Modern day wrapping

Hi Tracy

Yes Steve used to have the Wrap Kit and Rick used to have the Wrap Pack. An alternative is to turn your vendor finance (VF) education into a profit making venture.  This of course presupposes that you have a property that would benefit you by its sale with VF or you could purchase a property and sell it with VF.

In either case I'd suggest you do it as part of a joint venture (JV) with and experienced VF'er.  Sure you will forgo some of the profit by entering into a JV but at least you can get your initial VF education as part of a profit making transaction, instead of it costing tens of thousands of dollars (most 2 to 3 day events are general in nature and have an up-sell to a mentoring course at the end of the event).

Doing a JV initially also saves you from the numerous newbie mistakes most VF'ers make.  The problem with these newbie mistakes is that they often continue for quite a number of your initial transactions.  I know that if we'd done our first transaction with an experienced VF'er we would have probably made the same amount of money as we actually made, even after sharing the profits with a JV partner.  Thereafter our profits would have been much higher than they were.

We started of the lazy way   i.e. we had equity in our home and we bought 4 properties and sold them with VF before we ran out of money.  Then we really had to learn the "business".  But it was a great way to learn the basics so we were pretty lucky really.

Cheers,  Paul

Hi Tracy

Without the tenants being in the picture I would have suggested you considered selling your IP with VF but only if that made sense in the overall plan for your portfolio.  I never suggest selling with VF just for the sake of it as, ultimately it's the real estate you own that builds your real wealth.  As the tenants have 10 months to run, if you come to the conclusion that this property isn't a good "keeper" then I'd consider marketing it with VF in about 8 months time.

The situation with your current PPOR, again, isn't straight forward.  Do you need most of the money from this property to build your new PPOR?  If you do then selling with an Instalment Contract may not be the way to go as, with a vendor finance sale, you trade off time to get fixed capital gain and positive monthly cash flow.  If you have sufficient capital then you'll have to decide if your current PPOR is a "keeper" or would it be suitable to sell with VF, within the overall plan of growing your portfolio.

It is unlikely that you will be regarded as providing credit "in the course of a business" if you sell one property with an Instalment Contract, whether or not it's conducted in a JV.  After that, it's my opinion that you will need an ACL (JV or not).  However this question, in relation to the new National Credit Code, has yet to be tested in court.  Of course, take your own legal advice on this issue.

Cheers,  Paul

Hi Tracy

Yes, properties are sold in the $650K price range with VF all the time.  Is the pool of buyers at this price point less than the pool of buyers available for a $400K house?  Yes but we still get plenty of enquires on the higher priced properties.

If you sold both properties with VF, I'd say you could comfortably achieve $1,000 per month positive cash flow.

However, if you were to sell your current PPOR with VF, you are going to seriously delay access to the $100K you need for your new PPOR, i.e. it's very unlikely that you'll get a deposit from a VF buyer anywhere near that.  Looking at the not to distant cash requirements for your new PPOR, I'd suggest that selling your current PPOR traditionally may be the way to go at the moment.

Cheers,  Paul

Hi Sandtrackers,

Although it seems you are having a two-way conversation with Paul and nobody else is contributing … you are lucky to be talking to the right guy when it comes to vendor financing and wrapping.  We know Paul and he is a buck of knowledge and backed up by experience when it comes to this topic.

Kind regards,

Sherry and Jason

Paul,

I do like your politically correct style. 

Regards,

Jason Moore

Hi guys,  – sorry, long post….

Paul, it seems you're the go-to guy in this area and if you don't mind I'd love your advice on our situation, too.
 
Like you Sandtracker, I have our PPOR on the market without a lot of success. Ideally we need to release some capital (at least 100K) for our new PPOR, and while we do have another IP that we can sell if we need to, I'd rather not because it takes care of itself nicely.
 
TBH I've never really taken to the wrapping thing, don't know why but I just haven't. ALTHOUGH today our agent told me that she has been contacted by a lady who has sold her house in Sydney and is relocating to the area (details are sketchy at best). They fell in love with our PPOR pics on the net (house is only 18 months old) but wants to rent for up to 5 years with an option to buy at the end because they're starting a family and she wont be working in this time.  – I assume less disposable income.

I'm not sure if this would be called a wrap or even if it would be possible. but without knowing much about her, assuming (maybe falsely) that she has enough for a 20% deposit which they may not, and a sale price of $560000, what would happen if I was to suggest:

-20% deposit upfront =  $110,000
-As well as the 20% deposit, she pays us rent of $500 pw (rental appraisal has been $470 – $500.) Our IO repayments are 515pw but dripping in depreciation.
– Balance ($450,000) to be paid in full at the end of the 5 year period.

The question is what would be the motivation for her to accept this? – pretending she had a $110k deposit????
*If she brought outright in this price range now it would be a little under $600,000 inc stamp duty – $110 deposit = a mortgage of about $490000 (around $650pw) whereas with paying a deposit and renting it would be $500pw. Saving of $150pw.
*She would, in effect be living in the home she is one day going to own, and obviously likes.
*It would keep her in the market and she can recieve the capital growth (if any) over the 5 years, by locking in at today's prices.
*If weekly income is an issue, she wouldn't have rates, maintenance to deal with.
Would it be unrealistic to demand market rent as well as a 20% deposit?

The benefits for me would be:
 -We are able to move on to our new PPOR without a major firesale.
– We can access the $110,000 downpayment that we need for our new PPOR.
– With depreciation the rent would cover the mortgage (just, without making anything, although that wouldn't be the aim here).
– The sale gets finalised within 5 years (although we do miss out on any capital gains)

I know there are so many variables that its pretty airy-fairy, but once it's out there it's hard to take it back so I'd love to know what people think – is it do-able, would it be worthwhile for either party etc.

Am I dreaming?