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What type of contract is right for you?

Blog August 15, 2013

vendor finance or rent to own?

There are 2 common contracts:

1) Lease option – this is where you have the right to purchase the property.  With the lease option, you are not required to pay stamp duty and have a set time frame to refinance

2) Vendor finance – where you pay stamp duty and you have a lot more flexible time frame to refinance.

The Lease option is good if you don’t want to pay stamp duty.

The vendor finance allows you to use the improved value of the property when you refinance.  For example, if your improvements add $30,000 to a $100,000 house, they will allow you to borrow more than the initial $100,000.

If you are planning to stay long-term in the house, I would lean towards a vendor-finance or move towards a vendor-finance.

To know which is the best contract for you, speak to a mortgage broker, preferably one that understands rent to own and refinancing.  Which one is right for you as a purchasor?  Or as the landlord/investor ?

Christina from Nexfer

We have been running a property investment business since 2000 and have specialised in rent to own properties. This is because not only do we have a positive cash flow but we enjoy helping families move into their own homes. To improve our process, we also became mortgage brokers who understand the issues surrounding refinancing. With over 17 years experience, we can share our insights for both the investor and the purchaser and can also provide consulting service. Please feel free to ask questions.

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4 Responses to “What type of contract is right for you?”

  1. Just to update the lease option in Victoria, you have to pay stamp duty up front.

  2. Christina from Nexfer

    Victoria and South Australia are a little different to the rest of the country. In South Australia, these sort of contracts are not binding. In Victoria, regardless if you go through with the lease option, you will have to pay stamp duty. You can, however, postpone the stamp duty. This is dependent on the solicitor and how they write up the contract.

    It is even more imperative that the tenant does take into consideration the stamp duty up front. If you don’t exercise the option, you could still have a stamp duty debt to pay without a house. For those in Victoria, it is very important that the solicitor explain your options to you. Make sure that you find out that understands the lease option and vendor finance. There are so many solicitors that claim to understand it, but it is not a standard purchase.

  3. Thank you Christina for the clarification.

    Buyers definitely need to know this before getting into any lease option contract.

  4. Want to know the solicitors contact details

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