Hi everyone,
this is probably one for the experienced.
I have been searching for potential financiers and obviously coming up against some brick walls to start with, but then again having some sucess as well.
But I would to get some feedback on an issue which was raised this morning during my conversations.When i explained that the property may be cashed out after 2,3,4 years etc, the lenders then explained to me that because the “wrappee” was effectively paying rent on the property, that when the time came to cash out the property the “wrappor” would have to ‘gift’ the equity to the “wrappee” because they do not own it (ie name is not on the mortgage or the title) and in effect still have to come up with a deposit when they purchased.
Hope that is simple to read and to understand my query.
So, can someone give us some feedback if they have come across this, if so, how do we beat it.
cheers
EP
Elvis,
Someone will correct me on this I’m sure, but are you referring to the ‘gift’ part as a way of offsetting capital gains?
Otherwise, its pretty simple. You own the property until the last payment is made. Given that when wrap commenced, there was an agreed sale price all that needs to be done is to deduct any principle made by the purchaser from the total & this will give you the settlement amount – ie, the amount that you will sell the property for.
Michael [
]Hello Mixrex,
I’m sorry, I obviously made it confusing.
I was looking at it from a ‘wrappee” point of view when it came to the time of cashing the property out.
Seeing their name is not on the mortgage or contract, they have NO record of savings and when it comes to cashing out the property, they may need the ‘wrappor’ to ‘gift’ them the equity in the property, which has been built by them and/or capital gain, so it shows to the banks they have the ability to save and meet repayments.
Does that make sense?
cheers
I understand the P&I at settlement thing,Elvis,
No problemo. Haven’t faced this scenario, so can’t speak from experience. Sure someone else can pick it up from here.
Michael [
]This is not correct. I have had several houses cashed out and it is purely a straight real estate transaction with a settlement date. They arrange a mortgage and pay mine out. I sign a transfer of land, cheques are exchanged. No mystery at all.
As far as giving credibility to the money paid through out the transaction you have two options.
Use a very good trsacking tool like the WAMM (www.darlop.com) and/or run everything through a real estate agent much like rent but without the inspections. Obviously you would push for a cheaper rate without any real work involved for the managing agent. Provides an independent record of payments made to show the bank that is not from your company.
Hope this helpsEnjoy
AD [:0)]“Don’t dwell on reality; it will only keep you from greatness.”
-Rev. Randall R. McBride, Jr.Elvis
the point here is that the wrappee’s name does appear on your contract of sale to them.
Other comments by AD & others still hold. i.e. you need to aoccount it correctly, etc.
the Bruce
Elvis
My answer is simple use a third party eg, realestate agent to collect payments lenders favour established companies. The wrappies do not have to come up with a deposit if the value of the property has increased because the equity in the property is theirs.
regards diamond
[]Thanks Diamond,
I understand the point you make, however, when a bank looks at their assets etc when it come time to cash out, the bank does not take into account the fact that there is an installment contract on the property. The mortgage and title are in the names of the trust/company, so in fact in the eyes of the lender, they don’t have any equity, however they do have a sound saving record.
The only way I can see it working is by the wrapper gifting the principle and equity to the wrappee so they can get the loan to cash out.
please tell me if I’m wrong
cheers
Hi,
I think your lender has it wrong. There is no rent. It is just like if Wizard had a loan on the property and then the client went to the NAB to be refinanced.
The NAB would look at “equity” in house, together with the normal loan approval checklist before saying yes or no.
Usually the loan will more than pay you out provided there has been sufficient growth in equity.
Let’s take an example:
You buy $60,000
You Sell $80,000 (less $10k deposit)
Loan $70,000After five years let’s say the loan is now $64,000.
During the same period the property has risen to $100,000. The client (at worst) goes to a no doc loan who will lend 70%.
Under this model, the client pays you out ($64k) and pockets some cash after closing costs ($4 to 5k).
This, from my experience is what has happened to date.
The problem though… is what happens in a falling property market????
Bye
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
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