Hi all,
Who are the best types of people to wrap with and why?
PJ
normally african americans seem to be the rappers lol – sorry couldn't help myself
HA Ha! I have been biting my tongue also!
Hi PJ
About 20% of the Australian population is locked out of home ownership because they can't get traditional home loans. There's no doubt in my mind that quite a large number of these people shouldn't get loans but there is a percentage that are locked out because they can't get the necessary deposit together, are newly divorced, are newly self employed, etc, etc.
While the traditional lenders cherry pick the section of the market they are prepared to lend to, vendor financiers must work out who they're prepared to work with, based on the new National Credit Code and the risk profile they are happy with.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Paul,
Thanks for the insight.
Given this and based your experience, who are the best people to do VF deals with and Why?
PJ
Hi PJ
When you say, "who are the best people to do VF deals with", do you mean "who are the best people to sell to" or something else?
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Hi Paul,
I mean to sell to.
I am trying to develop a profile of the type of person who is best suited to sell a VF property to. This is of course linked to my risk profile. That being, ensuring interest payments are met (VF deals do this) and protecting my cashflow (ensuing I have sold to the best type of person).
I am guessing the most critical element that I would need to be sure of is the ability of these people to make payments. So I am guessing the best people possibly would be those who are looking to develop a credit history. They have money for a deposit and can demonstrate a saving history. I am only guessing here.
What do you look for that shows you this person wanting to buy from you is one of the best to have as a VF client?
PJ
Hi PJ
Steady employment and good serviceability. We also look at how often they move their PPOR and we make a point of visiting their PPOR if possible. How they treat the property they're currently living in, will be mirrored in the property you're selling them.
If you get hold of a traditional lender's home loan application form and look at their questions, you'll see all the important points. We may reduce the deposit requirement and accept some small "paid" defaults on potential clients credit reports but otherwise our application form looks pretty much the same as a traditional lenders.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Paul,
Just to clarify,
Your best client will have:
– Steady employment (no brainer. Somone who hase held a job consitantly)
– Serviceability (Income to Debt levels shows they can service he VF repayments. I presume you work on the 30% rule of thumb)
– Visit them (This suggests they are close to where you live. Probably visiting them after hours)This one threw me a bit. Perhaps you could explain a little more.
"……We may reduce the deposit requirement and accept some small "paid" defaults "What about age? Does this factor into your selection?
What about family unit? Do you look for young families? Empty nesters?I appreciate your time and patience.
PJ
–Paul,
Will PJ need to be in possession of a credit license ?
P.S. The gift wrappers at department stores are good wrappers !
Duckster,
I am looking at the VF process as a commercial enterprise which will service my personal B&H investments. I am taking the stance I will be required to have a credit licence. I'll cross that bridge once I am clear and sure the VF technique will work in Perth.
PJ
Yes PJ will need to be fully Licensed under NCCP.
PJ sorry old mate at the moment ASIC are saying that anyone lodging an application at the moment could be from 12 weeks onwards to be processed so i would not be waiting until you find your first buyer to have your License in place.
Also have you throught about which lender you will using for such an enterprise.
I can tell you from many many years of past experience in wrapping lenders and wrappers and not the best of friends even done as a full business venture we ended up taking our business to National Credit level to get it over the line.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Richard,
Haven't crossed that bridge yet.
I am still not convinced wrapping is a technique I can use to address the cashflow needed to feed the hungry mouths of my B&H properties.
I do not have an excessive income problem. I have enough disposable income but I am trying to completely avoid negative gearing if I can. I do not have a tax challenge.
My goal is to gain control of quality B&H properties that can be developed down the track. Sell two thirds of it and keep a positive geared portion for my family trust. Do it again and again until I feel my wife and two daughters are safe.
I am trying to find a 'game plan' which allows me to buy these properties without placing enormous negative gearing stress on myself and my family while I am collecting and developing my B&H properties.
At the moment I am focusing on wrapping to form the front end of the game plan. Although the wrapping theory looks great, it seems the application is a completely different challenge.
Next I will focus on Lease options as a cashflow mechanism to feed my B&H purchases.
Renos of course are another cashflow method however, I feel the risks are greater in comparison and time consuming.
