Hi,

Just a word to clear up the confusion re: the video.

When we did the Wrap Library we did it in two releases.

Version one came with Video and audio (CD and Tape)
Version two came with audio (CD) only

We made the change for two reasons:

Reason #1: The cost of packaging with videos was very high and the caddies that we used were difficult to store easily.

Reason #2: People seem to want the audio more than the video.

Sadly all of the first versions have sold out making them somewhat of a collector’s set. Never thought I’d say that about something I created.

Regards,

Steve McKnight

P.S. As for the numbers… I agree with Darren. Don’t get too hung up about the 11 sec. solution. This is just a filtering tool and not a law unto itself. I’d be asking how you can get a better return from deals close to the line. And that’s what the Master’s seminar is all about.

Hi Wendy,

Thanks for your post… although it seems to bit hard to read.

But let’s break it down into components…

quote:

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Basically an investor would L/O a prop from selling party, request a delayed down, (if any)with a SPM in 5-10 years or small payments plus a balloon at the end, and then L/O the house to another party and then turn around and sell the mortgage payments at a discount to generate the down payment plus pocket cash.

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Step One

In your model above you would act as a lease option client. That is, instead of being the investor at this point you’d be the client. You need to find someone who offers a lease option system within the parameters that you’d make money. This may or may not be easy depending on the market in your area.

I understand that things in the US will be more advanced than here in Australia, so you’ll need to decide how viable this would be.

Step Two

Once you’ve found an investor who’ll provide you with the lease option service then you need to negotiate the terms. Getting a low-down deal and asking for small payments (SPM = single payment mortgage but I’m not sure how these work) protects your cash / equity input which will allow you to do multiple deals or get started without a lot of money to begin with.

Step Three

The next step is to onsell your lease option to another party on more profitable terms to what you have negotiated. By doing this you create your profit margin for acting as a broker in the deal. This is very similar to a wrap situation in that you effectively leverage from your reputation. That is, you will have to make the repayment even if your client does not… so by underwriting their risk you make a profit.

So far so good, although it is a little complicated and you’ll need to find a market of people who will buy at inflated terms rather than deal with the original investor to begin with.

Step Four

OK, here’s where it gets a bit tricky. Once you’ve got the deal to this point you look to sell the mortgage payments at a discount. Well, my first question is that in a lease option here in Australia there is no mortgage… just a residential lease with an option to buy. Perhaps things are different in the US?

But let’s assume that with the lease option model you’re talking about there is a mortgage. In fact ther would need to be two mortgages… one for you (in the original lease option) and one for the person you onsell to.

In step four you look to sell your interest in the deal for a profit. This is essentially being cashed out and given that the notes market in the US is well developed I’m sure there are people out there whop would buy such a thing.

The discount relates to the difference between the price you receive now and the present value of the future interest payments in the mortgage.

Other Questions…

Is this right and can you do it? I don’t know as I don’t know the market. But if I can understand it then I’m sure that it can be done (subject to legal restrictions).

I don’t want to discourage you from trying, but to me it sounds a little complicated so unless I could source and buy a pre-existing system for this, then I’d be reluctant to pioneer it.

Still, you must have heard of the concept from somewhere so it would be sensible to follow through and see where you end up.

If you can I’d like you to outline two things for me…

1. How a single payment mortgage works; and
2. Why you need a mortgage (other than what the investor would need to acquire the property to begin with) in the lease option model you mention here.

Finding out these two bits of information will be critical to analysing the proposal further.

Please make a reply post with this information so we can discuss it further.

Thanks

Steve McKnight

Hi Davlyn,

Welcome to the Property Investing.com community and thank-you for your post.

In respect to your questions…

Q1 – Banks and wrapping

You’d have to ask the bank yourself, although I suspect that since I started my wrap empire the dynamics have changed. One of the big banks lent me $0.5m and then changed their policy once I’d maxed out.

Nevertheless there are lenders out there who will source and write vendor finance loans on a full disclosure basis. You just have to find them.

The loan market is such that all tastes are catered for. Just because a big bank does / does not offer a certain type of facility isn’t sufficient to make a judgement on its legitimacy since banks are very anal when it comes to actually ever taking a risk.

Q2- Case study

Wow that’s quite a lot of info in one small paragraph. I’m happy to provide my opinion, but before I do I’d like to see you try to work out what you would think might happen and what you can do to steer the outcome in the direction that you want.

Just make a reply to this post and I’ll get back to you soon.

Regards,

Steve McKnight

Hi,

I’m not sure about the tenants in common issue and being deemed to have an equal interest. This seems a little bit odd to me as just recently I inspected a property here in Victoria where the title showed three tenants in common with a 60:20:20 split.

This seems to be confirmed by a NSW specific web site I found when doing a search which says:

quote:

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as “tenants in common”. This doesn’t mean that you are tenants, it means that you each own a certain percentage of the property (usually 50%) and you can deal with your percentage however you want to.

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Still – it would be wise to get some legal advice on this before making a final conclusion.

Now as to superannuation funds. It is true that Superannuation Funds cannot borrow, which generally makes them an unattractive vehicle in which to buy direct property since the cash on cash returns are so low.

However listed property trusts (and indeed options in listed property trusts) are an acceptable investment option for super funds that allow exposure to property with some degree of leverage.

Bye

Steve McKnight

Andrew,

What… it actually works?

Shhhh – keep it quiet or else everybody will want it too

Seriously – well done on the follow through. It irks me the number of people who try once and then conclude that it’s too hard.

You have shown the dedication needed to get results, now it’s a matter of leveraging off that knowledge and experience to get through your next few deals too.

Regards

Steve McKnight

Hi Gavin,

I have recently prepared a 90 day action plan for the website that will see the introduction of a range of PropertyInvesting.com products.

