Ok couple of question for All Wrap experts,
Let me know if my understanding is wrong, here is what I know about wraps
1) In Victoria, Wrap i.e. Vendor Finance is legal.
2) Title of property still remains on Vendor's name i.e. Vendor is still the legal own of the property but rates & other responsibility is transferred to the Buyer.
3) Buyer is the beneficiary, if property is appreciated in price.
4) In Victoria, once we enter into contract, buyer is eligible to get access to FHOG.
5) Settlement occurs when buyer pays loan in full and at the time title gets transferred to buyer.
6) At settlement buyer pays stamp duty.
7) Stamp duty is only payable when title is transferred i.e. at the end and if contract is broken then no transfer of title and hence no stamp duty.
Are those assumption correct, please? before I detail my creative idea. Those assumptions needs to hold correct. Out of those assumption, critical is (4 and 7) i.e. FHOG and stamp duty.
Ok, here goes my idea
I have about 100 people in my network, who are eligible for FHOG but based on their circumstances I don't think that they will be buying/building their first home in at least next 7-10 years. Hence, idea is to
1) Wrap my IP ( I have only 1 IP) with say Man-1, get a contract signed ( nothing happens in reality)
2) Get his FHOG and lets says we split ( to create win-win )
2A) 20% of FHOG he gets NOW.
2B) I keep 20% of FHOG
2C) 60% I give him written guarantee on a signed contract that, In future whenever he buys/builds his first house and if at the time there is a FHOG is still available then I will pay him 60% of FHOG at that time.
3) Once we get FHOG for Man-1 then be break our Wrap contract and business as usual.
4) Next day, we repeat same with Man-2.
likewise.. keep doing…so, what we are doing here is, eating FHOG from govt. before they discontinue it. I will get to keep portion of it and keep interest on it ( if in future I will have to pay back to my friend) otherwise I get to keep all of it.
What is your thoughts, please? Does it sounds practical and within legal boundary?
thanks
DMI think all of your assumptions in the first part are correct.
But you will not be able to get multiple FHOGs on the same house, even with different people. The OSR will start asking questions and may even ask for repayment of the FHOG if the purchaser doesn't settle
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
Must admit i disagree with a couple of your points.
6) At settlement buyer pays stamp duty.
7) Stamp duty is only payable when title is transferred i.e. at the end and if contract is broken then no transfer of title and hence no stamp duty.
Unless this is different in Victoria which i doubt the Buyer pays the stamp duty on or before the date of possession rather than the date of settlement.
Richard Taylor | Australia's leading private lender
Qlds007 wrote:Must admit i disagree with a couple of your points.
6) At settlement buyer pays stamp duty.
7) Stamp duty is only payable when title is transferred i.e. at the end and if contract is broken then no transfer of title and hence no stamp duty.
Unless this is different in Victoria which i doubt the Buyer pays the stamp duty on or before the date of possession rather than the date of settlement.
In Qld I think stamp duty is payed within 30 days of exchanging contracts?
Eternit
There is no exchange of Contracts in Qld so the duty is payable 30 days after the Contract goes unconditional as long as this is prior to the date of settlement or possession date in the case of a wrap.
Richard Taylor | Australia's leading private lender
While I'm known as an expert in vendor finance, it has now been a number of years since I have entered into a new transaction. The information given below is according to my recollection as to how things used to be, but I wouldn't be surprised if there were changes which I am not aware of.
First up, it is important to note that vendor finance is ONLY a useful tool if the person can afford the repayments. The key target market may be people with strong incomes but not enough for a deposit, or those that are creditworthy but are refused traditional finance (such as business owners, those aged over 50 etc).
One of the biggest mistakes that can be made is selling a property to a person who cannot afford it. Indeed, just take a look at what is happening in the US. It is fair to say that many poor vendor finance sales were coved over with capital gains so that when the buyer defaulted the loss was masked by capital profits, which were then shared.
