All Topics / Creative Investing / Wrap termination?

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  • Profile photo of coast2coastcoast2coast
    Participant
    @coast2coast
    Join Date: 2005
    Post Count: 1

    G’day everyone,

    Im brand new to this forum so I apologise if Ive posted this in the wrong place.

    Ive also just read Steve’s book and am left with a question mark about wraps. Lets say you sell a property to someone under vendors terms. They pay the agreed installments over, say 20 years out of a 25 year contract. But before the contract expires they decide to buy you out. What price do they buy you out at? This is a little fuzzy (actually very fuzzy) for me and I didnt think it was well covered in the book.

    Regards

    Profile photo of Paul DobsonPaul Dobson
    Participant
    @pauldobson
    Join Date: 2003
    Post Count: 1,196

    Hi coast2coast

    Welcome to the forum and good luck.

    When your wrapees first move into the property they probably owe you the purchase price, less the deposit they’ve paid you. You then set up some form of software to monitor their loan to you. Whenever they decide to refinance or buy you out, you simply go to your software and see what they owe you at that point. This figure, plus any early discharge fees you may have in your contract with them (usually none this far down the road) is what they pay you to complete the contract.

    I hope this helps.

    Cheers, Paul

    Paul Dobson | Vendor Finance Institute
    http://www.vendorfinanceinstitute.com.au
    Email Me | Phone Me

    An alternative way to finance your home.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Hi Coast2Coast

    Welcome to the forum.

    As Paul explained imagine the intallment contract repayments being exactly the same as a mortgage loan. Interest is added and repayments are deducted.

    Over time the loan balance reduces assuming that repayments have been made on time.

    The mechanics are straightforward.

    Enjoy your time here as we are a friendly bunch

    Cheers Richard
    [email protected]
    http://www.yourstatefinance.com

    IP funding and US property finance
    our speciality

    Richard Taylor | Australia's leading private lender

    Profile photo of GeoffreyGeoffrey
    Member
    @geoffrey
    Join Date: 2005
    Post Count: 4

    I suppose the question remains, that if the wrappee wants to buy the house after paying for a fair time, say 10 years the likelihood is that the house will have appreciated significantly, but you as the owner will not get the increase, the wrapee wil. Right?

    Profile photo of Fast LaneFast Lane
    Member
    @fast-lane
    Join Date: 2004
    Post Count: 527

    Right. [biggrin]

    Profile photo of Paul DobsonPaul Dobson
    Participant
    @pauldobson
    Join Date: 2003
    Post Count: 1,196

    Hi Geoffrey

    That’s correct. At the begining of the process, you, as the wrapper have set the level of your positive monthly cashflow and your final capital gain (sometimes called “backend profit” by wrappers). You have, to a large degree, fixed your cashflow and capital gain and the wrapees take their chances in the market and accumulate any capital gain, over and above the price you sold them the property for.

    Cheers, Paul

    Paul Dobson | Vendor Finance Institute
    http://www.vendorfinanceinstitute.com.au
    Email Me | Phone Me

    An alternative way to finance your home.

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