G’day…
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My apologies I meant this Post to go into Vendor Finance & Wrapps…but don’yt know how to transfer it….Bill
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With many years experience “doing deals”…option to purchase’s, flips,and a Beauty where I took a “head lease @ 20% under current rental” to guarantee nervous Investor clients a reurn without the worry.I have access to many 100’s clients that are in a position to be wrapped…but I feel it is more like “raping” them. Many have approached me for help. Even our associations magazine wrote an article suggesting I assist them into a house.
That endorsement makes them wonder why I won’t wrapp them. I’m not looking to be convinced otherwise, as I see it as a moral issue.But my dilemna is, that I firmly believe at least a 20% decline in the current hyped up R/E Mkt.is around the corner. So impending disaster for the wrapee is almost guaranteed.
These clients are mainly Vietnam Vets and as a Vet myself find it would be immoral. If, however I believed we were in the early stages of a rising market I would feel more comfortable and with their guaranteed incomes of $750pw. tax free
would feel that I would be doing them a favour as they could,given a rising Mkt. refince in a year or two at the most.I am giving up an enormous opportunity for me but believe it would be to their detriment over the next few years.
For example, I have 3 kids in the same position and know that I would not do it to them…notice I didn’t say “for” them.
Very little has been said on this forum by would be wrapees posting. I feel that those that will let themselves to be wrapped are ignorant of the lack of security and the likely ramifications of doing such a deal.
Of course there are exceptions but the wrap principle in todeays 7 year long “Bull Mkt” leaves me cold as to wrapping being a fair deal. I also doubt that a lot of “newcomers” short on expertese let alone cash are heading for big trouble and so will their commercially unaware clients. I even expect the Authorities to step in and outlaw wrapps as they are Immoral and I ain’t no Saint…but feel even l have to draw the line somewhwere.
Just my thoughts on Wraps. And I feel that if others “truly understood” the other side of the coin…they too would feel as I do. Given the nature of the Forum, and I believe Steve McNight a fair dinkum bloke…. he excepts most view points even when in conflict with his own.
Steve Mcknight and others…wouldn’t you feel the same in my shoes ?
Billfromoz
Bill O’Mara
ps.. cause we all read a ps…Thanks for never having edited any of my posts…even when in conflict with your own principles you teach…despite the above I consider you to be “true Blue”.Im of the same frame of mind.
If wrappees are generally of the lower income or in the “higher risk” catergory then surely when the interest rates hike up they will be paying at least 2percent more than the wrapor
ie wrapor loan 8%p/a
wrapee payment 10%p/aif the wrappees end up paying over 10 percent they would have been better off with the bank surely.
And inregards to the wrappee refinancing in the event of interest rates rising or whatever and paying out on the IP then your cash cow has stopped and you have to find another.
Is this a bit of a hassle?
Are wraps the way to go at this stage of the game( rates on the rise)
or is it just rumours in the wind?
the share market seems to be getting a big beat up at the moment…………dags nobody
the hippie investorWraps are often better deals for the wrappee than they could get with a bank. Think of a credit impaired person with only a low deposit. They are not going to get finance from a bank or a financier. If they had at least 10% deposit plus costs, they could get a loan with one of the non conforming lenders and pay interest rates of around 10.56%. They may be able to refinance into a cheaper loan in a few years time, but the exit fees could be 4% of the original loan amount. If they wrapped off someone, they may have to pay a premium of 20% on the price, but they could get interest rates around 8% to 9%, plus they deposit needed would be much less, little or no application or exit fees. I think there is nothing wrong with this.
However, wrappees could get themselves into trouble if the market drops 20% and rates go through the roof. But is this likely to happen? thats what the wrapees have to asses.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Read one of the feature articles in the August/September 2003 issus of “Australian Property Investor” magazine – available at all good newagents (if you don’t, you SHOULD…).
The API special report “Under Wraps” interview Steve McKnight & Rick Otton.
It propbably raises more questions on the issue.
IMHO for some people (wrappees) wraps can be the only alternative – but for many others low doc loans & second tier banks may be the way to go.
And for wrappers, they better study tehre system & local laws very well, as there are pitfalls for the inexperienced PI as well.
Cheers,
David Paxton
“You Only Live Twice”Hi just my 2 cents worth.
What does a bank do when it loans money for a mortgage?
It borrows money (from the RBA or depositors)
at low rates and relends at higher rates and lives off the profit.2-6% depending on risk – using security and lending criteria.
Wrappers are just small banks with easier criteria – more risk – same security.
just as abank hikes interest rate depending on risk so do I.
The grey area is the markup on property.
But with low deposit no loan fees etc i don’t have aproblem with this as long as there is full disclosure to the client.
This system helps people get into the property market.
Yes there are risks to everyone.
one risk is that if the buyer waits to save a big deposit – by the time they are ready then property has gone up by more than the deposit and they still cant get bank finance.
rgds
Andyhi Andy, i like your ideology.. makes sense when put in such way.
i think in order to do a good wrap, the wrappor and wrapee has to know a lot about the deal they’re getting into and there’s definitely no clear cut in that.
if the wrapee is able to obtain a loan from the banks, then there wouldn’t be an issue for them to do a wrap deal, so therefore there’s no need of a wrappor. I believe the wrappor is there to help those who are unable to obtain bank loans and provide them an opportunity for a head start so to speak.
But of course everythings comes with risk, and this is something all parties have to assess.. and there’s obviously no guarantee in that.
Cheers,
Kev
off to Shepparton, VIC for 4 weeks
might look at some properties for opportunities while i’m there Do wrappers fix the interest rate? or do they always opt for floating? (if so why)
the wrappee’s interest rate is linked to the wrappers interest rate +margin?
So wouldnt it be in the best interests of the wrapper to go for a 5yr fixed interest rate mortgage.
this would result in the wrappee having a fixed interest rate, and then at the 5yr point, hopefully the wrappee can refinance etc.
Craig
NZ Property Investing News
http://www.Landlords.co.nz
might look at some properties for opportunities while i’m there 
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