Greedy wrapper or opportunity of a lifetime ???

Greedy wrapper or opportunity of a lifetime ???

Just saw a marvelous opportunity for someone with little or no deposit, I don’t think.

On a website titled http://www.ownyourownhome.com.au/ there is an offer that runs as follows :

Your option price is $ 5,000 which entitles you to buy a unit in five years time for $352,639 (which is based on an unrealistic scenario of a capital growth of 8% p.a.

The option is valid for a period of 5 years.

This Parramatta unit is worth $ 240,000 and current rental value is $ 190 per week.

The opportunity is to move in and instead of the current rental value of $ 190 per week you pay $ 317 per week which is rent at $ 200 per week and a savings plan of $ 117 per week.

The $ 117 goes towards your deposit if and when you exercise the option. If for some reason you are unable to exercise the option the $ 30,420 you have saved together with the $ 5,000 option fee is apparently lost.

Over the five year period you will have paid
$ 117 X 52 weeks X 5 years = $ 30,420.

This $ 30,420 + your $ 5,000 option fee makes for a 10% deposit to buy the unit for $ 352,639.

Nothing is said, I don’t think, if the unit increases in value to say $ 280,000 and you decide therefore not to exercise the option.

The proposition could have been (but doesn’t appear to be) structured in such a manner that would enable you to qualify for the $ 7,000 government grant. The way it appears to be however, if the government grant is no longer available in five years time, too bad as it looks as if under those circumstances one will miss out on it.

On top of that there is no guarantee that in five years time a 90% LVR loan will even be available or be available to the would be buyer.

Now this is a free world and clearly anyone can put a proposal together any way they like but it looks nevertheless to me as if this may be a dangerous proposition if ever there was one, comparing it with other kind of wrapping offers.

‘The wrappers say “A great opportunity!“ though they don’t mention that it is a great opportunity for the vendor, not for the wrapper.

I have to grant that it is negotiable. Imagine however trying to negotiate with sharks.

Or am I completely wrong and are these people not sharks but goodhearted citizens, helpers of their fellowman ?

They also state : (See how the rent-to-own approach to buying a home compares to a regular mortgage)

Clicking onto that line leads one to a comparison with a mortgage.

An unfair comparison may I add as they conveniently omit to emphasize the fact that someone buying today would pay $ 240,000 rather than $ 352,269.

Am I correct in thinking that it is a bad deal or not ?

Keep in mind that there are many wrappers around who would be delighted to accept a considerably lower sale price in five years time.

And, yes, I am aware that ‘normally’ wrappers seem to load the interest rate by 1.5 to 2% which these people don’t do (or, rather, they charge less).

Is this or is this not a good deal ?

At first sight I thought it was atrocious. On going through the figures it still isn’t attractive compared with other wrappers’ kind of deals and my main qualm is the conditions of setting the selling price in five years time so high with apparently no room to apply a formula.

Comments please.

Pisces