Forum Replies Created
I only borrow lo docs nowadays MA, and I didn’t find any willing to do it!
I have found vendors willing to leave money in the deal though.Keep smiling
Felicity
It can be done.
Having said that, there are lenders who, as soon as they see details of vendor finance on the contract, will refuse to do it.
This is particularly the case with lo doc loans. So make sure your lender is happy to do them before proceeding.Keep smiling
FelicityIf it looks like a rose and smells like a rose – it is a rose.
If it’s the crowd I’m thinking of, they have a long winded attack on “wrappers” and declare that’s not what they do.
Believe it or not.
You can achieve similar results with more control doing a JV with a wrapper.Keep smiling
FelicityBy the way, I just thought I’d add that I don’t mind answering questions, I do it frequently! But sometimes it’s nice to talk about other things.
Keep smiling
FelicityI had an interesting experience on the weekend.
A vendor (who hasn’t put his property on the market yet) approached me to buy his property.
He suggested a price of $160k. Now, I have to say upfront that I don’t want this property, because I have concerns about its future. It’s too rundown to renovate, you can’t subdivide it, most of the property is on a flood plain, it’s zoned rural… etc etc. Maybe one day it could be rezoned into commercial (there are only houses on the opposite side of the road, which is residential) and be worth a fortune – but right now about all you could do is knock down the shack and build a house, with the risk the land may be seconded down the track.
Anyway, the question then becomes – what is the property worth? I rarely see anything under $200k in that area, but then again, even the worst of those are probably up for renovation. Land can start anywhere from the low $100s…
I guess the point I’m trying to make here is – what is the fair price? Is it $160k because that’s what he wants? Is it higher based on the slim chance that one day it could be a gold mine? Is it less because it’s really only land value?
In the end, the fair price is going to be the price that we’re both happy with, because there’s really nothing else to compare it to.
In the end, I think in all negotiations the fair price is the one that both parties are happy with.Keep smiling
FelicityThe idea of a cashbond is to take equity from your properties and turn it into cashflow, when you’ve reached the point where you’re asset rich but can’t borrow any more because of serviceability issues.
Keep smiling
FelicityKay
The reason I refer to the number of houses I “have” – I actually say the number of houses I’ve “wrapped” usually! – is purely as a reference point for others. One thing I’ve discovered with wraps is that it’s a journey, and you encounter different challenges at different stages of the journey. So it’s helpful to know that someone has a similar number of wrap houses to me, because it’s likely they’re having similar issues and we can perhaps talk about it and brainstorm some solutions.
However as far as I’m concerned, once a house is onsold it’s not mine any more. As far as banks and the tax office are concerned, it still is. So it stays in my portfolio calculations!Keep smiling
Felicitysuperdomo
The reason some wrap experience was required, was so that everyone who attended would be able to share experiences and learn from each other.
I know I’ve been to meetings before where as a more experienced wrapper I spent the whole time answering questions from newbies (no offence intended!) and basically came away not learning anything myself.
The organisers of the original lunch felt that by restricting attendance, they were therefore more likely to attract a group of more experienced wrappers for a social chat, rather than a couple of wrappers and lots of newbies.
That was my understanding, anyway! Perhaps someone else can elaborate or correct me if I’m wrong.
You can always organise a separate event for all comers if you choose to! Alternatively, make sure you get to the next meeting of the Wraps Association, that’s one of the best places to learn about wraps and also network with wrappers of all levels of experience (I don’t think there’s a date for the next one yet).Keep smiling
FelicityThe short answer – no, not really. Vendor finance is still very much in its infancy here in Australia.
If you want to buy with vendor finance / lease option, you can go to http://www.financewraps.asn.au and you can leave your details there, asking potential vendors to contact you. Make sure you mention what area you’re interested in – I know I always check to make sure someone is looking for a house where I am likely to be selling one.Keep smiling
FelicityI don’t think there are figures like these available.
Having said that, I have yet to hear a single bad media story on someone doing wraps in Melbourne, for example. And yet even to my limited knowledge there are at least 10 people who have done 10+ wraps in Melbourne & Geelong. There are quite possibly a lot more!
So I consider it likely that the percentage of “unethical” operators is probably quite low – as you said, good stories rarely sell newspapers or fill space in current affairs shows.Keep smiling
FelicityOriginally posted by The Mortgage Adviser:If your tax returns do not reflect your cash flow, it means your expenses are high. Being able to pay off loans means your cashflow reduces and your expenses increases further (unless positively geared). The ATO is asking the question “how can you repay these loans when you don’t make any money?”
Precisely – and yet I do make money! Because all the upfront purchase costs are borrowed from my investors, I don’t ACTUALLY spend $30-50k to settle a property – but my tax return says I do. I’ve never really understood this, I have to say!!! Instead I have an outgoing of $x per month to the investor – my REAL cost.
Mostly I don’t buy a house unless the bottom line is positive.
This situation will start to change however when wrap buyers refinance or I sell for capital gain.Keep smiling
FelicityThis is an interesting area for me – a lot of my more recent loans have been lo doc.
Why? No, not because I’m a drug dealer on the side [biggrin] but because last year’s tax returns didn’t look good. By using the emerging profits accounting system, all my costs of buying a property are counted as expenses. It doesn’t matter where those costs come from, (in my case loans from investors usually!), because the house is in my company/trust name, it’s a cost against my business. So although my cashflow is very strong, my tax returns don’t reflect that.
Lo doc loan applications are interested in cashflow – so therefore my “cash” position looks quite different.
It’s silly really. Mind you, I hope the ATO doesn’t start looking at my lo doc applications, in the space of 12 months and quite a few houses, they will have varied enormously!!!! I’m sure it will look incredibly suspicious.Keep smiling
FelicityI think the mistake most people make with seminars is they go before they really know if it’s the right seminar for them.
