Welcome to the Cordato Partners Vendor Finance
Vendor finance has always been used and is now becoming
more and more popular for buying and selling real estate in
Vendor finance terms are a great alternative to buying
and selling real estate based on price only, for a
combination of reasons –
vendor finance provides solutions outside of the
straightjacket of cash sales and cash purchases,
particularly in a subdued market where properties are
vendor finance solves difficulties buyers and
sellers face with low deposits, obtaining bank loan
approvals, and minor credit defaults
vendor finance means sellers and buyers can make
their own arrangements, without making the sale
dependent upon a bank giving finance to the buyers
vendor finance is quick – buyers can move in
straight away, as soon as they satisfy the seller’s
vendor finance means that buyers can use their home
handyman skills to renovate – to paint, landscape and
improve the property, knowing that the pre-agreed price
will not increase because of the improvements
vendor finance paperwork is not too different from
the paperwork for standard sales, it is standard
paperwork with a twist
Other names for vendor finance are seller finance and owner
Cordato Partners, Business, Property and Tourism Lawyers
provide legal services and prepare the paperwork for
sellers, investors and owners who wish to use vendor finance
strategies for the sale and purchase of real estate in
In this vendorfinancelawyer website, we will tell you how
you can use vendor finance strategies, to sell, and also to
buy real estate (particularly homes) in Australia.
Cordato Partners prepares the legal paperwork for these
vendor finance strategies –
Instalment Sales (Instalment Finance,
Instalment Contracts, Terms Contracts) where the seller
is the banker for the buyer to buy the home;
Rent to Own (Rent 2 Own, Rent/Purchase, Rent
to Buy, Rent-Buy, or Rent now Buy later, Lease Options)
where the seller rents to a buyer for a while, and then
the buyer can either buy the home at a pre-agreed price
or walk away;
Deposit Finance (Carry-Back Finance, First or
Second Vendor Mortgages, Seller Loans) where the seller
finances the shortfall between the buyer’s loan and the
price payable to buy the home;
Handyman Special (U buy U fix, sweat equity)
where the buyer agrees to renovate and the seller agrees
to credit an agreed amount for the renovation towards
the deposit in lieu of a cash deposit;
Sandwich Leases (back-to-back lease options)
which are set up by a ‘transaction engineer’ who secures
the property under an option and takes a lease from a
seller, then finds a buyer who takes a Rent to Own
option and a sub-lease from him, with the idea being
that after a time, the buyer can either buy or walk
Joint Ventures where a ‘transaction engineer’
sells a property with an owner, or buys then sells a
property with an investor, using an Instalment Sale, a
Rent to Own, or a Deposit Finance vendor finance
These vendor finance strategies can be used throughout
Australia and New Zealand, but in South Australia their use
So if you are looking to break the shackles of buying and
selling real estate solely on price, if you want to escape
the auction straightjacket, and if you want to achieve a
better financial outcome both for a seller and a buyer, and
if you want a win-win property sale, welcome to vendor
Is vendor finance legal?
Yes. State and Federal Government laws provide legal
frameworks for vendor finance for homes in Australia.
You will find specific references to these laws and legal
frameworks throughout this website. But for now, would you
be satisfied if I gave you the Federal Government’s seal of
approval for vendor finance?
Refer Question 56, Australian Census, August 2011 –
Is this dwelling?
Owned with a mortgage?
Being purchased under a rent/buy scheme?
The being purchased under a rent/buy scheme alternative
covers the Rent to Own and Instalment Sales strategies.
Is vendor finance new, or is
it a sleeper?
You may not have heard much about Vendor finance, but is not
new. It has been used for a very long time for the sale and
purchase of real estate in Australia. But its popularity
goes through cycles - there are times when vendor finance is
very popular, and there are other times when it is hardly
Question - When has vendor finance been popular? Answer - Vendor finance has been popular when the
banking system is rationing loans for homebuyers and
Question - Does vendor finance work better when there
are lots of properties on the market, and buyers are hard to
find? Answer - Yes. Vendor finance works well when everyone
is having trouble trying to sell real estate the traditional
way focusing on price such as - Property for Sale $X -
Make us an offer! and when sellers keep dropping the
price to meet the market - because vendor finance
allows a seller to use terms to sell their property at the
price they want!.
