Hi All

I’d like to move away from personalities and start to through some ideas around re getting the Association going again.

I was at the last AGM and there was almost nobody there. Disappointing but probably understandable considering the size of OZ and difficulty in getting an Australia wide group together in one place.

I have no idea how this would work but would it be possible to have a number of State based associations (or branches of The Association) which organise their own State based activities.

These State based associations (or branches) would come together as necessary as a Federation to represent the industry on the “big” questions. I would suggest that each association (or branch) nominate a number of members of a Federation committee and that this committee work together ELECTRONICALLY on those “big” issues that need the full backing of the Federation. Hopefully the Federation could then have one AGM (or maybe AGM/conference) per year, rotating between States.

I realise all the above is very vague. No wonder, it’s straight off the top of my head However, we can’t effect anything that’s happened in the past; we can only have an influence about what’s going to happen in the future. It will only take a handfull of positive people to rebuild or restart this Association so that we can make it an example of all the reputable wrappers out there.

Cheers, Paul

PS. Please feel free to “flesh out” and improve on the above “brain dump”

Hi Robert

As far as I know, when a traditional lender undertakes a Mortgagee Auction they definitely don’t take into account whether they get a “suitable price” or not. They allow the market to dictate the price and no allowance in made for the state of the market at the time or whether the mortgagees have made improvements to the property. It’s my opinion that Wrappers should not be asked to do more than traditional lenders do, faced with the same circumstances.

With regard to your second questions re submissions for approval for renovations, this is simply required because the Wrapper is still on the title and local councils require the title holder’s written permission. We have recently signed two local council applications for our wrappees. We let our wrappees know that they can do anything to the house without our approval that doesn’t require council approval and for them to send us the council documentation when it does.

Merry Xmas, Paul

Hi Property Plus

You should be able to get a mortgage for 6.5% without any problemms. Then you can “crunch the numbers” and do “what ifs” by gradually moving the interest rate up from there. Possibly by 0.5% increments to, say, 8.5% (or whatever you think rates are likely to creep up to).

Ihope this helps.

Cheers, Paul

Karen & I have done both. For the first 3 we bought the house first and then for the fourth a couple approached us. We checked them out, worked out their price range with them and sent them off looking with strict indtructions to say nothing to the real estate agent, except to ask for the asking price When they found a place that they loved, they handed over to us and we negotiated the sale.

We were impressed with this process so we’ve just finished advertising for “the people” which, by the way, had a great response. Number 5 should be underway soon.

Cheers, Paul

Hi Jen

Pretty much whichever way you look at it, these clients are unlikely to get anything other than vendor finance in the forseeable future.

On that basis, you’ve got to decide whether a Long Term positive cashflow wrap suits your business plan.

If it does, great, you’ll probably have these people on your books for the next 25 years (baring all the “challenges” mentioned above).

If it doesn’t I guess you could just move on or possibly pass these potential clients onto a wrapper who is looking for this type of client, for some form of commission.

I hope this helps.

Cheers, Paul

Hi Maxolau

Lucifer_au is absolutley correct, if you are planning to use an Installemnt Contract as the vehicle for your wrap. If however you plan to use a Lease/Option as your wrap “vehicle”, the FHOG is not available until the clients actually exercise the option, i.e. purchase the property from you.

Good luck with the tenants.

Cheers, Paul

Hi Jeff

If you purchase the property via an installment contract you can’t on sell the property via an Installment contract because you don’t own the property, i.e. your name is not on the title.

With the co-operation of your vendor, you may get him/her to agree for you to lease the property. You could then possibly use a lease option but, again you may not be able to give an option on a property that you don’t own. Check with your solicitor.

Alternatively you could get the vendor to give you a second mortgage on the property for 20% of the purchase price. You then get an 80% lend from your bank and your existing equity is left untouched (except for costs). You then have the title in your name and can wrap it or L/O it.

I hope this helps.

Cheers, Paul

Hi Mad

I noticed you mentioned, “we considered “wrapping” techniques but didn’t have the time outside of work to pursue these things.”

We too, like all of us, were busy at work but we decided to research wrapping. This research led us to think that wrapping might require less time than rental properties.

After having completed 4 wraps we have not only found there is less time involved but, we belive, a whole lot less heartache. Why? Our wrappee’s have a buyers (not tenants) mentality and they are responsible for all maitenance costs.

Maybe you could re-visit the concept and possibly even wrap one/some of your existing properties.

I hope this helps.

Cheers, Paul

PS. There are CGT consequences to wrapping a property that you have previously rented so check this point out with your accountant.

Hi KP

My comment. I’m definitely glad that we bought one of the Kits before we started wrapping. We would have been lost otherwise. I completely agree with Lozza.

Cheers, Paul

Here is a previous excellent post from Julia on the subject.

Cheers, Paul

“If the Vendor Finance arrangement has the following features the income stream received, once the wrap arrangement has begun, is considered to be principle and interest by the ATO. The income stream received before the wrap arrangement is entered into is considered rent. Reference ID2003/968.
Typical Features of a Wrap (Vendor Finance Arrangement)
1) The purchaser pays a deposit at the time of entering into the arrangement.
2) The settlement (change of the title deed to the purchaser) does not take place for several years after the arrangement is entered into.
3) The purchaser has the right to occupy the property prior to settlement
4) The purchaser pays a weekly amount (regardless of the name it is given in the arrangement) for the right to occupy the property
5) As part of the arrangement the purchaser pays the rates, taxes and insurances on the property.
6) The balance of the purchase price to be paid on settlement of the arrangement is reduced by the weekly instalments.
7) If the purchaser fails to complete the arrangement the deposit and weekly instalments are forfeited.

Now what about the profit on the sale of the property? Is that normal income or capital gain and when is it taxable? Assuming an agreement similar to that described above the answer to this question revolves around whether the vendor is in the business of selling houses or an investor just realising an investment. The key issues in differentiating here, according to ID2004/25, 26 & 27 are:
1) The Vendor did not use the property for any other purpose than to enter into the wrap. A straight rental of a property before entering into a wrap arrangement would avoid this point.
2) The property was sold at a profit
3) The wrap arrangement was entered into within 6 months of the vendor purchasing the property.
4) The Vendor is in the business of purchasing properties to resell. It would be difficult for the ATO to argue this case if the Vendor only bought and sold one property.

If you are caught by all of the above then CGT cannot apply to the sale of the property as the profit on the sale is revenue in nature. If a transaction is caught as income, CGT does not apply or in other words CGT is the last option if income tax doesn’t catch it. But even if you weren’t caught by the above and CGT applied there would be no discount if the property was held for under 12 months. If you did hold the property for less than 12 months before entering into the wrap it is better to argue that you are in business and caught by the above because the profit on sale would be revenue in nature and as a result not assessable until settlement which could be 25 years away (ID2004/27). If you hold the property for less than 12 months but it is subject to CGT you don’t qualify for the discount but would be assessable on the profit when entering into the wrap.
Section 104-15(1) of ITAA 1997 states that a CGT event happens when the owner of a property enters into an arrangement with another party to allow them to live in the property and title may transfer at the end of the arrangement. Section 104-10(3) states that the time the CGT event happens is the time of entering into a contract for the disposal of the asset, not when settlement (title passes) takes place.
For example this means that the vendor who enters into a wrap on a property that has been previously used as a rental and held for more than 6 months will be subject to CGT on the property in the financial year the wrap agreement is entered into. Accordingly, if at this stage the property has not been held for 12 months no CGT discount will be available even if they eventually end up holding the property for 25 years under the arrangement.

More information on rental properties is available on my web site in the rental property booklet. All free http://www.bantacs.com.au

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