Forum Replies Created
Rob,
I strongly recommend you do the numbers on this deal mate…
As an investment, it has the smell of strong negative gearing about it, which may be OK depending on your strategy (save tax vs. make money).
I’d also point out that the apartment complexes down here are underperforming from what I hear and read and advise caution.
Remember to draw a distinction between fact and opinion.
Thanks for your post and if you’d like to be more specific on the numbers I’d be willing to analyse it online as a case study for you!
Bye
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi CY,
Thanks for making your first post and I invite you to keep posting in the future too.
I’ll try to answer some of your questions…
quote:
1. Do I have to tell my bank If I ‘m going to wrap the property? If yes, is it BEFORE or AFTER settlement ? What is the penalty (if any) if I didn’t tell?I would encourage you to adopt a policy of being totally honest with your lender and certainly put it in writing that you intend to wrap the property.
Telling half-truths is no way to be investing tens of thousands of dollars.
I am currently working with a mortgage originator who has mentioned that he’s sourced a financier who is happy to do wraps… I’m building the details as a new part to this website and hope to release it soon.
quote:
2. Do big banks /major financiers allow wrap? or do I have to settle with the ‘low doc’ products?Obtaining finance was certainly easier when I began wrapping than it is today and it seems that the big banks are not interested given the demand for home loan products associated with the latest boom.
As for a low doc loan – I’d only use this product if you don’t qualify for regular finance due to the interest premium charged.
quote:
3. What is the ‘proof’ of home ownership to the wrapbuyer? (since I have the title in my name)- so that if I go bankrupt the house stays with them –Usually your purchaser will place a caveat on title stopping you from selling or refinancing the property from under them.
However, there is no guarantee you can offer except to point out the biggest reason you’ll go bankrupt is if they stop paying… so as long as they keep paying then…
quote:
4. Do I have obligation to let the wrapbuyer know what is my loan balance ?No, although in Vic. you may need to establish that you are appropriately paying off your loan from the proceeds they pay you (ie. at least the principal version).
But under a policy of full and honest disclosure – why wouldn’t you show them if it builds trust?
quote:
5. In NSW , can I legally pay IO to my original loan & charge PI to wrap buyer ? (increase cashflow)I don’t know the position in NSW, but I’d be very surprised if you could do this. I am certain that this is not possible in Vic.
quote:
6. If I put and/or nominee- and we have same day settlement with the wrapbuyer- do I still need to pay stampduty?CY – this is a question to ask your legal adviser as the rules vary for State to State.
Out of interest though and for discussion purposes, in Vic. the nominee clause only applies where you know the nominee before you buy the property and they have appointed you as thier agent.
You are also not allowed to earn a commission.
That’s why I point out the need for appropriate legal advice in the State that you live in (NSW?)
Regards,
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Andrew,
Structuring is a difficult topic to discuss and almost impossible to address over the Internet. This is why I have included it as a topic in the upcoming seminar.
However, as a good outline, I draw your attention to the ‘Taxing Times’ article that you can access as someone who’s purchased my Wrap Library.
You’ll find it under the ‘Wrap Librarian’ section of the Support & Upgrade area.
The article contains valuable information about Australian taxation law – and also an analysis of how each ‘entity’ is taxed.
Bye,
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Andrew,
The business that we use to establish entities for our accounting clients, together with an outline of their pricing, is http://www.shelcom.com.au/services.htm
You might also expect to pay about $400 (2 hours) of time for your accountant / lawyer to fill in the necessary paperwork and ensure that the documents you receive are correct.
Accordingly, the $1,650 you were quoted does not appear to be unusually large.
Regards,
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Felicity,
This is a vaid question, but to date I have never had anyone trash a property.
Sure, they have abandoned a house and left trash everywhere… but this is a matter of getting a cleaner in rather than a builder [
]Hopefully your pre-qualifing procedure and continual monitoring on your client would mean that they would have no reason to trash the place.
But if they did, then I would imagine that you would foot the bill to fix it up and seek the get the money back of them.
If they had left for good, then pay for it out of the profits you have already earned and then re-wrap it and keep going.
Bye
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Andrew,
In your circumstance outlined here, my opinion is that when you are cashed out in three years time you would need to pay the balance of the CGT… probably on a gain of about $19,000.
Now, the actual amount of tax that you pay would depend on the entity you have purchased the property in and your own personal ‘structure’.
If you purchased it in a company, the you would pay tax at a flat 30% ($5,700).