Question - Why does vendor finance work well when
sellers are having trouble selling on price? Answer - Sellers who advertise vendor finance stand
out because they advertise not on price but on terms For
sale no banks $X per week - to attract buyers who do not
have enough deposit or do not currently qualify for bank
finance to pay the whole of the price advertised within the
standard period of 30/42/60/90 days !
Allow me to give an example of a time when vendor finance
was popular because bank credit was tight and home loans
were hard to get –
In the 1950s, 1960s and the early 1970s, the banks
rationed home loans. Homebuyers had to go through these
hoops to own their own home –
Buy the land for the new home from the
subdivider with a vendor finance terms contract,
where they paid the subdivider for the land by price
instalments over 3 years (reason? – banks did not
lend for the purchase of housing land), and when the
vendor finance was paid out;
Build the new home using bank loan funds secured
by first mortgage over the land;
Buy an existing home using a 20% deposit saved,
borrowing from a bank / life insurer / credit union
/ building society / private lender up to 65% of the
price, because this was the maximum the banks would
lend The remaining 15% was borrowed from a finance
company such as ASL, CAGA, ESANDA, FCA, Custom
Credit and IAC at an interest rate of up to 5% pa
above the bank rate.
Times changed when deregulation of the financial
markets began in the 1960s and banks were allowed to
loosen their lending policies. They became the dominant
players in the home lending market. This dominance by
the banking system has continued until the present day.
Since 2008, clouds have been gathering which will
affect this dominance by the banks of the home lending
market and which are resulting in a steady revival of
vendor finance for homes.
One cloud is the Basel II implementation in Australia of
tighter financial controls for the banking system,
resulting in less home loan money being available.
Another cloud is that the wholesale lending market is
not providing banks the cheap and easy funding that it
provided before the GFC (the 2008 Global Financial
Crisis) which enabled the banks to make 95% of value
loans or low doc loans common. In many instances,
borrowers are limited to 80% of the price because a
mortgage insurer will not give the bank, home loan
insurance for a loan above 80%.
There is another reason why vendor finance is
experiencing a revival which is that other sources of
housing finance, namely the non-bank and low doc lenders
which had a 20% share of new home loans pre the GFC
because they made their loans more available than the
banks, have dried up. They have not made more than a
trickle of home loans since their securitised funding
from Wall Street ceased with the GFC in mid 2008.
Remember Bluestone, Pepper, Wizard Home Loans, Seiza,
Challenger, GE Money and Liberty?
Continue if you want to learn more about how vendor finance
works in Australia.
Q How does vendor finance
A By providing what sellers and buyers are looking for!
What are sellers looking for?
To sell a property quickly and easily, for a good price.
What are buyers looking for?
To escape the rental market and buy their own home on
The vendor / seller / owner
financier provides this solution:
Instead of sending you, the buyer away to find a bank
loan to purchase my home, I will be the bank and finance you
myself and provide you with a home of your own on affordable
Vendor financiers provide a service which matches and
betters what the banking system provides because the seller
works with the buyer to tailor a vendor finance solution for
the sale to meet the circumstances of both the seller and
Vendor financiers provide a personal service which focuses
on the buyer’s capability to make regular payments, rather
than the banker’s ‘tick the boxes’ approach. Vendor
financiers willingly “step in where bankers fear to tread”,
by accepting buyers who are self-employed, or with low
deposits, or with “black marks” on their credit file
(meaning minor blemishes, not bankruptcy).
Vendor financiers tell buyers that they are “the bridge to
the banking system”. That is, they encourage buyers to
obtain mainstream bank finance in a 2 to 3 year time frame,
as soon as the buyer establishes a good track record of
making payments (“creditworthiness”), and perhaps builds
equity in the home by making home improvements (“sweat
Vendor financiers are willing to accept the risk of a
less-than-bank-perfect buyer because they personally assess
the buyer’s commitment and capability to buy, and because
they balance the risk they take with an attractive positive
cashflow return they will receive from the property.
Vendor Finance as an
Recently, vendor finance has become popular in Australia not
only as a way of selling properties at a good price, but
also as an attractive real estate investment strategy. If we
accept that a real estate investment with a superior rate of
return and a locked-in capital gain is an attractive
strategy, then how does vendor finance deliver on this
Vendor finance can enhance the cashflow return from a
property in the region of 3%, over and above the net
percentage rental return from a property. As such, it may
turn a negatively geared investment property (a return of
4%) into a positively geared property (a return of 7%), or
make a newly purchased property cashflow positive from day
Note – the way to calculate percentage return on a property
is – total the net income (rent received less maintenance,
repairs and outgoings) over a year calculated as a
percentage of purchase price or value.
