Hi,
I’m new to the idea of wraps. I’ve read Steve’s book and think the concept sounds interesting. There’s 2 aspects I don’t quite follow, both relating to financing the wrap:
1. When I have borrowed money from a bank in the past, they will lend me up to 80% with no mortgage insurance, but I have to show proof of income and that the mortgage repayments (assuming interest rates increase by say 2%) will still be less than say 60% of my income. Once I have done a few wraps, I won’t be able to borrow any more money even if they are all cash flow positive.
2. For each wrap, someone needs to come up with the first 20% that the bank won’t lend and up front costs (say another 5%). If the client invests say 10% then I need to come up with 15%. Once again, I’m going to run out of capital fairly quickly.
Any thoughts welcome – thanks
Hi Bear
If you are interested in doing wraps as a business I’d suggest you educate yourself as step one. My suggestions would be either Steve’s Wrap Kit or Rick’s Wrap Pack. Both are great educational resources. In fact we commenced our vendor finance business on the strength of one of these products.
Regarding your equity question, I’d suggest that you ration out your initial equity very tightly, i.e. do the numbers on your first few, equity based, wraps with 90% LVR lends (even higher if your broker can find the right loan product). This strategy, while costing you more dollars in LMI, will allow you to buy more properties initially.
Once the equity is gone you start the process of looking for private lenders to lend you the necessaty 20% or you do a joint venture with an investor who buys the property, while you manage the whole wrap process.
I hope this helps.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Hi Bear
Paul is right if you have limited capital you will be severally restricted on the number of wraps you can undertake.
I guess when we started in 1996 we were lucky that there was 3 of us in the business with very good equity in properties and the Banks were accomadating in getting it off the ground.
90% or even 95% + is available and will reduce the amount of deposit you will require and stretch the equity that much further to make it a profitable business.
Feel free to email me if you need any particular wrapping questions answered.
Cheers Richard
Ph: (07) 3720 1888
[email protected]
http://www.yourstatefinance.comIP funding and US property finance
our specialityRichard Taylor | Australia's leading private lender
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