In your own name you would get a 50% exemption, but you may pay at the top marginal rate???…???
I suggest you talk to Mark about this when you meet with him in the next few days.
Bye,
Steve McKnight
Edited by – [email protected] on 20/06/2002 12:11:40 PM
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Shaan,
I would imagine that it is illegal unless you have consent.
But, I can’t see how someone having requested their own credit report and having it sent to you could be construed as breaking the law… but I am not legal expert here.
What purpose is the law designed to achieve? It is to stop someone getting unauthorised access to private data… not to stop someone with authorisation or the person themself from making a legitimate enquiry.
Perhaps some formal legal advice would be worthwile in this regard?
Bye
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi Felicity,
Just taking Darren’s point a little further…
Just as the Commonwealth Bank would keep a set of keys to a home, neither do I and it would be certainly inappropriate to just barge in.
However, the contract that I use for my wraps contains a special condition that does allow me to gain access to the property to ensure that there has not been any unauthorised renovations, or that any agreed upon renovations have been done according to my consent and specifications.
To date I have not found need to use this clause, but it is a handy power to have just in case.
Bye,
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
Back in May 1999 David (my business partner) and I purchased my first property – a little 3 Br/1 Ba home in the back blocks of Ballarat for $44,000.
At the time we purchased it the plan was to rent it out and then make some positive cashflow. Indeed, immediately after we purchased it we let it back to the owners (short-term) for $125 per week.
Around this time I left with my wife to complete a marketing seminar in Vancouver. At the event I met up with a Canadian property investor in B.C. who outlined to me what he did, which was an abriged version of vendor finance – something that had been available in Australia since the early 1900’s.
When I returned I looked to sell our first property for $65,000 under a ‘terms contract’, which meant that instead of selling it and receiving a lump sum payout – I received weekly installments for 25 years.
In essence I did a lay-by on the property by selling the property and providing the finance too (that’s what a wrap is).
Over the next 18 months David and I went on to purchase over 40 more properties and sell them in this fashion, thus creating a postive cashflow income in excess of $100,000 per annum.
I began sharing how I had done this on some Internet discussion forums and before long I was asked if I could run a seminar that outlined exactly how the process worked, including the accounting and legal aspects.
I agreed to do so and ran a full one day workshop.
This was the precusor to the ‘Wrap Secrets Revealed Library’ – an audio and written program that details everything I know about wraps.
This program has been a great success to many investors around the country you have leveraged off my advice and made money.
Hearing about my success and my focus on a win-win outcome, A Current Affair ran a story outlining how I had a positive impact on people’s lives and how it is possible to help people and make money at the same time.
When a close friend, Don Campbell from Canada (who runs the magnificent Alberta REIN program) saw the results he asked me to
speak in his home country about wraps and how they have worked for me.At this event I went through my Laws of Property Investing Success (which I am currently outlining in the Insider newsletter series) as well as a wrap intro before detailing how the Wrap Library has been able to build wealth for many people back home.
Canadian Dave purchased the product as a result of this seminar and I am very pleased that he has found it to be worthwhile.
For more information about wraps and the product, please go to:
https://www.propertyinvesting.com/files/content.asp?cid=wrapintro
Bye,
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
OK, let’s have a look…
quote:
I haven’t got to this point yet.
I have recently brought 3 properties(outer east) with subdivision potential. The first has just been submitted to the council, they are supposed to respond in 2 weeks. My thinking is, that the money I make on selling the land can be paid into the mortgage, such that the property becomes cash flow neutral or just positive.How much money to you think that you’ll make with the subdivision. I recommend that you flesh out a more detailed exit plan so you’ll know what has to be done to get your money back.
Can you be more specific with the numbers of the deal… i.e. how much cash in, cost of subdivision, details of finance etc..
I’d be very interested to see how the numbers stack up to compare the risk:reward on the deal.
quote:
After developement expenses and capital gains tax are paid,whatever is left over, will be a deposit towards the next property, so you are able to leap frog into the next property very quickly. I have to wait one year, before selling however, as only half of the profit is then capital gains taxed at your top marginal tax rate, this then being 25% tax versuds 50% tax if sold in under one year.Hmmm, unless you are deemed to be in the business of subdivision, in which case the profits that you make are income and not capital gains.
What sort of property are you looking for in your next deal? In fact, I think you would really benefit from having a two or three year plan that outlines what you are doing and how much money you stand to make.
