) when it comes due.
As long as you aren't over-extending yourself too far, then using other people's money is a great way to use leverage and enable you to buy other properties. Or, to have money left over to renovate, refurbish, or spend on marketing to rent out your new purchase.
There are other potential benefits from obtaining a VTB (for you, the purchaser):
- As with bank financing, there is generally no pre-payment penalty if you pay off the mortgage early;
- Vendors rarely ask for all of the documentation that banks require so it makes it quicker and easier to finance your property; and
- The mortgage, and it's value, will not show up on your credit score as is now becoming more common with the big banks and credit unions.
The benefits of a VTB for the seller (vendor) include:
- By offering financing on the property, a way has been found to make a difficult deal or a distressed property more attractive to an investor ;
- The vendor could increase the money they get from the property if they charge a higher than market value interest rate and collect it back over time;
- Even after they've sold the property, it continues to provide monthly cashflow;
- Currently, a vendor with a VTB can obtain a 5% or higher interest rate return on their equity in the property (the % will depend on the structure of the deal) rather than putting that money in the bank and getting a 2% or 3% savings interest rate;
- As the mortgage is secured against the property, the worst thing that can happen to the vendor is that they will have to foreclose on the purchaser and will get their property back (if it's a first mortgage, that is).
Your real estate lawyer will create the VTB documentation, in most cases. Always ensure that your lawyer has thoroughly reviewed the Purchase and Sale Agreement and the mortgage documents and all of their associated conditions. You will also want to speak with the vendor to determine if the term can be extended (if required) when it comes due.
About the Author:
Know How to Retire with Real Estate with Dave's free Real Estate Investing Starter information Guide. Know how to build financial freedom, extra monthly income and massive wealth with information like: How to find quality rental properties, finding and keeping great tenants, and easy ways to finance your real estate purchases with Vendor Take Back financing.
No comments:
Post a Comment