Hi there. I’ve been trawling this forum for a while now, just been going through all the back pages and have learnt a lot.
I’m a 22 year old student, living in Melbourne, and after reading Steve’s book and other books am pretty confident that I’d like to go about building wealth and passive cashflow. My goal is 100K passive income by the time I’m 28. The biggest problem I face at the moment is getting money for deposits. I have been considering leaving Uni next year and working full time, and hopefully, having enough for my first deposit by the end of the year. Of course, this is a big decision and not one to be taken lightly, so I want to learn as much as I can and crunch the numbers before I make a decision.
So, I have quite a few questions and issues that I want to raise with the forum members here. I’ll keep reading through the pages and learning, but first I’d like to raise a few of my ideas about wraps.
After reading both about positive cashflow property and wraps, I’ve got a feeling that wraps may be the better way for me to start out. Please feel free to correct me where ever I am wrong here.
This is based on a few things. Firstly, from my calculations wraps are a little bit more lucrative. The income you may be getting seems to be more than say a $20 p/w positive cashflow on a rental. But more important to me, is the fact that you require the wrappee to leave a deposit when they begin the agreement. To me this deposit is important, because having to save for a year to build one deposit is hard work, so if my customer left me a 15% property deposit then I’d be able to move onto my next property a lot quicker than I would be able to otherwise.
But, I have a few issues with wraps. I have read before that people consider them ‘unethical’. I don’t really see how they are. It’s not much different from a kind of private loan, the only problems I see are if the vendor is unscrupulous and stops paying the loan with the bank. The other ethical issue I see is if the wrappee is unable to continue paying, they essentially lose all that they had paid so far, which would make me feel pretty bad.
Another issue I have is with finding customers. I intend (when I am ready to go ahead) to get either Otton or McKnight’s wrap pack, and they advertise that they will help you with tips to find customers. From what I have read in this forum most people are able to find a customer within 60 days! I think that is great, but it is for real. Should I be looking for a certain type of property to buy (not too expensive, suburbian, family home) in order to secure a customer. These days aren’t there lots of companies willing to hand money over to credit problem people that the banks won’t touch? Are there really that many people around that need this service and will they necessarily be happy with the house that I have to offer?
Okay, to condense my long post, do people here think that wraps are generally more lucrative than finding rental properties? Are they more work, or more risky? Do people have problem finding wrap customers to move into properties that they have bought? Any other general thoughts about someone in my position starting out, looking at either/both positive cashflow properties and wraps?
And anyone willing to take a keen youngster on as an ‘Apprentice’ is more than welcome to post!
Thanks for you time, I hope to learn a lot from this forum.
Hi hardrain
I need to go and organise breakfast for the kids, but I’ll at least answer a couple of your concerns. I have done a lot of wraps, and think they’re brilliant! However at some point the people pay you out and you lost the asset, so down the track you need to consider more long term assets too. Wraps are mainly about cashflow.“so if my customer left me a 15% property deposit …”
Ummm, most wraps aren’t done with this sort of deposit. Maybe $15,000 deposit? Quite often it’s less than this, or involves the FHOG which is some states you have to wait for.
“if the wrappee is unable to continue paying, they essentially lose all that they had paid so far, which would make me feel pretty bad.”
You’ve been reading too much uninformed comment! My contracts all include procedures for dealing with this type of situation. In essence, if the buyer has reasonable equity, they get most of it back. However, hearsay suggests that most buyers default early on if they’re going to default, so at that stage they are unlikely to have much equity. Or to have paid a great deal extra, either, I suppose.
“These days aren’t there lots of companies willing to hand money over to credit problem people that the banks won’t touch?”
Yes and no. Certainly companies will deal with credit impaired people, but then if you add in only $10k deposit, perhaps self employed… it’s not that straightforward. Most of these non-conforming lenders are reluctant to go higher than 80% LVR, and the interest rates are scary, let alone other fees and charges on some of their products. Non-conforming lenders are often touted as the obvious alternative to a wrap, but in actual fact they’re not as easy to get money from as is often suggested.
Overall, you always need to factor in a vacancy period for your house, set your numbers based on what’s achievable rather than trying to screw every single cent possible out of the deal, and have fun.
Keep smiling
FelicityThanks!
You’ve addressed a few of my concerns, that’s great. I definitely need to do a lot more research and start crunching the numbers over.
“My contracts all include procedures for dealing with this type of situation.”
I would definitely like to set up such procedures. Hopefully the wrap pack will give me an idea of what I need to know and do.
I have another question – is it possible to wrap without having a property. ie, I set up an ad in the newspaper or where-ever and once I have a customer go through the process of buying the house that *they* want to buy. Does anyone have any experience doing deals like these? Are the clients generally happy with the terms that you offer them, or don’t you disclose?
Thank you for letting me pick your brain,
Stevenhardrain,
wow, thats a big change of direction to end uni to begin investing sooner.I never went to uni myself but started a trade from 18 years old. I found hands on work very rewarding the extra cash beat Austudy hands down.My uni going friends are only just starting to catch up wage-wise and we’re in our mid-late twenties (yup the twenties go quick!)
If you were to find Wrappees before the property, you would simply have to explain clearly the premium you would add onto the price the house was bought from agent. typical 18%, and explain that this was to cover the extra risk that the banks wouldn’t take on them and your loss of any appreciation in the value of the property. Of course if they pull out, you are still stuck with the property, so make sure you approve of the purchase 100%.
I am just finishing my first week of wrappee interviews. I have been lucky and had 30 calls from prospective wrappees, there are still a lot of people who cant get bank loans or deposits. The window of opportunity in VIC is wide open as the total money available from government is $12000 (until june 05), which has opened up the private vendor market with a lot of no deposit deals available.
I tried co-housing (uni accom.) properties with the aim of making good positive cashflow and keeping capital gains for profit and gearing more props.
My downfall came when I stuck to the letter of the law and included utilities in the package (impossible to individually meter them as the law requires) and kept households to less than 3 rooms to remain covered by insurance. You would be surprised at electricity bills when the users leave heaters on 24/7. eeeeeeek.
So I am now turning to wraps as my cashflow saviour, I imagine the key will be the same as renting….find a good reliable client.
And I agree with FW, don’t make your numbers too tight, there will always be unexpected costs.
[biggrin]
lifexperience
LifeX,
Thanks for the tips!
So, you’ve just begun with wraps! Do you already have a property or are you hoping to set up deals for them? And how have you advertised?
You said you were in Victoria, that’s reassuring to me, being in the Melbourne suburbs. Hope you find a good client!
Steven
Local Papers and Trading Post are good spots to look at how other private vendors advertise, you just need to make your ad look more appealing than the others [cool4]
I am wrapping properties I own (I have already rented them out in a co-housing scenario and will cop Capital Gains Tax (can be messy), I am trying to delay contract until I can get 50% discount for holding property for a year, in future I will just wrap straight away and have income treated as trading stock.
I am interviewing 4 couples tomorrow and am very hopeful.[biggrin]
cya
lifexperience
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