I’m currently looking at my local area to see if it would suit wrapping units, since houses are in the 500+ mark, but established units are far more affordable.
I’d love to talk to someone who has wrapped units to see what the differences really are. I know the running costs are a little less and the yields are often a little more, but what other differences are there? Any real “gotcha’s” I may not be aware of?
Is there anyone out there who has wrapped units and would be willing to compare notes before I get too far down the path?
Thanks in advance,
Craig.
100% of the shots I don’t make don’t go in – Wayne Gretzky
Hi Craig,
I like your quote from “The Great One” at the bottom of your post – he makes a good point doesn’t he!
As for wrapping units – certainly it’s “do-able”, though I haven’t done any myself. The alarm bell for me with regard to units is their limited potential for CGs. Now as I said – I don’t have experience in units (quite deliberately), but one of the reasons I haven’t invested in them is because of their perceived limitation in CG potential. Someone please feel free to contradict me on this one, but that’s my perception.
So for a wrap the risk is that the “wrappee” will get stuck with a property that they bought above market value (assuming you add a percentage to your purchase price), and it never achieves the required CGs to give them any equity at all. At the end of the day, with any type of property investing but particularly with vendor finance you need to structure a “win win” deal, and my fear is that by wrapping units you are potentially exposing the wrappee to a capital loss down the track.
Does that make sense? Again – I haven’t done any units myself, so my thoughts are purely hypothetical – I’d be most interested to hear another side of the story…
Cheers,
Adam
Oasis Finance
for your Vendor Finance solutions
Achieve the Dream!
[email protected]Thanks Adam,
I have the same hesitation about potential Capital Gains, so I’ve been trying to figure out the demand/supply equation for the area. If I was looking at houses, I’d be pretty happy with the suburb (except their price of $500k+).
The prices are among the lowest around, with great transport infrastructure (train, bus and river ferry) and a new 10,000m commercial/retail area being developed, along with some gentrification of the surrounding suburb. My thinking is that the improvement to the suburb should lift values enough that any buyers will get the CG they need to refinance in a sane time-frame. Well, again, I’d be comfortable about that with houses, but I haven’t dealt with units…
Unfortunately, the units would still be in the late 200’s for the wrappee to buy, which is the other half of why we’re still hesitating. The risk seems to start increasing by the time we’re looking at 250-300k for the wrapee.
After your thoughts and a couple of responses from other forums, I may just look a little further afield for freestanding houses again. I can always come back to this later once I’ve got a bit more comfortable with the whole process and maybe worked with someone who invests in units. Maybe they would suit more of a “handyman special” marketing approach to ensure only people willing to add value themselves would purchase so they’d be more likely to get the equity for refinancing.
thanks again for the advice.
Craig.
100% of the shots I don’t make don’t go in – Wayne Gretzky
Craig,
No probs. I hope it all goes well for you! I also think you’re probably onto a good idea to look further out where prices are lower – at the end of the day, one of the reasons people will come to you to do a wrap is because of income considerations. If you’re talking about a property in the 300s, with your mark up of 15-20%, and the higher interest rate you’ll be charging, weekly repayments would soon start to become unsustainable for your clients.
This is one of the reasons why we tend to concentrate on the lower priced areas. Under $200K is good, under $150K is even better.
Then again, in regional areas you do need to make sure that banks will lend on the properties involved, at the LVR you desire. This can turn into a bit of an issue if you have limited capital and are looking for 90-95% LVR!
Well – best of luck!
Cheers,
Adam
Oasis Finance
for your Vendor Finance solutions
Achieve the Dream!
[email protected]
You must be logged in to reply to this topic. If you don't have an account, you can register here.