Included in this I plan to redevelop the original ‘Property Secrets Revealed’ product to be a generic introduction to the world of Property Investing… that is a beginner’s tool to profitable property investing.

This will need some minor redevelopment of the original product and a review of the pricing point… I think that when it comes time to launch it the product will be around $195 – $245.

I plan to sell the tape set you talk about where I interview six property masters separately for about $100.

Regards,

Steve McKnight

Hi Louise,

Thanks for your post and welcome to the property investing.com community.

There are many seminars available on various strategies when it comes to real estate, shares, off-shore investments etc.

At the end of the day you need to evaluate each course in terms at looking at the content, quality of speakers, the experience that they bring to the table and then match that with your own strategy, available resources (time / money) and also your knowledge shortfalls.

As far as my opinion goes, I’m not overly flattered by the Henry Kaye approach. However, the last time I looked at it was a few years ago when it existed under another name… perhaps that tells you something? Perhaps not?

I’m against the idea of buying property and then living off the equity (ie. redrawing equity to fund lifestyle expenses) because doing this will disqualify the interest component on that redraw from being tax deductible.

I’m also worried that there appears to be some commissions that are earned when you invest / partner Henry that were previously disclosed, but only in the middle of a lot of paperwork.

Having said this though, given the recent property boom, investing in Henry’s system three / four years ago in Melbounre would have seen you make a substantial amount of money. But then again nearly all property has performed well in that time.

A question that should be asked is how will you be able to afford the investment in periods of higher interest rates, bigger vacancies, when the fit out dates and newer buildings are erected to attract the premium market.

In short, while this is a little negative, at least considering the worst case scenario is appropriate no matter what investment you are undertaking.

In conclusion, there are many ways to make money in property and Henry offers his take on the way he has achieved success as do I on mine. The truth is you can learn from everyone and so long as you properly implement the approach then you should be well poised to profit.

$15,000 is a lot of money… a deposit on a house perhaps? Be sure that you’ll receive at least that much amount of value by being certain that you’re comfortable with his investing approach and that you will take action as instructed.

Finally it would be remiss of me not to recommend my own ‘Property Master’s seminar’ as a great point to start. There is information on this site (via the home page) about this.

I welcome other discussion on this matter from the forum, particularly those who have done one of Henry’s courses and can provide more insight on its usefulness.

Regards

Steve McKnight

Hi,

I have only heard what has been written in the paper about this issue, which is pretty much speculation at best.

It seems to me that the government wants housing to remain affordable to the first home buyer, which is an interesting policy given the recent FHOG and also dramatic increases in property prices.

I’ll reserve my opinion until I am able to read more and understand what options are on the table. Personally, as a cashflow investor, I’m not sure how it would work… but then again I don’t know all the finer details.

I’ll comment more about this in future newsletters when more is known.

Bye

Steve McKnight

Hi,

Thanks for your post and welcome to the Property Investing.Com forum.

You ask:

quote:

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how do I know what I can and can’t afford?

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Answering this question will require you to identify:

1. What your current level of savings is, represented by the difference between what you earn and what you spend. It may be positive or negative.

2. Once you know this you will know how much you can afford to ‘lose’ in a negative return situation. The next step is to find an investment that you feel is well placed to earn capital gains – either because of its scarcity or its intended use.

3. When you have an investment in mind you need to complete a due diligence over the financials to ensure you know exactly what you are buying (ie. the difference between fact and opinion).

4. I’d also complete some basic “what if” analysis to determine if you can continue to afford the investment based on:

A. How many weeks vacant can the property be before you hit the financial red line (income = expenses)

B. The same calc. in A based on rises in interest rates.

In summary – once you know how much you can lose today (on the basis of earning more capital gains later than you lose now in income losses, then you need to find an investment within this budget and then finally complete some “what if” analysis to determine that if things go worse than expected then you won’t be forced to sell.

Thanks again for your post. Please post again []

Bye

Steve McKnight

Hello Glenn,

Welcome to the Property Investing.com community and thanks for making your first post.

You ask:

quote:

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As this will be the first time I have engaged a lawyer/soliciter, my questions to the forum are:

1. Do the fees seem fair?
2. Are there any special questions I should be asking?
3. Should there be a separate trust for rentals and wraps?

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Well, here’s my opinion…

1. Fees

$225 per hour seems steep from first glance, but if the solicitor has information that you don’t then perhaps it is value for money. For example, my wrap library is proced at just under $2,000 which some people will feel is expensive, but if you use it and make $30,000 on your first deal then it’s cheap, right?

So I think that the answer re: fees is dependent on how soon you will use the information and the degree to which your are committed to your plan.

I would say though that if your in Victoria then I’d just use our solicitor and if in NSW then Tony Cordarto seems to be the recognised expert.

As best I can tell, these guys won’t charge for a contract provided you use them for conveyancing… at which point they are more expensive than average, but they provide an above average service.

Special Questions

I’d like to know what the “letter of advice” you’ll be getting is… is it just a written summary of what is said at the meeting? Or will you be receiving something more?

It’s difficult to provide more help here because I don’t know what you already know!

I am wondering what it is that makes your lawyer an expert in wraps… what special knowledge does s/he have? How many vendor finance deals have they handled?

Be sure to ask the impact (if any) of your proposed trust / company structure on the legality of generally buying houses (such as the use of nomination clauses etc.)

3. Separate Trust

Perhaps… perhaps not. Personally I’d so no since I don’t see a reason to differentiate.

I tried to in the beginning, but a few tenants became wraps, so then what could I do?

However, I would say that you should replicate the structure when you feel you have more to lose than to gain.

It’s a costly exercise to replicate.

OK – well, thanks agan for your post and I hope that this has helped.

Bye

Steve McKnight