A Wrap qn:
A property costs $300k
Interest only at 7.5% would be $22,500, (not including principal)
Rent per week would be 200 x 52 weeks = $10,400
So this is a saving of $12,000 for the Wrappee (Purchaser).
Hence isn’t the purchaser better off renting for two years to save up for a deposit
If the Wrappee was to purchase a property under a Wrap, he would pay $22,500 in interest alone compared to $10,400 in rent.
My point is – where’s the benefit to doing a wrap?
I’ve found a way to help you save and earn whilst not selling or delivering any product. If interested, drop me an email or PM me to find out how
Many people chose a wrap for a whole bunch of reasons.
In your example your assuming people can get bank finance (pensioners for example have to put down a 30% deposit, which would equal $90K in your example).
Other people can’t save for a deposit. For example people would have to save $30K (Not including stamp duty and other costs to buy the home) for a 10% deposit. Saving that much is difficult especially when the average wage is only $49K (which equals round $36K after tax).
If they tried to save them it would take say 3 years (at $10K per year (or 25% of their after tax income + they have to pay $10K worth of rent). So they would lose 50% of their income.
I did some rough calculations on mortgages in Sydney. If you took the Average house value ($560K) and the buyer took out a mortgage on the house of 80% that would mean the mortgage would be about $448,000. If the mortgage interest rate averages 7.5% over the life of the mortgae, and the mortgage runs for 25 years, the buyer would pay mortgage interest totalling about $545,200. That means he’s effectively paid over $1.1 million for his house excluding other mortgage fees, stamp duties, etc.
If property over the same time stays of about the same value (assuming a property crash and recovery) it means that the homeowner is paying about an extra $450,000. Now consider someone who rents for the same time period, starting at $300 / wk rent, scaling by an average inflation of 2% a year, the renter would pay about $499,500 in rent – which is all lost, like bank interest. Added to that would be the cost of moving every five years or so, say an extra five grand. Rounded optimistically in the renter’s favour, he pays about $500,000 rent in 25 years (squaring off other costs against the costs of owning a house) .
The difference between the mortgage repayments and the rent over the whole 25 years comes to about $493,000 which means that the asset value of the house would still mean that the homeowner has come out ahead.
Rgds.
Lucifer_auVey well explained Lucifer – Thanks so much.
just out of curiosity, where did you get your name from?
thanks
kind regards,
George.I’ve found a way to help you save and earn whilst not selling or delivering any product. If interested, drop me an email or PM me to find out how
Wrappees generally try to cashout as soon as they can, -getting finance with standard lenders at much cheaper rates.
Also it is generally cheaper to rent than purchase for everyone – not just wrappers. So most people are looking at getting into the market and getting a hold on some of that capital growth.
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 geo!
Another benefit is wrap purchasers in Victoria do not need to cough up stamp duty when they move in – only when they refinance. So they can maybe borrow this from the bank as.
So for a house worth $200k you would need about $29k straight off the bat just to get in (assuming you can get a bank loan) With a wrap you can get in today for much much less.
For some people it is as much about not being a tenant rather than the money. Imagine being tipped out of your rented house twice in one year because it is being sold.
One guy I spoke to just wanted to build a cubby house and sandpit for his little girls. How do you calculate that?
Some people value other things much higher than money…
Cheers,
Greg
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