What is a VTB (Vendor Take Back)

Hello and welcome to the blog. Today, we will discuss an uncommon transaction type in real estate called a Vendor Take Back or VTB. It is an unusual way to raise funds, but if you find a seller willing to accept a VTB, it can work out very well in some instances. So what exactly is a VTB? It is a loan between the property seller directly to the buyer, eliminating the requirement for intermediaries or third parties. The seller will be acting as the Bank, and the buyer will be borrowing from them. We don’t hear very much about VTBs because both the seller and buyer need to be aligned at the right time and meet particular criteria to be mutually beneficial to both parties concerned in the sale.

Vendor Take Back transactions are a unique strategy where the seller extends a personal loan to the buyer to secure the sale of the property. The buyer needs to understand the seller’s motivations and needs as the seller initiates the VTB transaction.  One significant benefit of a VTB is that it is wide open to negotiation; you can negotiate any condition, from the down payment to the term and interest of the loan. It’s critical that when the seller and buyer agree on the terms and conditions of the VTB that legal documents are then drawn up to register the contract to protect both parties.

If you are lucky to locate this UNICORE seller, they will likely have the property fully paid with no mortgage outstanding. So they are in the advantageous position of owning the property outright. Another reason a seller wants to consider a VTB is that they are near retirement age. If the sale is an investment property, they may not like the trouble of dealing with the tenants or other management and administration issues. Or maybe they don’t have tenants; they just don’t want to continue making repairs or committing more work, time and expense to the property. So this type of agreement is unique due to the circumstances and criteria required to facilitate one. But that doesn’t mean you can’t find one or know of a seller that would be happy to deal via a VTB.

The benefits to the seller of entering into a VTB agreement include not having to expend any future time, work or expense on the property as the buyer will take over responsibility for its maintenance and upkeep.  It will also benefit the seller’s financial taxation position as he will not have to pay capital gains tax if he sells the property on the market. It will also ensure a quick sale of a property even in a deflated market. The loan term the seller agrees on will delay the payment of taxes as they don’t receive payment in one lump sum. The seller will also save on realtor sales and administration fees.

If both the seller and buyer understand each other, then there are a lot of different sale conditions that can be agreed on, including the down payment, payment schedules and interest rates. The seller will also retain ownership of the property as the loan is secured against an asset the seller owns, so if the buyer fails to meet the repayment schedule, the seller retains title ownership.

So I hope this helps, and if you ever discover a vendor take-back opportunity, please. Let me know because they are rare, but they can work to your benefit if you are clever enough to locate one.

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