Hi fellow Investors,
We've got an IP in the central coast (NSW) that is negatively geared (I know I know..)..Want to wrap it now but have a few questions about the nitty gritty:
i) Where's a good place to start looking for a wrap savvy lawyer? I'd love some recommendations!
ii) How do the payments for insurance and rates work? Do they stay in my name or the new purchaser?
iii) What's a good benchmark to test the affordability for a potential wrappee? 30% of house hold income? 40%, 50%?
iv) Is it ok to put in early termination of contract fees? Ideally we would want them to match what we would have to pay out to our bank should the new purchaser buy us out early
v) Are the tax issues of stamp duty and CGT story the same as if selling the property normally?
vi) What's the best way to go about telling my bank?
Really appreciate any feedback and advice..its the little things that do my head in.
Thanks heaps,
Arthur
Hi Arthur
i) Tony Cordato – Cordato Partners, York St, Sydney
ii) We always keep the Rates and Insurance in our name and have the bills sent to us. We don't want people chasing us for bills that haven't been paid by our wrapees. Of course, the wrapees pay these bills.
iii) We usually use, "no more than 35% of a client's gross uncommitted income".
iv) All the Instalment Sales Contracts I've ever seen have been written to ensure that your wrapees have to pay your early repayment penalties.
v) Stamp Duty. In NSW the wrapees have to pay stamp duty on the purchase within 90 days of exchange of contracts. If not paid within that time frame, they are charged penalty interest. CGT – is only payable on "settlement/completion" of the Instalment Sales Contract, i.e. when your wrapees finally complete the sale by refinancing you out or possibly selling the property.
vi) Most mortgage documents say things like, you have to tell the bank if you plan to sell the property or if you plan to rent the property. Most people don't. However, you could always refinance the property into one of the "fully disclosed products" on the market, prior to wrapping the property.
Possibly a less stressful way to do your first vendor finance transaction (wrap) is to ask an experienced Vendor Financier for some help. There are a lot of Vendor Financiers in your area that would be happy to walk you through the whole process, training you as you go, for a percentage of the profits.
Good luck.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
I agree with everything Paul has written with the exception of the CGT issue.
We obtained a Private Ruling in 2001 and the Tax is based on the emerging profit ruling rather than the completion of the installment contract.
Richard Taylor | Australia's leading private lender
The emerging profit rule is in regards to long term construction contracts in general and is often used for staged developments of residential suburbs. Im suprised you got a ruling from the ATO in regards to that for this topic.
Hi Arthur
Richard is absolutely correct. The nice thing about an "emerging profits" CGT ruling is it spreads your CGT burden nicely throughout the period of the Instalment Contract (wrap), leaving the major part of your CGT commitment to be paid when you get the majority of your profit, i.e. when you're re-financed out of the transaction. Good luck.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Jeff
When you have a business that holds a 160+ properties and does nothing else but installment finance you seek a private ruling on many things.
Given the case law involving wrap contracts in 2001 we considered it a wise move.
Richard Taylor | Australia's leading private lender
Hi There,
(HI Paul and Karen also :o)
To explain Paul and Karens comment a little further
"ii) We always keep the Rates and Insurance in our name and have the bills sent to us. We don't want people chasing us for bills that haven't been paid by our wrapees. Of course, the wrapees pay these bills."= This is added to the installment due on the financing and is combined into one weekly payment. Then this is checked every 6 months and at the end of a year….. if they have paid more than the amount charged to you by the greedy council and insurance companies…. then you cut them a cheque for the difference (good xmas pressie for them).
Hope this helps to clarify for you.
Cheers
KiwiHey guys..thanks for all the replies. I really appreciate it.
We've had a bit of a drama trying to get people. We placed an ad in a few local papers and havn't had much of a response. It seems as though we are not reaching our target and ppl aren't grasping the concept. The ad we used was:"Owner needs to sell tidy 3br home now and will provide finance. No banks-easy qualifying. Low deposit & affordable monthly payments. Minor repairs."
8 people rang in total and most just wanted to know the price, desposit and/or repayments. We would give them the address so that they can have a look, but noone has called back.
I beleive that the people aren't clear on the benefits.
We are placing another ad in next weeks paper:
"Tired of losing money on rent every week?
Low on Savings?
Can't get a bank loan?
Keep your savings.
Enjoy easy & flexible financing(rent to buy)-No bank rules or fees
Choose to own this tidy 3br home. Make it happen. Call to inspect"
As always any suggestions on how we could improve our chances of getting through to the right buyer are v. much appreciated.
Cheers,
Arthur
Hi Arthur,
One of my first ever resources was a product that outlined how I wrote classified ads to attract vendor finance leads. I have a few spare copies in the office (I think). If you would like one then send me your address as a PM. I'm happy to send you a copy if I can find one. Please, I don't want 1,000 people PMing me – just Arthur.
As a general rule though, it's a good idea to sell the benefits in the ad, remembering that the ad will not sell or close the deal. It exists only to get the phone to ring. Therefore, a possible headline that could work is:
Who Else Wants To Buy A Family Home With No Deposit?
Hopefully you get the drift.
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Thanks for mailing me the CD Steve, I received it today.
I've made quiet a few changes to my advertising approach and will place a newly worded ad in the papers tomorrow. It's funny how a few words can make the difference between success and failure in life..In this case, getting the attention of my target buyer.Nice to know you can get help from a best-selling author without even asking for it directly.
Cheers,
Arthur
Hi Arthur,
How did you go with your ad? If it works well then can you please post your add so I can get some ideas? I have a Sydney property I might wrap as the capital return for selling today brings a lose and to keep leaves a highly negative property.
Thanks
JasonArthurK wrote:Thanks for mailing me the CD Steve, I received it today.
I've made quiet a few changes to my advertising approach and will place a newly worded ad in the papers tomorrow. It's funny how a few words can make the difference between success and failure in life..In this case, getting the attention of my target buyer.Nice to know you can get help from a best-selling author without even asking for it directly.
Cheers,
Arthur
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