I regard deals of this nature to be earned income rather than passive income.
quote:
Joint venture is a thought, in that I have just seen a property owned by a builder, with the potential to be strongly cash flow positive, so if he can sell me the property at a discount, he can have my land to build his next townhouse in return.This isn’t so much a joint venture as it would be a straight deal negotiation.
A JV would be you supply the land, the builder supplies the property and you share the profits or output on an pre-agreed basis.
quote:
At the moment its still my thoughts, depends on council approval and the price he is willing to sell his current property.Regina, I strongly urge you to be more specific with developing a plan to make this work. It seems to me that it is all a bit too remote and that a lot has to happen in order for you to make money.
Property development is a dangerous arena for newbies, especially with rising interest rates. I urge you to proceed with caution and to not bite off more than you can comfortably manage.
Regards,
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Alf,
Yes, wraps are illegal in SA due to laws that were passed many years ago after a developer went bust.
The option to be used in SA is a lease-option.
This is a residential lease which includes an option to buy at an agreed price.
I’m not lease-option expert, but I am working with an associate lease option expert who is to creating a resource that outlines what to do to become a successful lease optioner.
Bye,
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Alf,
I suggest that you draw a distinction between fishing for deals and then actually going into detail to evaluate them.
Fishing for deals
I use the 11 second solution to try and quickly gauge if the property is likely to be +ve cashflow. This is done when you take the weekly rent, divide it by 2 and then multiply the result but 1,000.
For example, a property that rents for $200 per week would give an 11 sec. outcome of $100,000 ((200/2)*1,000).
Anything around this level passes for further analysis.
Deal evaluation
Due diligence is the process of discovering what is not obvious about the property. My due diligence process comprises many standard forms that cover the broad topics of (in order):
1. The numbers (making sure I know what I am getting myself in for from a financial perspective).
2. The underlying property (making sure I know the state and quality of the underlying property I am buying).
3. The existing tenant (if I am buying a property with an existing tenant).Further Comments
You’ll find that 95% of deals you come across won’t make it past the 11 sec. solution. This makes this simple calculation very valuable from a filtering tool.
Then I go on to review the numbers in more detail (as the numbers don’t lie).
Finally, if it stacks up on paper and I can agree on a price that I’m happy with then I’ll buy it subject to getting finance and a builder’s inspection to my satisfaction.
I can see no sense in paying for a building inspection on a property you are not completely interested in.
If appropriate I will also get a quantity surveyor’s report too.
As for depreciation – I don’t factor it in when I buy, but I see it as a bonus. However, other investors with a need to wipe out tax might be more inclined to place more emphasis on depreciation benefits.
It all depends on your strategy… do you want to make money from day one, or do you want to save tax now and maybe make money in the future with potential capital gains?
Regards,
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Fergus,
Perhaps some legal advice on this matter is worthwhile, however in the meantime my thoughts are that if you provide a residential lease which also includes a no obligation option to buy at a later date would not cancel your client’s entitlement to continue to receive the welfare payment.
However, vendor finance (when a formal contract for purchase is signed) would mean that the benefit is lost as your client no longer rents, rather they own.
Extending the discussion, you can generally receive the FHOG for a wrap, but not a lease-option, for the ownership distinction outlined above.
Regards,
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Matt,
The introduction of GST had an adverse effect on the laundromat industry as, generally speaking, 10% of the profit went up in suds.
This was because a $2 machine is geared to accept either one or two dollar coins. That is, you can’t put in $2.20.
It’s a massive jump to go from $1 to $2 or from $2 to $3 because of the GST.
As such, profits generally fell.
As for general feedback, I’d just like to remind you to weigh up the risk vs. return and be mindful that getting finance may be tricky if you are looking for more than 70% LVR.
Finally, be sure to draw a distinction between a leasehold business (where you are presumably buying the machines and taking over an existing lease for the building) and a freehold business where you buy the machines and also the building they are housed in.
Sourcing finance for a leasehold business adds a layer of complexity in the deal.
I’d imagine the real value in the business is the location it is in and the amount of repeat business. For example, a laundromat near a Caravan Park or multi-family property would be better placed than something in a more established family area.
Why not place the details of the financials for the business for analysis on the forum? I’d be willing to cast my eye over it for you.
Cheers,
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Canadian Dave…
I was surprised when I first learned about assumable mortgages in Alberta as it is a new possibility for Australian investors.
