Hi there,
Just want to know if I’m missing something… or heaps
With LO’s you get the best of both worlds: Can access equity (if value goes up) and can negotiate a higher rental yeild. However, it is generally harder to find tenants who will sign a LO (i.e. a smaller market)
Wraps are more popular because there is a bigger market for them and certain owner responsibilities are passed on to the wrapee..however:
a) They keep you working as tenants generally refinance and you have to keep looking for new deals constantly…it’s almost the same as having a job (i.e. self employed)
b)If the value of the property you sold under a wrap increases in value you can’t access the equity to help you purchase other IP’s.
Any comments and advice are much appreciated.
Thanks.
ArthurK
ArthurK
I like LOs better too. They are also less harder to find finance for, and there are less ownership issues. But with your point a) above, depending how you strucutre you LOs, the tenants will be cashing you out just as fast as wraps.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Yea I suppose they would Terryw, unless I made it that they could only purchase on the set date and NOT before…I just want a strategy that won’t keep me working constantly…I understand that I’ll have to be proactive and keep my eye on whats happening in the market and on my IP’s…however, having to constantly buy and sell properties wouldn’t be worth it for me.
Thanks for your comments, I appreciate it.
ArthurK.
Another plus for LO’s is the access to rent assistance as Terry the King of LO land has mentioned before[confused2]
I’ve always found lease options interesting but haven’t found much info about it but I am going to rick otton’s one day event on it……..anybody else going?
Cheers,
Kiwi[specool]Lease Options intrigue me, Where’s the seminar Fulla-Kiwi, Maybe i could peek at your notes afterwards ??
ArthurK,
You’d probably make more money doing a wrap. However, with a LO you’d probably set a pre-determined purchase price above your purchase price, say by 25% with a clause somewhere stating that this is reviewed when the LO holder comes to deciding whether or not to renew it, which would probably be every 12 months. I can’t imagine property prices jumping 25% in a year in this climate. Who knows for sure? Ultimately, it’s beneficial for you both. [biggrin]
Luke, I think you could probably make even more money on LOs then wraps for the following:
-Can have a fluctuating strike price, whereas with wraps the wrappee’s ‘strike price’ is constantly decreasing.
-Tenants are more likely to leave then with a wrap – resulting in you retaining more money as you would not refund any equity
-Less tax problems, ie no CGT at the exchange or contracts.
-You could still borrow any equity on a LO and use this for more pruchases.There must be many more reasons too, but this is just off the top of my head.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Arthur
Here are my thoughts… although I don’t know a great deal about L/O’s…
If everybody is always refinancing you out on an instalment contract wrap, this would give you more cash earlier to buy more properties, therefore increasing your wealth more quickly?
If it’s really a pain for you when they refinance, set up some people to be long term wrappees (i.e. people who can’t refinance with a regular bank – eg on a special pension) and you will have cashflow for the longer term.
Can anyone tell me… is cashflow generally better on a L/O? I thought weekly cashflow on instalment contracts would be better?
Just some thoughts.. correct me if I’m wrong!
Lozza
Sorry — one other thought:–
I heard that as many as 50% of L/O’s don’t actually end up in the property being sold… They just change their minds, and move onto somewhere else.
You would then be stuck with an empty house again, which would mean more running around trying to lock-in someone else for a L/O.
Another advantage to an Instalment Contract Wrap I just thought of…. people who are buying from you on a wrap would probably be more inclined to look after the place. Wouldn’t someone on a Lease Option consider themselves to be more “tenants” than buyers?
Sorry.. I’m waffling. [biggrin]
Lozza
Lozza
about 30% of my LOs have not continued. That means I got the property back empty – but also got the gains that have come with it as well as the postive cashflow in the meantime. And if you re LO it, you would get another option fee, a higher rent and a higher strike price.
The cashflow on my LOs and Wraps worked out about the same.
Another point, if you are looking for long term cashflow and don’t want the tenant to cash you out, you can stipulate that the option is only able to be excerised after X years.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terry,
True, true. You’re the expert!! (I’m just new to all this, but climbing a steep learning curve!!)
Lozza [biggrin]
You must be logged in to reply to this topic. If you don't have an account, you can register here.
