To all you wrappers out there!!!

Hi Steve

As you mentioned "Contract" I'm guessing you'll be using an Instalment Contract (IC) for this sale?  If this is the case you will be regarded as supplying credit.  You mentioned that your building a new 4 x 2. To work out how you need to handle this transaction, you need to ascertain if your loan, under the IC, is "regulated" by the current Uniform Consumer Credit Code or new National Credit Code, after 1 July 2010?

If you could let us know this we may be able to give you a few more tips.

Cheers,  Paul

I have just done a vendor finance deal for a new build in Melbourne, the rules are probably very different in Brisbane, but this will give you an idea of what to be aware of:
*Stamp duty being much lower on a new build really assists a wrap deal. You don’t need to charge nearly as much additional on the price to make the deal work.
*I was fortunate that at the time I was setting up my deal, the wrap client received an amazing $32k in FHOG, to use as a deposit….. however, in VIC this couldn’t be paid until the construction was completed.
* You are able to claim back the GST on the construction. Register for GST on a CASH basis. Since you aren’t getting paid for the house until the client refinances the house, it is free money.

Here are the figures from my deal (note that I work for a bank so have access to deals that may not be available to others):
Land cost $140k
Build cost $205k
Total cost $345k
Stamp duty $3,700
Legals $1,000
LMI $3,500
10% Deposit $34,500
Interest during construction period $9,000

Total cash required = $48,300 (LMI was added to the mortgage)

Cash returned = $26,000 deposit
GST = $18,000
Total cash back $44,000

Actual cash down after build completed $4,300

Sale price to client = $365,000 + interest holding costs during construction ($9k)

Deal structured as Standard Variable Interest plus 1.5%. I get 0.8% off the Standard Variable Rate so I get a 2.3% margin on interest paid.

Client also pays for water, rates and insurance.

So from my $4,300 held in the investment, I am currently receiving around $12k per year benefit on the interest plus can claim the depreciation on the new building

Would I do it again? No. For the money I am getting I had to spend too much time and effort which could have been used on other projects.

Also be aware that if you have several of these that you need to be registered under the new national Consumer Credit Code as a Credit Provider. This may be costly.

They don’t take title, pay stamp duty etc, until they make the final payment. Until then it is still my investment property that I am making a return on, and can claim the interest, depreciation etc as expenses on that investment.

Actuallly someone just resurfaced an old thread where Julia from Bantacs advised the same as you re: depreciation, which is a bummer. My handover was only this week on mine so I havent claimed any depreciation to date.

Yes you have to repay the GST, but only when they refinance and pay you out.

In VIC stamp duty is definitely only when the client takes title, may vary in other states.

We checked with Lewis O’Brien who confirmed that was the case. If anyone should know it is Lewis. He would have done more wraps than anyone else in VIC.

actually the bit that surprised me, that Lewis confirmed was that the stamp duty paid by the client (when they take the title) is based on the value of the unimproved land, the same as my stamp duty was. It worked out surprisingly well, delayed, but also based on minimal value.

I’m not an expert but my understanding is that GST is only applicable on new properties. I paid for specialist advice from the Quinn Group. Their owner is a regular contributor to one of the property magazines.