There are joint venture partners who are experts in vendor
finance who can assist investors and owners to turn negative
gearing into positive gearing!
Contact me and I will introduce you to a joint venture
partner who can help you vendor finance your property all
around Australia and New Zealand, or visit -
Insert link to links tab
Learn more about Vendor Finance as an Investment Strategy in
the Introduction to Vendor Finance in Australia tab.
Can you tell me a little more
about the vendor finance strategies?
Instalment Sales are where the owner (the seller or
the vendor) sells the property under a Contract for Sale and
finances the sale themselves, instead of the buyer
needing to look for bank finance.
This form of vendor finance is advertised as – Buy my Home, $X per week, No Banks!
Instalment Finance has the look, smell and feel of a
bank loan. The term is usually 25 or 30 years, the
repayments are principal and interest, and the purchaser can
pay out the finance at any time by refinancing or by selling
the property. The interest rate is generally 2% pa above the
bank rate, and will rise and fall in line with rises and
falls in the bank rate. The payments are made weekly /
fortnightly / monthly by direct debit or paymaster’s
The difference between instalment finance and bank finance
if instalment finance is provided by the owner, the
owner retains ownership (the title to the property
remains in the seller’s name) until the instalment
finance is refinanced or until the property is sold by
the purchaser. Solicitors will recommend to a purchaser
to lodge a caveat on the title to protect their interest
because a purchaser does not have the title.
if a Bank lends the finance, it needs to take out a
mortgage over the property as security for its loan
because the ownership of the property is in the name of
the owner, not the Bank.
The purchaser using instalment finance has all the
advantages and obligations of an owner. The advantages are
that the purchaser can move in immediately the Contract is
entered into, and is able to make improvements to the
property to build up their equity. The obligations are to
pay for all maintenance and repairs, and also to reimburse
the owner for outgoings such as Council Rates, Water Rates,
Strata Levies and Building Insurance Premiums.
Inevitably, purchasers will find it advantageous to
refinance after 2 or 3 years with a mainstream bank (or non
– bank financier) because the bank loan payments are cheaper
than the instalment finance payments. This is encouraged as
soon as purchasers have 10% or more equity in the home..
This form of vendor finance is also known as a ‘WRAP’ or
‘WRAPPING’, because the payment terms the owner provides
mirror the terms of the owner’s own mortgage, and because
the owner is permitted to maintain their own mortgage over
Deposits are usually paid in cash, but sometimes are part
credited by “sweat equity” where a purchaser will renovate
the home and receive a pre-agreed credit for the value of
work carried out. Often these properties are advertised as
The documentation consists of a Standard Contract for
Sale which is ‘supercharged’ with an Instalment Payment
Schedule and a Licence to Occupy Schedule, and a National
Consumer Credit Code Disclosure Statement. Lawyers call it
an executory contract, which means that the legal
obligations are governed by a contract until completion
(that is, full payment of price) takes place in the future.
Instalment Contracts cannot be used in South Australia.
Rent to Own is where the purchaser rents for a
bit, and then decides either to buy or to walk away.
This form of vendor finance is advertised as – Rent to Own, Rent 2 Own, Rent to Buy, Rent now, Buy later
pay $X per week
It is “try before you buy” because the purchaser is not
committed to buy.
Rent to Own has the look, smell and feel of a rental,
but with some great attractions for both landlord and tenant
The first attraction is that the property is rented
usually for 2 years, sometimes with a 1 year extension.
This is in contrast to a standard residential lease
which is usually for 6 months, and no more than 12
months in duration.
The second attraction is that the rent is fixed for
the term of the lease (sometimes, annual CPI increases
The third attraction is that the purchaser pays
extra money above the rent, and the extra money
is paid in recognition of the opportunity that the owner
has given the tenant/purchaser to purchase the home, at
the price within the agreed time frame. From the owner’s
perspective, the extra money creates the
situation where the income from the property can be
The fourth attraction is that the purchase price of
the property is fixed up front – there is no formula for
increasing the price. Also, the extra money is
credited towards the purchase price.
