Forum Replies Created
I think it all comes back to equity. If they have no equity (ie only been in a short time) then I say, shame it didn’t work out, and they can walk away. I take the property back, rewrap it and move on.
If there’s equity invovled, in my contracts they have a right to that. In that case I have a couple of options – once we’ve agreed on a value for the property – firstly, I can pay out their equity from my own pocket (minus my expected costs of holding & rewrapping the property), or the house is sold and I pay their equity (minus sale costs) from the sale proceeds. I think once you start trying to get too complicated, such as paying them back over time etc, you’ll get bogged down.
To be honest, though, I wouldn’t spend too much time worrying about the default side of things. It doesn’t happen very often! And when it does, it’s usually pretty early on in the contract.
The crucial factor is to have a lawyer who is EXPERIENCED in wrap contracts draw it up. Don’t waste your time trying to train a lawyer you know to do it.
Keep smiling
Felicity
Some very positive ideas on this thread. I think Steve’s point about the cost involved in setting up something like the VFA is very valid. Certainly it mostly started because Rick devoted an enormous amount of his time, money and office resources to the project. Without him it never would have begun. So thanks Rick!
Regarding Victoria, Lewis O’Brien (one of the main wrap lawyers in Melbourne) is planning to run an information night in mid February. Perhaps this would be a good opportunity to get Vic wrappers together and maybe work out where we would like to go from here. I’m sure if it was discussed with Lewis before hand, he’d be happy to be involved. He certainly doesn’t like rogue wrappers either!Keep smiling
FelicityHi Rob
I was talking about vendor finance in relation to the VENDOR who is selling the house to ME leaving 20% in the deal so that I don’t have to find it out of my own pocket. The idea is that I borrow 80% from a lending institution and the vendor’s 20% is a loan with a 2nd mortgage. I am still buying the house at market value, there is no hiking up of the price involved. This is a classic “no money down” deal for buying a house.
This has nothing to do with wrapping the house, that would come later. There would be no bank valuation involved then, because there are no banks involved.Keep smiling
FelicityRob
Obviously my last post wasn’t clear enough – wraps were NEVER mentioned in the initial stages of searching for finance. We never got anywhere, so never bothered!
I spoke to a number of lenders myself, and basically it seemed to be a Victorian thing, caused perhaps by some less than ethical seminar presenters who taught people to inflate the price of a contract and take back some form of under the table payment at settlement. Basically the lenders felt that if vendor finance was involved, that’s what was going on. I even had one valuer who commented without any hesitation that if there was vendor finance involved, he’d only value the house at 80% of the contract price – that’s what the lender he was working for had told him to do.Keep smiling
FelicitySounds like a question for your accountant Alistair! I have no idea, sorry…
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FelicityRob
Wraps had nothing to do with it – at the time my broker and I were searching for 80% LVR lo doc finance, we were purely looking for someone who would do it with the vendor financing 20%. The best we had was an offer of 64% LVR (ie 80% of the 80%). Basically they were taking the 20% vendor finance off the price of the house, because they seemed to think that if the vendor had left money in, it must be some sort of scam, and they discounted the price accordingly.Keep smiling
FelicityRick hasn’t been “in charge” of the VFA for nearly 2 years now. It was certainly a lot more active and involved as an association in that time. It did okay in the first year after he ceased his involvement, but since the second change of leadership it’s almost disappeared off the map. Hardly a ringing endorsement for the association being run by ordinary mums and dads….
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FelicityIn my experience, vendor finance is possible if you’re using standard finance. But certainly in Victoria, the lo doc lenders are EXTREMELY nervous about it! I had more than 15 lo doc lenders knock the deal back (or only offer to lend 80% LVR of 80% of the purchase price) because of vendor finance.
I’m not sure if the same is true in other states.
Bottom line – make sure you’ve got a lender who is happy with this type of thing BEFORE you find the deal!!!Keep smiling
FelicityRob
Rick Otton has a lease options pack, perhaps that would be the best way for you to go. You’ll find it at http://www.rickotton.comKeep smiling
FelicityOldtimer
I have always looked at wraps as a cashflow business, and that’s it. That strong positive cashflow is the reason I have been able to buy as many houses as I have – we’d already been stopped at around 4 with normal rentals (and yes, they were positive cashflow, but only a small amount each). It’s also the reason my husband doesn’t need a job any more (well, almost!).
The next step is to take some of the excess cashflow from wrapping and put it into buy and holds. Yes, that’s where the long term wealth is. But if we’d used buy and holds up until this point my hubby would still be working at a job and we’d still have a long way to go before he was free.Keep smiling
FelicityA misguided belief that it might actually do some good? A hope that maybe for once something positive might come out of it? Perhaps to avoid that whole “xxx declined to comment” line that current affairs shows love to use, to put the person who declined to be interviewed in a bad light.
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FelicityAs far as I’m aware, Rick wasn’t given any questions in advance. He was also given the impression that he was going to be given the opportunity to present his side of the story in a fair, balanced manner. That all went out the window as soon as the interviewer opened his/her mouth.
I also don’t agree that Rick didn’t know how to answer the questions – he did, but he was so busy trying to answer them in a way that didn’t give A Current Affair any opportunity to quote him out of context, it was inevitable that it didn’t appear as though he knew the answers. And you can bet that A Current Affair used all the examples that put Rick in the worst possible light.Keep smiling
FelicityI don’t know why he chose not to answer the question about the cost of the course – possibly because it would then have been a case of well, x people are there at $x a head, which equals $XX? There are all sorts of course prices, depending on whether you take your partner, or are a returning graduate etc.
I’d have to go back and reread the bit about unscrupulous operators. Again, I think it was probably his fear of giving them a great sound bite that may have affected his response. And I believe he tried to answer “general” questions from the perspective that he could only answer for his own business, and what he does.