I am very keen to learn about other techniques others have used to gain control of positive geared B&H properties.
PJ
PJ
I am not saying wrapping wont work in fact i am still a Director of First Home Owners Group Pty Ltd which is a Company we set up to specialise in wrapping and have done very nicely thank you out of it over the last 10 years.
The income certainly helped me pay down at a quicker rate than i could have done so my portfolio of B & H properties i guess what i was pointing out was it is a lot harder to both finance and comply with legislation than when we did our first wrap in 1996.
At the time we had support of 2 of the major 4 Banks competing for our wrap business at residential rates as to them it made sense however the market has changed considerably and now mortgage insurers wont knowingly touch a wrap or LTO and you will struggle a lender who openly will encourage the type of business.
Personally I think there is more of a demand for clients requiring wraps or 2nd mortgage carry backs or other +cash flow techniques than ever before but you have to treat it is as a business and be prepared to write a lot of business. Undertaking 3 or 4 wraps will become a bit of a bind and not viable in regards to time and effort.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Richard,
Yes, I agree.
I think wrapping is a good technique however, I suspect and you are confirming, it is a time hungry venture.
Currently, I am working the 9 to 5 and making a reasonable income. Nothing fantastic and it will not get me the passive income I am looking for. Hence taking a look at property investment.
I need to find a positive cashflow frontend technique that will suit not only my overall game plan but also my available energy and time.
Any suggestions on how I might do this are appreciated.
PJ
Guess it is going to boil down to what equity you can access and what you service in the way of borrowings.
You can always make money when you have money it is just starting out can sometimes be hard.
Fear not we all started somewhere.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Richard,
Yes, that is so true.
Over the last few years I been focusing on increasing my cashflow with the knowledge I will be servicing debt. The only trouble is the ventures I have pursued to create more cashflow, have all ended up going south and giving me bad debt. I have gone backwards instead of forwards.
My goal is to generate a passive income of about 150K /yr via my family trust in 15 years time. I believe this is still achievable. Just need to find the right combination of techniques to achieve this.
PJ
maree_bradross wrote:normally african americans seem to be the rappers lol – sorry couldn't help myself
at first i thought you were being racist.. but then i got the joke hahaha
propertyjockey wrote:Who are the best types of people to wrap with and why?
PJHi PropertyJockey,
As you already appreciate: the ones who give you the least trouble in achieving your aims with wrapping.
Besides the very wise advice you have already received to check out their current living conditions and employment etc, consider a newish arrangement we have put in place to ensure as far as possible that the customer will truly be able to do what we need them to do.
We now look over an application, and if we think this one might be a "goer" we ask the applicant to fill out a standard home loan application form, and pay a "Credit Assessment Fee" . This fee actually is paid to a Mortgage Broker who assesses their creditworthiness in the light of getting a bank loan down the track. She prepares quite a detailed report for them (CC'd to us of course) with her advice on what they need to do to ensure the maximum chances of getting a loan from a traditional lender in due course.
This accomplishes several important things…
- We are more aware upfront of how long it may be before they can cash us out
- We avoid entering into an arrangement with someone who may never be in a position to cash us out
- We save a lot of time on processing applications
- They are aware of what to do in order to maximise their likelihood of getting a traditional loan, e.g. not to change jobs, not to increase borrowing, to fix any credit issues that have come to light, etc.
Did you note #3? This helps address your concern with time. The "donkey work" involved in processing an application is outsourced, and we make the final decision based partly on that report. Time spent on wrapping can also be minimised if you have good processes in place. Much of the bookwork can be outsourced once you have the procedures down pat. Our part-time bookkeeper works from home, all that she needs from us is put online, she posts monthly statements, payment failure notices, reminds us when insurance is due, etc. It has made our business a lot more stress-free.
Hope this helps
Mr Fair Go
Hi MrFairGo,
Thanks for the excellent insight.
I am attracted to vendor financing as a business model that directly compliments my investment activities.
Having been burnt by past business ventures, I am just wary of claims about the ease of running a business.
Nothing like old school experience!
I am currently weighing up my options based on my particular starting point (equity,cashflow,time,patience level)
Vendor financing has not been struck of my list just yet.
PJ
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