I spent a lot of time trawling around free/$50 introductory nights, and got heaps of brilliant ideas. I also read lots of books and started a forum on the web, and learned heaps there too.
Some of my favourite “gurus” have been:
Jan Somers
Steve McKnight
Robert Kiyosaki
Dolf de Roos
Peter Spann
John Burley
just to name a few… and I’ve learnt something from all of them.
Having said that, I finally spent the dollars on a wrap pack and then a full seminar with Rick Otton, and it’s been the best money I ever spent. why? Because when I did that, I was ready and knew what I wanted to achieve – and so spent the money to learn it as fast as possible.
I’ve heard similar stories from people who’ve done courses run by all the gurus I’ve learnt from and plenty of others too. In the end it’s not the seminar or guru that matters the most, it’s your receptiveness and desire to take the information and make it happen.Keep smiling
FelicityUnfortunately, Wesley, I agree with you that there are some less than squeaky clean operators out there. However I also believe that most wrappers do operate in an ethical way, but because they do so, nobody ever hears about them!!!
Keep smiling
FelicityI am not new to property investing and have a good understanding of Wraps, but would like to ask a few questions to investors who are currently using this technique. Please note I am not criticising the technique but am hoping someone can clarify a few points…
Is it ethical? I have heard Wrappers say they are doing a deal to help a ‘battling family’ who otherwise would have to rent, If you wanted to help them wouldn’t you advance them a deposit or at least charge only a nominal amount above what the bank charges you in interest?Ummm sounds nice in theory Wesley, but I hardly think it’s going to be financially viable for a wrapper to borrow the money for say a $200k house and only earn a few dollars a week, they’d be better off in a term deposit. It has to be a win-win.
Why do Wraps typically involve selling a home above market value and then charging an interest rate above market?Wesley, you’ve been reading too many negative articles about wraps. Try talking to rick Otton about wraps – he regularly sells houses at market value, and I’ve seen examples where he’s charged below market interest rates. I’ve done that myself. Having said that, the typical model is probably more as you describe.
If it is ethical why not charge either the inflated purchase price, or the inflated interest rate instead of both?Again, be careful of generalising.
Why can’t ‘the battlers’ get a loan in the first place? with 100% financing and non conforming lenders it is pretty hard Not to get a loan in Australia these days.Sorry, I don’t agree with that. To get 100% finance you have to be totally squeaky clean, in full time employment etc etc. My buyers are definitely not in that category! It’s possible to get 90% from a non conforming lender, as long as you’re willing to pay over 10% – more than I charge.
If they are at such a risk of default that the bank wouldn’t lend them money why would you take them on as a debtor?Again, who says that they’re at such a risk of default? Most of my buyers are great people, they pay on time every week – they just didn’t have a big enough deposit to get a loan, and usually you can add in maybe a few credit marks, or non regular income to make it harder. I don’t take on people if I think there’s a risk of them defaulting.
How long do you expect the people to stay? Is there a contingency plan for when ‘battling families’ decide to move elsewhere?I usually aim to help them refinance in 1-2 years (and often will take back a 2nd mortgage if they can only borrow 80%). My contracts contain clauses to cover the buyer in the event that they decide to move on and have equity built up. They are entitled to that equity.
Do you really feel like you own an asset, when you generate cash but no capital growth?This is a cashflow business, not an asset investment. I still have “normal” assets for my long term capital growth and security.
How long do you expect a deal to last for?As long as it takes… usually 5 years is the maximum I look for.
Would you live in ‘wrapped’ house?Don’t need to – I have my own! But if it was the only way I could get started, yes, I’d pay the extra for a year or two and then move into mainstream finance.
Keep smiling
FelicityVery wise words Steve – we all need to spend time being thankful for the good things that have happened in our lives, and remember how far we’ve come.
I’ve lost count of how many times I was told I couldn’t buy any more houses because of finance, that started when I think we had 2. Now I’m well into double digits and still going.
I’ve always believed that whatever the problem, there’s a solution somewhere – it’s then up to me whether I choose to accept the solution. In finance solutions have become more expensive for me! But I can see the light at the end of the tunnel, and hope to change that very soon.
In the end I don’t think I’ve reached this point by luck (despite the number of people who tell me how lucky I am!!! grr) but by sticking with it and finding the way.
I agree that there are difficult periods that test us all, and the successful ones grit their teeth and find a way to move on. Forums like this are certainly a very helpful part of that process.Keep smiling
FelicityI think the hardest time for a wrapper is somewhere from around 3 houses to around 10 or more.
I’ve experienced something very similar to what Richard is describing – I was dealing with a major bank around #5 (retail banking), but they refused to do any more. And yet at #12 the same bank (its business banking section) was keen to meet with me and see if they could lend me money for my business.
It didn’t come to anything (yet – need another tax return) but it was very interesting.
Go figure….Keep smiling
FelicityGeez, we must be an unruly lot, there seem to be lots of new moderators recently!
Hooray for MM!Keep smiling
FelicityCurses, I was too slow, I should have suggested a nice restaurant in the Dandenongs! You guys are determined to make me drive miles and miles.
At this stage I think I can make it.
Also, I know last time it was a criteria of attendance that you were at least in the process of doing your first wrap – is that still going to be the case? If it is that should be made clear upfront I think.Keep smiling
FelicityOh, Derek, how can you possibly think I’d be in the too hard basket? [blush2]
After my last post I was contacted by email and told that my application wasn’t received, probably due to the computer issues. So I need to apply again. [wacko]Keep smiling
Felicity