However, in times of flat prices or worse, decline, vendor finance contracts MUST be underwritten by strong incomes and cash reserves. In summary, if someone is on the line as far as affordability is concerned, I WOULDN'T do the sale for the downside risk is much higher than the upside risk.
With that caveat made, here are some further important comments:
1. Legality
VF is legal in Victoria however the laws are onerous. If you do it as a business, then you need to be registered as a credit provider. All contracts must also confirm with Consumer Credit Code. The ONLY person I would go to in Victoria to handle the legals on a VF sale is Lewis O'Brien (Balwyn).2. Morality
Crtitics of vendor finance have been as one-eyed as were the proponents in the early days (and I would put myself in that bracket). VF is not evil or good, it is simply a method by which property is sold. However, the agenda of the person using the tactic will quickly come to the surface when the clauses pertaining to the contract are scrutinised.Many a rouge has been fooled into the prospects of instant riches by selling property to people using VF. The truth is VF is more about a relationship than riches, and if you are not interested in investing into the relationship then it's best to stay away.
I have seen some contracts that any level-minded person would regard as grossly unfair. So too have I seen poorly informed scaremongers pick selected truths, and half told stories, to push personal agendas.
In summary, the morality of the technique is dictated by the use, not the existence of the facility. I say prosecute the offenders and allow the prudent legal framework to govern good practise for the remainder.
3. Settlement
In Vic, it used to be that there were two settlements. #1 when the person moved in; and #2 when title transferred after the final payment. The SRO was happy to pay the FHOG at #1, but proof of interest in the property had to be proved.Other states were happy to provide the FHOG, but they wanted to see a passage of time to ensure the contracts were bona fide.
The best place to go for more info is the SRO. They should have a policy statement or something they can provide as to the payment of FHOG to VF sales.
Stamp duty was payable at #2. Other states had it that stamp duty was payable upfront.
4. Payment of FHOG
From memory, the FHOG application form required that the applicant specify where the grant was to be paid. If you want to share it that is up to you. Remember though… if you are doing this to launder FHOG money from the government then that's probably fraud. There would need to be a genuine prospect of the contract advancing, and this will be proven with the passage of time.5. Your Scheme
Considering my comments above, I would regard your proposal as highly suspect. As mentioned by another, the payment of multiple FHOG on the one property in quick time will attract prompt review, and, I suspect, legal rebuke.
Also, the concern would be how the 60% was kept in trust. This smacks of the possibility of abuse unless kept in a solicitor's trust account, and there is an open-ended commitment that the funds could be used for a future purpose that may never eventuate and hence the need for ongoing management and admin.
No, I'm afraid I don't like the sound of it.
Finally, aside from the merits of the idea, I suspect you'll find that if the contract does not proceed to #2 settlement on account of default, then there is an obligation to repay the FHOG rather than retain it.
I hope this has helped both you and others who are contemplating vendor finance as an investment option.
Regards,
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Well said, Steve!
And the FHOG legislation itself says the FHOG has to be repaid if the contract does not proceed so the applicant eventually owns the home.
You can read it yourself, starting at http://www.austlii.edu.au/cgi-bin/sinosrch.cgi?method=boolean&query=First+Home+Owner+Grant&meta=%2Fau&mask_path=
The NSW version includes this:
"Recovery of amounts from third parties
At present, the Act gives the Chief Commissioner of State Revenue power to recover certain amounts that are paid under the Act (such as amounts paid in error) and power to recover penalties in certain circumstances (such as where an amount is paid as a result of an applicant’s dishonesty). The amendments will authorise the Chief Commissioner to recover those amounts from certain third parties, such as third parties who owe money to the person from whom the amount is recoverable or who hold money on account of that person. The powers are similar to the powers conferred on the Chief Commissioner in relation to the recovery of unpaid tax under section 46 of the Taxation Administration Act 1996."
You must be logged in to reply to this topic. If you don't have an account, you can register here.
