Hi,
I have just started looking at this technique called “wrapping” over the past day or so. A couple of questions that come to mind are:
1. Say that you have found a buyer and have finance at 6.5% variable rate. You “wrap” it to the purchaser at 8.00% for 25 years. Do you give the “wrapee” a fixed or variable loan? If its fixed at 8.00% what happens if your financer increases its variable rate? or is the idea that you offer it to the “wrapee” at +2% of your rate and allow it to fluctuate over time?
2. The other question I have is how are people combating the Consumer Credit Code issue? It is more than just making full disclosure but its also about acting in the best interests of the other party. For example if you did a “wrap” for a client that the banks rejected. All was going well until they stopped making payments. Then next thing you are being sued for allowing them to have taken credit in the first place. This may seem unusual but some of the major banks have already been taken to court on this issue.
any ideas on either of these issues would be greatly appreciated?
regards,
Nigel Murden.
P.S Steve, I think its great that you consistently emphasise the need for multiple exit strategies before committing to an investment. Not many people do that, I think thats because with some hair brained schemes there is none.
Hi Anthill [
],As far as I know, with regards to question #1 to quote yourself “..you offer it to the “wrapee” at +2% of your rate and allow it to fluctuate over time…”. I’m only a beginner myself, so I defer to others to correct me if I’m off the mark, so don’t take this as gospel.
After reading Tim O’Dywer’s article (in the Property Investor magazine), your #2 question is very interesting and I would like to know the answer myself. Does disclosing information change the outcomes if things turn sour [?]
Legally would it make a difference[?] I don’t know what state your in…I could guess QLD. Perhaps Lease Options would be a safer bet.Look forward to some answers…
Soosh [|)]
Gday Anthill,
From my understanding here are some thoughts on your first question:
I believe there to be no hard and fast rules as to what you offer your wrappee in the way of fixed or variable interest rates. Personally if I was using a variable rate – I would pass it on to the client as a variable rate as well, because this way you have no additional risk. I can see no reason why your wrappee could not choose what type they wanted, fixed or variable. Of course if you have your wrappees best interest at heart you would point out to them the advantages and disadvantages of each depending on where we are at in the Interest Rate cycle, but ultimately I think it can be thier choice. If when using a variable rate it goes up, you would just re-adjust the rate accordingly plus your 2%. There would be a clause in your contract between yourself and the wrappee stating that this would be the case. Also there is no hard and fast rule as to how much additional interest you charge as your margin, but 2% is fair and reasonable. At the end of the day this is a commercial transaction and you need to make money. Also I guess you need to bear in mind that you will need to make sure that the wrappees weekly repayment is equal to or less than thier current weekly rent. Obviously the amount of interest you charge will affect your ability to meet this requirement. Basically you could charge whatever the market can bear!
Make it a great day,
Regards,
Tim.
P.S. Steve’s “Wrapps Secrets Revealed” library contains all the answers to the types of questions you are asking in this post. Highly recommended if you don’t already have it.
Edited by – [email protected] on 10/08/2002 11:42:21 AM
Thanks for the comments on question 1.
Does anyone know anthing about the UCCC question though?
If this isn’t done correctly I could be stuck in law suits until the cows come home.
regards,
Nigel.
],
The topic ‘Interest Rate Changes AND the UCCC’ is closed to new replies.