FYI, the law here is that the mortgage here needs to be paid out (ie. clear title given) at the time of settlement (ie. when title passes).
In fact, the whole tertiary loan market (such as 2nds etc.) is quite untapped over here.
That’s why wraps are so exciting in Alberta. When you take the possibility of assumable mortgages, add on a multi-family property and then wrap then, it gives you a fantastic opportunity to buy and sell property without ever having to qualify for anything.
If I were you I’d be carving this niche for myself and make some serious money while creating win-win outcomes.
Let me know if you have any questions and I’ll try to help you through the process from what I know of the Canadian side of things.
Bye,
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Klaus,
While the government can change its mind at any time, the FHOG was ‘budgeted’ in the last Federal budget until June 2003.
However, the $10,000 FHOG for new properties will be reduced to $7,000 (the same as is available for existing houses) from 1 July 2002.
Regards,
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi Andrew,
I’m off to Brampton Island today, but just before I go, here are my thoughts on your post:
Your write:
quote:
1. The first and foremost is the asset protection of the investments. I have heard you and others all recommend looking at this process as a means to protecting your assets into the future. This would (as I see it) require a company to be set up and then trusts established as needs arise (per properties). I want to make sure I have an accountant who understands the type of transactions I am enterring into and will therefore recognise the most appropriate structure.OK, in this case I would use a solicitor I know in Qld who specialises in property law rather than an accountant. His name is Mark Game, but I don’t have his number on me. Pls e-mail me at the dedicated wrap library address and I’ll e-mail you the contact details as soon as I get back to Melbourne. If you want to get started sooner, call Brent in the office and ask him to get the number (tell him it’s at the back of my business card holder that should be int he top left drawer of my desk).
quote:
2. The reason I specifically ask for someone who has Wrap familiarity is so they are an individual who is on my team of advisors and who is able to give me advice that is helpful and appropriate in regards to the legalities of structuring a wrap. You recommend having the best of advisors on your side. Thought that with all the very active wrappers on this site someone may have had a particularly good Accountant.I first met Mark after the intro event I did in Brisbane. He seems to know his wrap stuff and he’s actually the solicitor we used to handle our purchase of 21 units in Nambour recently. What impressed me particularly was his grip of the new requirements and how they can be worked with to get the best result for the investor.
quote:
3. Someone to advise me on the best possible way to account for my wraps so they can complete my acounts quickly/easily and the paper work will suffice for any audit attention.OK – this is where I might be able to help you further. One of my jobs when I get back is to complete an admin module upgrade to the Wrap Library. David and I have just changed the software we use to account for our wraps to a much better producted produced by Darlop Pty Ltd called WAMM.
This is an all-inclusive product that eliminates the need to use Home Loan Analyser, which worked OK but was a bit confusing and disjointed.
I hope to have something ready by the middle of July.
All right, I’m off to Brampton Island [8D]!
Bye,
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Regina,
Would you feel comfortable listing out the basics of your joint venture… ie. what are the responsibilities of each party, how profit / loss is to be distributed etc.?
I’ll provide some feedback with my thoughts on the set up and it would be an excellent discussion for people who have no experience in joint ventures too.
Thanks,
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Regina
One trust per property is absolute overkill.
In Victoria (which doesn’t have the same limitation as Qld) David and I place between 10 – 15 properties per entity structure.
In Queensland, the problem as I understand it is not how many properties you buy in any year, but the number of properties that you sell. Accordingly, you need a structyre that considers the likely number of properties you will dispose in any 12 month period and when you come close to the limit I recommend you begin buying in another entity.
Andrew
What you say is true if you take your trust deed and type it up again, just changing the names and other variables needed to establish the new entity.
Most of the trust deed (perhaps 98%) is just standard wording that only changes every few years.
However, while you save money in the trust set up (you’ll still need to pay stamp duty), you run the risk that the wording has not changed to reflect changes in legislation – something to be mindful of given the landscape of trust law changes given the Federal Government’s inclination to potentially attack trusts.
If you have a good relationship with a lawyer / accountant, you may like to proceed with your strategy, but I’d recommend contacting them first to discuss the impact of any changes in law on your trust.
Bye,
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi Andrew,
I recognise that you are looking for an accountant to help you with wraps…
However, I believe that nearly all the work can be easily and effectively done in-house using a mixture of software and some basic systems.
I can help you further if you spell out the services that you are seeking as accountant to complete as a reply to this post.
Cheers,
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
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