Hi Chris

Sure I guess the number of negatively geared properties vaies from time to time throughout the property cycle but I’d hate to see the results if the government stopped negative gearing benefits for residential property. The bill for “public housing” would explode.

Cheers, Paul

Paul & Karen Dobson
negative2positive
Turn your negatively geared property into positive cashflow.
Phone: (02) 4984 9540

Talk to us about Wrap Training Joint Ventures.

Hi Jeremy

There are two very good educational resources that I’d recommend if you wish to start a real estate vendor finance business (wrapping business). They are Steve’s Wrap Kit (I’m not sure if it’s in print right now) and Rick Otton’s Wrap Pack. We did our first wrap by simply following the instructions in one of these Pack’s (we now have both).

One way to overcome the challenge of finding potential wrapees is to advertise for them first. They then go and find a property (within your guidelines). You then buy this property and wrap it to them.

Others buy the property first and then find the wrapees. We tend to do a bit of both.

I’d suggest you research various locations in NSW and pick one that suits the price range you feel comfortable with. We pretty well stick with properties in major regional areas with a good population base.

Good luck with getting your new business going.

Cheers, Paul

Paul & Karen Dobson
negative2positive
Turn your negatively geared property into positive cashflow.
Phone: (02) 4984 9540

Hi John

Now that you’ve got some great advice on the finance side of things, I’d suggest you race out and get a book called, “How to Legally Reduce Your Tax”. One of the authors is Ed Chan. It’s got to be the best educational tool around, for the price, on structuring your business. It’s only $25 and it’s a very easy read. Good luck.

Cheers, Paul

Paul & Karen Dobson
negative2positive
Turn your negatively geared property into a positive cashflow investment.
Phone: (02) 4984 9540

Hi joshknack

Two friends and fellow wrappers have been caught out buy using the “find the buyer first” technique. Why? Well, they bought the property and the wrapees walked.

We still sometimes use the “find the buyer fist” technique but we ensure the wrapees have paid us a substantial amount of non-refundable money before we purchase the property.

Cheers, Paul

Paul & Karen Dobson
negative2positive
Turn your negatively geared property into a positive cashflow investment.
Phone: (02) 4984 9540

Hi Josh

Having been a mortgage broker in the past, Karen and I have always understood the importance of having an excellent due dilligence paper trail to try to protect us from any unconscionable lening claims.

An easy way to put together a standard type of paper trail is to collect a bunch of loan application forms from different lending institutions. These application forms usually contain a list of the supporting paper work a lender needs you to submit with your application. Collect the same paperwork from your prospective wrapees.

These application forms should also help you to make up your own application form. These application forms have sections for “other loans” and ‘assets and liabilities” for good reason.

We also insist prospective wrapees supply us with a copy of their Credit Report. We also ring their employers to confirm real wages. When we do this we minute when we rang, who we spoke to and what they said in relation the wrapees wage package. This is what the back room people do in traditional lending organisations and they don’t come unstuck too often

Good luck.

Cheers, Paul

Paul & Karen Dobson
negative2positive
Turn your negatively geared property into a positive cashflow investment.
Phone: (02) 4984 9540

Hi joshknack

My first suggestion would be to get yourself as well educated as you can about Wrapping before you dive in. I’d recommend either Steve’s Wrap Kit or Rick Otton’s Wrap Pack.

We started two years ago with Rick’s Wrap Pack and are now working on vendor finance transaction number eleven. Since then we’ve also got Steve’s Wrap Kit. They’re both excellent and effectively a “business in a box”, i.e. it is possible to go out and do wraps if you simply follow the step by step procedures outlined in each of these resources.

1. We use a Trust with a Corpoate Trustee as our business structure. We recommend you get a book called “How to legally reduce your tax” (one of the authors is ed Chan). We haven’t had any problems getting a loan for a Company or a Trust. The lenders just take a personal guarantee from you I’m sure the finance specialists on this forum can expand on this for you.

2. We use very small ads in the Real Estate classifieds. They only cost about $23 and you wouldn’t believe how they get the phones ringing. One tip though; word your ad like your an “average joe” and don’t use any real estate agent terminology.

3. Some Joint Venture partners have secured 95% loans and then capitalised the Lenders Mortgage Insurance (LMI) into the loan, effectively giving them a 97% lend. Our minimum deposit for our Wrapees (wrap purchasers) is $10,000. This can be made up of (in NSW) $7,000 from the FHOG and $3,000 from them.

