Financing many wraps

Hi Delboy and Leigh

My broker’s told me that they risk their licences if they do not disclose everything to the banks, so the trick apparently is to find a financier that isa cool with wraps. As I am about to launch into my first of hopefully many ethical wraps, can anyone please confirm that obtaining finance from banks/institutions WITH FULL, UPFRONT DISCLOSURE is easy?

Cheers
Greg F

Scott
Well, they might love you, but I certainly haven’t found that the case – even after your bank were the ones who wanted to talk to me!
I don’t say that to criticise, but just to point out that finance being “easy” may be true for you, but not for everyone.
I have certainly never found it particularly easy.
However if I had masses of cash/equity to use for deposits (financiers get jittery with vendors leaving money in deals or investors putting in the deposit) and I also had some form of job income, it would be easier!
I also think that the first 2-5 properties are relatively “easy”, from 5-? is “hard” and then it gets “easier” again – usually when your early buyers start refinancing.
This is because your first houses can usually fall within standard criteria for the bank. Beyond that most people run out of deposits, run out of serviceability (yes, even with positive cashflow, because a lot of banks won’t count the whole amount), run out of mortgage insurance (no, borrowing 80% or less doesn’t usually alleviate this as the loan mostly still will have LMI againist it), and then hit the problem of providing business tax returns.
The initial stages of a wraps business are quite yukky looking to a financier, as the proper accounting treatment counts all your buying costs and deposits paid as expenses, as well as the cashflow in and out. This means that for the first year or two, if you buy a lot of houses, you are going to have massive expenses and small income. So even a bank which understands how a wrap business works (and I’m talking about Scott’s bank!!) still got nervous when they saw my tax returns that looked like that. This is why turning your houses over quickly helps, because of course when you’re paid out, all that deposit money and profit comes back as income, and the figures look much nicer!
The bottom line is – there are always solutions, it’s a question of whether you’re willing to spend the time finding them if you need them, and if you’re willing to pay the price.
I should also point out that the banks that DO this sort of “business” finance generally won’t consider you until you have an established wraps business. Which is why I said it should get easier again when you have enough wraps.
Getting to that point is the fun part! Because of course the same banks won’t lend you money for wraps under their normal home loan criteria.
Good luck!

Keep smiling
Felicity

I agree with Scott.
We have only used 3 lenders with 151 completed deals.

One of the lenders has done 2 deals and we won’t be going back whilst the other one a major top four Bank has done over 130 fully disclosed wrap deals.

It is all about presentation and the balance of the deal. In our case the Bank concerned want the property development business that offered if they finance the wraps.

Cheers Richard
richard at fhog.com.au
http://www.fhog.com.au

There is no such thing as a problem.
Just a solution waiting to be found

HI Felicity,

Pelical Boy put me onto his bank. It took me three days to get them to return my calls. When they did it was like a mini interview (luckily they couldn’t see me, i was in my pyjamas at the time).I was worded up and knew what they wanted to hear from me ie : hoping to refinace in 3-5 years etc, which was all the truth anyway.
Most of my financials were emailed to them and the rest was given to them on a CD(another tip). I also made sure my company was set up and I had Biz cards and letterheads on all stationary. I wanted to present a business that was ready to roll even though it was my first wrap. 3 days later i had the finance. I know what your saying though, the first five are easy…then the cashflow probs may arise.

I find your posts and the posts of the other experienced wrappers invaluable. Thank you

Hi Wallflower
Good for you! I did all that you did and more.
I wonder whether I’d have had more success if I’d actually seen them EARLIER. BEFORE I had the first tax return with big purchasing expenses…
In the end, they were impressed with me, my presentation, my business numbers etc etc but they just couldn’t get past the tax return.
Sigh…
I’ll give them this year’s returns when they’re done, just in case they see fit to change their minds, but somehow I doubt it. I need to either stop buying houses or refinance lots before they’ll be happy! I had all the numbers showing the positive cashflow and massive serviceability, but it still didn’t work. My tax return showed a loss the previous year, and that was it.
In the end, you can be the most professional person under the sun, but if the number don’t stack up, or there’s something there that the bank doesn’t like, you’re still not going to get in the door.

Keep smiling
Felicity