Hi jnisted

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.

At the risk of being accussed of advertising, here are some details of two couples in a similar situation that we’ve recently helped.

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 is 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.

Hi Ellis

Your loan on a wrap property does not have to be P&I in NSW. However with most Interest Only loans it is possible to calculate what your P&I payments would be and make those payments every month. This way the differential between your wrapee’s loan and your loan will remain constant. Alternatively, if you plan to refinance your wrapees in 2 to 5 years you may continue to make IO payments but you should ensure that the value of your wrapee’s loan never drops below your loan. There are ways to structure your Instalment Sales Contract to protect yourself if you plan to continue with IO payments.

In NSW your land tax obligation for your wrapped property disappears as soon as you “exchange” your Instalment Sales Contract. This is because the NSW government considers you have disposed of a property as soon as “exchange” takes place. And your wrapees don’t have to pay land tax because the property is their PPOR.

We give most of our wrapees 30 year loans and structure our Instalment Sales Contracts with a view to refinancing them into a traditional loan in 2 to 5 years. Other wrappers structure their transactions with a view to keeping their wrapees for the long term. It’s your decision, depending on your exit strategy.

The water rates, council rates and building insurance stay in your name. You can either take a small extra payment from your wrapees each month/fortnigh/week and pay the bills out of this money or you can send copies of the bills to your wrapees and have them paid as they come in. Overall we find it very important that we’re resposible for paying these bills. We do not relish the idea of being surprised by an insurance company or council suddenly contacting us to let us know that these bills haven’t been paid by our wrapees.

We highly reccommend Tony Cordato in Sydney. His number is (02) 8297 5600.

Let me know if there’s anything else we can help with.

Cheers, Paul

Hi Milly

One possible avenue to look at is to set up a trust (probably with a corporate trustee) and have the trust buy the new property.

Your brother or you or whoever you wish will then control the trust and the asset should be protected from any claim from the Family Law court.

Of course, check with your solicitor about this.

Cheers, Paul

Hi James

Try the Vendor Finance (Wraps) Association of Australia’s web site. You can find it at:
http://www.financewraps.asn.au

I hope that helps.

Cheers, Paul

Hi Borg

I believe the two favourites in OZ are Steve’s “Wrap Kit” and Rick Otton’s “Wrap Pack”. We have both and highly reccommend each of them. We found that you can actually get going just by following the steps in the Pack or the Kit.

Good luck.

Cheers, Paul

Hi Swifteagle

A wrap is a stand alone positve cashflow real estate technique. Usually a wrapper will purchase a property and then on sell it using an Instalment Contract (a wrap). This transaction provides a positive cashflow each month and quite often a lump sum cash benefit if and when the wrapper refinances his/her wrappees into a traditional loan.

It is also possible to sell a negatively geared IP using via a wrap. This will give you the benefit of positive cashflow for the period the wrappees are with you and the cash lump sum when you refinance them into a traditional mortgage down the road. It may however also be argued that, if you can afford the out of pocket expenses involved with a negatively geared IP you will get a better return, in the long term, by holding on for the long term capital gain. As always, it’s what suits you best.

A couple of the best resources I know of to get a good feel for wraps are:
https://www.propertyinvesting.com/strategies/wraps.html and

http://www.businesslawyer.com.au/fr_property.html Click on the button under the Vendor Finance for Real Estate Heading

I hope this helps.

Cheers, Paul

Hi

And, of course, another option is to not take any “sides” regarding CF+ or CF- but to see them both as valid investment strategies.

One vendor financing teacher we learned “wrapping” from always told us that we should use the positive cashflow generated from our vendor finance busines to invest in buy and holds with good capital gain potential.

He said real wealth comes from the equity you have in real estate and positive cashflow is a great way to help get that real wealth (equity).

Good luck.

Cheers, Paul

Hi Zsolt

One sufggestion is to use the equity you have in your property to start a vendor finance real estate business. Vendor financing (usually using either a “Wrap” or a “Lease/Option”) is a great way to start a positive cashflow real estate business. I personally believe that the real wealth in real estate is your equity but by creating a positive cashflow business you then start to have the cashflow to create real wealth, i.e. equity.

Both Steve, Rick Otton and a number of other experienced vendor financiers have products that will help you get started, e.g. Steve’s “Wrap Kit’ and Rick’s “Wrap Pack”.

Good luck.

Cheers, Paul

Hi Pyramid

In your Disadvantages list you mention; “First home owners don’t benefit from stamp duty exemptions as it is paid for by the Wraper and passed on as a closing cost”

In NSW wrapees receive the stamp duty exemptions and access to the FHOG on exchange of the Instalment Contract (if they are first home buyers).

Would you mind explaining what you mean by; “as it is paid for by the Wraper and passed on as a closing cost”?

Cheers, Paul

Hi Marty

What’s the value of an installed split a/c? Maybe $1,500 max. How many thousands is it going to cost you to litigate? My guess, many thousands.

My suggestion, put it down to experience and move on having learned a lesson to check that all sale clauses have been satisfied before you settle on your next property, i.e. you had the opportunity to act prior to settlement but after that, considering the reaction you’ve got from all concerned, litigation seems your only avenue. And when you really look closely at this “avenue” the cost/reward analysis doesn’t look good.

Good luck with your next 50 settlements

Cheers, Paul