I agree that it wasn’t a shining beacon of great interviews, but I don’t think any of us can appreciate the enormous pressure Rick was under. It’s easy enough for us in hindsight to pick the interview to pieces, comment by comment. It’s a bit like being an armchair athlete. That’s very different to playing in the game.Keep smiling
FelicityThanks for the kind words Wayne.
I’m sure my turn will come to be on the receiving end. I’ve copped that sort of stuff before, and probably will again.
Yes, it’s upsetting to be accused of stuff that’s nothing like what I actually do, and I’m sure there are people in other lines of business who feel the same way (used car salesmen? hehe).
In the end, though, when it gets me down, I sit down, look at a list of my wrap properties, and one by one I think about the families in those homes. I think about the things THEY say, because in the end, they’re my customers and if they’re happy, does it really matter if people who know nothing say a whole load of garbage?
Even more importantly, I think about some of the first people I wrapped homes to, who have now refinanced and moved on. I’d blush if I repeated some of their comments of gratitude here.
I’m as keen as anyone to remove the ratbags from the industry. Once, just once, I’d like to see a POSITIVE article about wrapping, quoting people who’ve done this and been successful. There’s so many of them out there, and yet you never hear their side of the story. API came close, and then pulled the pin on the story.
I’d also like to see pigs fly, I guess…. heheheheKeep smiling
FelicityYou’ll need to mention which state you’re from.
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FelicityAs far as I am aware, you cannot claim the FHOG on a lease option, as you are not in the process of buying the house until you exercise the option.
With an instalment contract, the position varies from state to state. Some, such as Victoria, allow you to claim the FHOG straight away, as long as you sign a form stating that in the event you don’t go through with the purchase, you will return the grant. Other states require a time delay, or a % of the price to be paid off before paying the grant.Keep smiling
FelicityHi Robert
I remember talking to Rick about that interview. Apparently the interviewer walked in the door and the first comment made was along the lines of “I am going to screw you and your organisation big time”. Hardly the way to relax Rick or make him feel warm and fuzzy.
Rick was very distressed about the interview, he spent all his time trying to answer questions in a way that meant there were no sound bites that could be taken out of context. Because of that some of his answers came across as evasive, or even hesitant, while he tried to decide exactly how to say things in a harmless way.
There were a number of questions that the interviwer repeated over and over, sometimes totally out of the blue, in order to catch Rick out.
I agree that some answers were less than ideal, but I have to say that given the circumstances I thought Rick managed to get out of the situation without giving A Current Affair more fuel for their fire. I’m just glad he managed to do that on behalf of the organisation, I think most people would have totally blown their cool.
I think associating himself with Steve at the time was a reasonable thing to do. They were both running seminars about wraps and had courses available for purchase on the subject. Certainly in discussions with the Victorian government around then, Rick and Steve represented the industry. Steve has since moved predominantly in other directions.
In the final show, they hardly used anything from Rick – which probably proves that Rick managed to frustrate their purpose of taking him down.Keep smiling
FelicityI usually find the house and then the buyer, so haven’t done many in the way you’re describing. However I have done a couple where an agent approached me about a house for sale where the renters wanted to buy. In those scenarios I sat down and worked out the figures and then told them – this is how it’s going to work. Both times the families were quite happy about it, they realised that I had to make money, and they were okay with that. I guess if they hadn’t been, the deal wouldn’t have happened. Both these were set up a couple of years ago, so the houses are now worth more than the wrap price, so they’re not complaining! However I did explain to them at the time that if prices went flat, they would have to wait longer to refinance, and that was a chance they were willing to take.
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FelicityI’m going by memory here…
When I went to Rick Otton’s Lease Options day, he talked about this. He said that basically, the bond is required to protect the LANDLORD in the event of default, tenants doing a runner etc. So in fact you don’t need to collect a bond at all. This is usually much simpler than trying to follow all the correct procedures in handling a bond.
I think that’s right!Keep smiling
FelicityQuote:Originally posted by The Mortgage Adviser:Merry Christmas Felicity…
What if the property does not sell for a suitable price?
For example…
What if the wrappee spent 10-20k on the property and the market dipped and they would not receive anything according to the market valuation?
Technically the caveat could remain as they spent 10-20k on the property and would be entitled to this amount at the very least if there is no added equity.
Also, do you require submissions to be made to you for all renovations for approval?
Robert Bou-Hamdan
Mortgage AdviserHi Rob
Well, I think the wrap buyer is in the same situation as anyone who buys a house, spends money on it and finds the market drop out from underneath them – if the bank sells them up, they’ve lost the money. That’s a risk anybody takes when they do up their house.
Once they default on the contract, I have the right to remove the caveat. I personally wouldn’t do that until the contract has been rescinded, too much time and expense to remove it only to have them catch up on the default amount and continue on! But once the contract has been rescinded and they’ve moved on, they only have a right to any equity they’ve built in the property. If there’s no equity because of market conditions, that’s life. And if the market drops so much that a $20k reno hasn’t added any value, it’s quite possible that the house isn’t going to be worth more than I bought it for either. So it’s possible that I wouldn’t be able to refinance and find any money to pay them anyway. I’ve heard Steve McKnight talk about capital gain a lot, and as he says, it’s gambling. You don’t know what the market is going to do, and you can’t make decisions and plans on something you don’t know. Anyone who buys a house “hopes” it’s going to go up, but you have to be prepared for the fact that it might not, or might even drop a bit sometimes.
As for renovations, I don’t want to know about repainting, flooring, stuff like that – cosmetics, I guess. But I do ask to be told of any major structural work (ie replacing a window with a set of french doors) and I definitely need to be involved if a permit is required for something.Keep smiling
Felicity