4. If you have an exit strategy which involves refinancing your wrapees in 2 to 3 years, first of all, chose the right people, i.e. somone who you can reasonably expect to be able to refinance into a traditional loan in two to three years time. Then tell these people, right from the begining that that’s what your planning to do. Most people are happy to hear that you’re planning to move them back into the traditional lending system in two to three years time. Also tell them that you will be increasing the interest rate at the end of years two, three and four.

Lastly, consider a Training Joint Venture. There are plenty of Wrappers out there who will happily instruct you in how to put a Wrap transaction together. It’s a great way to learn, hands on, and gives you an excellent return on investment as well.

Good luck.

Cheers, Paul

Paul & Karen Dobson
negative2positive
Turn your negatively geared property into a positive cashflow investment.
Phone: (02) 4984 9540

Hi shazzajaksic

The following is based on your original post in which you say you currently only owe $100,000 on the IP.

Just because you raise the potential borrowing on your IP to $240,000 it doesn’t mean you have to use it all. A good broker or your existing lender will set you up with a facility from which you can draw as opportunities arise.

Let’s then look at the example of one of our recent Joint Venture investors. He invested $17,526 to buy a $230,000 house which we have on sold for him using a vendor finance technique (a Wrap). The house now generates $212 per month positive cashflow for him. He is also getting $97 per month to cover the interest on the $17,526 he’s invested.

When we refinance the purchasers into a traditional loan in two to three years he will get somewhere between $14,000 and $15,800 as a gross payout.

I understand that going into a third loan might seem “a bit too much” but with the extra $200 per month profit you could reduce the burden of the negative gearing from your first IP and make an good return on the equity you release from the IP when you have it revalued.

Good luck.

Cheers, Paul

Paul & Karen Dobson
negative2positive
Turn your negatively geared property into a positive cashflow investment.
Phone: (02) 4984 9540

Hi shazzajaksic

I would probably hold onto the property and have it revalued by your lender. Lets say your lender revalues it at $300,000. You then increase your loan on the property to $240,000 (80% LVR so there should be no Lenders Mortgage Insurance cost). This then gives you $140,000 to reinvest, possibly on a cashflow positive property.

One idea would be to use some of that equity to purchase a property and on sell it using vendor finance (wrap or rent to own), usually a very cashflow positive technique. If you need more information on vendor finance techniques, have a look at the “Investor HQ” link on this site. Alternatively, feel free to drop me an email or PM.

Good luck.

Cheers, Paul

Paul & Karen Dobson
negative2positive
Turn your negatively geared property into a positive cashflow investment.
Phone: (02) 4984 9540

Hi Dave

If you haven’t already, have a look at:
https://www.propertyinvesting.com/forum/topic/22508.html

Cheers, Paul

Paul & Karen Dobson

negative2positive

Turn your negatively geared property into a positive cashflow investment.
Phone: (02) 4984 9540

Hi Sadie

It may not be necessary to sell your IP at a loss. It could be possible to sell it with vendor finance which may allow you to sell at “your” price and generate positive cashflow while the purchasers (wrapees) use your vendor finance.

Here are some details of two couples in a similar situation that decided to use vendor financing to sell the negatively geared properties at a profit.

S&L had been trying to sell their negatively geared IP for $290,000. This sale price would have given S&L a reasonable return but they couldn’t get an offer. We entered into a Joint Venture agreement with them to sell the property, using vendor finance. The property has been sold, using an Instalment Sales Contract (Wrap), for $315,000. While the new purchasers (wrapees) are using the Wrap contract to buy their home, S&L are making $200 per month positive cashflow. It is expected that the wrapees will refiance into a traditional mortgage in two to three years, at which point S&L will receive the remainder of the purchase price, less what the wrapees have paid off in two to three years.

V&S paid $335,000 for a unit. They owe $364,000 on it and it’s seriously negatively geared. They have had it on the market for $380,000 and have not had an inspection, let alone an offer. We have set up a JV agreement to sell this unit utilising an Instalment Sales Contract (Wrap). We are now in the process of selling the unit with the following result. V&S are selling the unit for $380,000 on a wrap and will receive $100 per month positive cashflow prior to the wrapees refinancing into a traditional mortgage down the road.

Obviously we charge for the service but, due to forum advertising considerations, we won’t go into that here.

May I suggest you start researching some vendor financing techniques. They may just save you from a large loss.

Good luck.

Cheers, Paul

Paul & Karen Dobson

negative2positive

Turn your negatively geared property into a positive cashflow investment.
Phone: (02) 4984 9540