The fifth attraction is that the purchaser can
improve the property, to making more pleasant to live
in, and to make it easier to obtain the finance to
purchase the property at the end of the agreed period.
The documentation for the rental or lease is a
standard Residential Tenancy Agreement, while the
documentation to give the right to purchase is a Sale
Option. The Option documentation is structured so that
extra money paid is credited against the price payable
under the Contract for Sale that will come into existence if
the Option is exercised. Together the documents are known as
Lease Options. The payments that are credited under
the Option are called price credits. Lawyers call the Option
a Call Option which means that the tenant/purchaser
can call upon the owner to issue a Contract for Sale, but
the owner cannot force the tenant/purchaser to purchase the
In South Australia, Lease Options are limited to a term of 6
Expert vendor financiers, use two sets of Lease Options –
one set to purchase properties – what are known as ‘buy
options’; which they combine with another set to sell the
property – what are known as ‘sell options’, to assemble
what they call back – to – back Lease Options which are
commonly known as ‘Sandwich Lease Options’.
Deposit Finance is when a vendor finances a deposit,
or a shortfall between the amount of loan that an outside
lender will advance, the cash deposit available, and the
purchase price of a property.
This form of vendor finance is advertised as - Deposit Finance available t.a.p. (t.a.p. = to
For example, a lender might approve a loan of 80% of the
price, the purchaser might have 5% deposit in cash, and so
the deposit finance will be 15% of the price. Deposit
finance is also known as second mortgage carry-back finance.
It is called second mortgage because it ranks second in line
to the first mortgage that the 80% lender takes over the
title to the property. It is called a carry-back because the
vendor carries it back, which is to say, finances that part
of the price.
The Deposit Finance is usually put into place for a fixed
term of 2, 3 or 5 years, the payments are usually interest
only at the same interest rate charged by the external
financier, payable monthly, and the interest rate payable is
usually fixed. At the end of the fixed term, the Deposit
Finance is usually paid out from savings or refinancing, as
a lump sum payment.
The documentation for Deposit Finance consists of a
Residential Loan Offer, which is compliant with the National
Consumer Credit Code, plus a Mortgage and a Caveat. Either
the Mortgage is registered as a second mortgage over the
title to the property, or the Mortgage is left unregistered
and a Caveat is registered over the title to the property,
as security for payment.
What should I do if I have a
property to sell with vendor finance, or if I would like to
use vendor finance strategies for investment?
Can we suggest these alternatives?
If you don’t have enough expertise, why not marry
together your property or your potential property
investment with someone who has the skill and expertise,
to form what is known as a Joint Venture? It is
popular for experienced vendor financiers to team up
with investors to be joint venture partners in a vendor
finance transaction. The investor purchases the property
in their name, the vendor financier is the ‘transaction
engineer’ who organises everything, and they share the
positive cashflow profits equally.
If you would like the names and contact details of an
experienced joint venture partner near where the
property is situated, or is to be purchased, use the
contact me tab or the links tab on this website and
we will provide you with names and contact details.
If you have an outline of a vendor finance
transaction, and want it documented in New South Wales,
contact Cordato Partners. We are a vendor finance
specialist law firm.
If you want to document a vendor finance strategy
anywhere else in Australia or in New Zealand, look at
Lawyers and Solicitors tab to find the
contact details of a solicitor or lawyer close to you.
Cordato Partners acts on all types of property
transactions – standard purchases of property, standard
sales of property, commercial leases, options, joint
ventures, mortgages and property developments.
We would be only too pleased to assist you in vendor
finance documentation for your property. We prepare
vendor finance documents, namely Instalment Contracts,
Lease Options and Second Mortgage Carry-Backs. We act
for clients who have successfully completed more than
2,500 vendor finance transactions in NSW. We have a
several conveyancing assistants, and can always create
the spare capacity to do your work.
We advise upon the best structure for your property
investment. Is it to be as an individual, as a joint
venture, in a company name, in a trust, in a super fund?
To learn more about vendor finance, visit the
websites of the Vendor Finance Association (the VFA) and
the vendor finance educators and mentors (use google).
Read How to Buy a House for a dollar by Rick
Otton, and Money Secrets of the Rich by John R
For more information please visit: