February 14th 2023
When you are looking at acquiring an investment property, there sometimes is an avenue for financing available that might not be as available when buying an owner-occupied property. That is vendor-assisted financing. The reason is that generally when a person is selling their home it is with the intent of moving into another one and they need their money out to buy the one they are moving to. But in the case of the investor-owned property, it may well be that they are selling because they are tired of being landlords. But they need to put their money into some sort of investment. Why not a mortgage secured by the house they are selling? I’ve found by suggesting a VTB (vendor takeback) at, or slightly below, the going mortgage rate, they are getting a higher rate of return than they will get by putting their money in a bank, and they are free from ownership that involves tenant management. It’s often very appealing to the seller.
It used to be that by getting a seller to hold secondary financing you could go in with 5% or 10% down. Have a first mortgage of up to 75% (now 80%) conventional financing through the bank and have the seller pick up the difference. Thus, avoiding high ratio costs. The banks do not allow that anymore. Not sure why since their position as first mortgagee is secure, but that’s their current position (ever since the 2008 meltdown in the U.S.). It may be possible to strike this kind of deal with a credit union since they are not under the Bank Act. I expect it will depend on ones personal relationship with the lender. But there is nothing preventing the seller from holding the entire amount as a first mortgage if he feels so inclined and his situation permits.
There is another situation that does not involve seller assistance with financing but can provide an opportunity for an investor, and that is where the seller needs to access his equity, but really does not want to move. This comes to play in a lot of situations where the homeowner is house-
rich and cash poor. Often the homeowner, generally older and retired is on a fixed income and is finding it hard to manage day-to-day living expenses and property maintenance as well. Often an attractive option for them is to sell their property to an investor and stay on as a tenant. This releases the equity in the home and puts it into their hands to enjoy, now and at the same time relieves them of the expenses of repair and maintenance of the property. It also saves them the inconvenience and heartache of moving out of their home. For the investor, it assures them of a good tenant who cares for and will continue to look after the property. I have found this often works out well for seniors who know that one day they will have to move on to some sort of assisted living facility. When that day comes, all they need to do is just give notice. The hassle of selling the house has already been taken care of.
Wayne Quirk, Author, “THE MONEY MACHINE”, wayneq@remax-gc.com