The difficulty with installment contracts

Because a sale has actually taken place, Capital Gains Tax is levied on the sale.  This causes a problem for the seller as he or she is paying tax on the profit on a sale which he has not yet been paid for.

Secondly, in some states in Australia when payment is received in installments, the purchaser has the legal right to transfer title when one third of the full price has been paid. Clearly this gives rise to banking problems if the original owner still has a mortgage on the property with a bank.

This style of contract is more suited to the American market and their law and is not a very successful strategy for Australian law.

There is another way vendor financing is an effective product to use, but this is not generally referred to as wrapping. This is when a vendor leaves some of the equity in a property, has it secured by a second mortgage and receives interest on the outstanding amount. I will explain how this strategy works in other blogs for the Purchasing with No Equity Down Money deals.

We always recommend that you seek professional advice as this blog is for general information only