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Here is another wrap lender!
I am a mortgage broker in Sydney and did some training with ING last week. The trainer stated that they are willing to lend for wraps. However I have heard from other banks that it is the Lenders Mortgage Insurance companies that are the problems in that they won’t approve loans for wraps.
I think it is much easier if you use a lease option instead of an installment contract. Then you have no problems with disclosure.
You need to get your solicitor to draw up an option contract. Just adding and/or nominee won’t do becuase you will be required to settle on the property if you do not find someone. WIth an option agreement you have the right but not the obligation to purchase the property.
Also with an and/or nominee clause you cannot nominate someone that you find after signing (in Vic). You have to have an existing agreement in place before you sign or double stamp duty. I think!
An option sounds good. I don’t think you will have any licencing problems with an option because if an option is purchased you will have an equitible interest in the property. It is like selling your own property.
I’ve done the course and Felicity’s explanation seems to be correct.
You basically buy an annuity and the money recieved back (both the principle and interest component) is classed as income with some banks.
With Felicity’s example, the $20,000 plus interest per year (say approx $21,000 per year) is simply added to your income for serviceability purposes. If you had a salary of $50,000 per year and $100,000 in a loc, you could buy a annuity and your income would then be $71,000 for the bank’s serviceability calculations. This enables you to borrow much more
You would make a small loss, but this is tax deductible as the purpose was to income your borrowing capacity for investing.
It is a bit hard to get your head around this at first.
You could write the bank a letter asking for the ‘payout figure’ as you are changing banks.
These days most banks have a retention unit, which handles people wanting to get out. They will be in contact with you as soon as they get the letter, and will do everything possible to keep you with the bank. You can negotiate interest rates, and possibly they will let you increase your limit without LMI so you can use that extra equity.
If you want to transfer after you have already settled, then it will be just like selling the property from yourself to your company. So you will have to pay stamp duty and possibly capital gains tax!
Maybe you could do your first one in your name, see how it goes, and if you decide to continue, then set up your company for your 2nd+ house.
It could be Liberty Finance! They ahve indicated to me that they will do wraps on their normal rates (which are usually higher than standard rates by 1 or 2 %)
It doens’t matter what you call it, as long as it works.
If you did what you propose, it would only be negatively geared for a very short time. The interest would be decreasing rapidly as you pay it off, so your overall deductions would decrease resulting in the rent you receive being more than the deductions making it positively geared From a tax perspective). You will have to pay tax on this money then.
This is one strategy and works well, it is a very safe way of doing it. Imagine then when you buy your second property, you could put the rent from you first into that as well!!
However many people try to leverage more by buying as much as possible as soon as possible. For some stories look at that orange book by Jan Somers (has 101 investment stories with people using this and other strategies). Different things work for different people, go with what ever you are comfortable with.
Here are some more:
Jan Somers Forum:
John Burley Forum
(what ever you do, don’t mention Steve’s name here )
All are Aussie sites except the Burley one.
I believe you can do this by using and/or nominee (in some states at least). But you have to have an agreement in place with the person you are going to nominate beofre you sign the contract-otherwise stamp duty. This way you don’t actually ever have to own the house.
Another way to do it is acquiring an option to purchase, and then selling the option.
Or you could just onsell.I have a friend doing this in Sydney at the moment. She bought at an auction and had found a new buyer straight away 9or maybe even before). She is organising a simultaneous settlement so that she won’t even need a loan, however she is getting a loan preapproval just in case the reselling falls over or takes too long. It will be interesting to see if the bank valuation on the resale will come in at the price the onsellers are going to pay (about $40,000 more than she bought it for).
You could find out who the bank has on their panel and get it done yourself, but there is a danger that the bank will reject it. It works with some banks though. Also when you do get your loan application in, you should have the bank get the valuer to ring you to arrange access. That way you can meet them onsite and show them any comparable sales and research you have done. Basically talk up the price a bit. Also ask them what you could do to the property to make it worth more. eg if I put in a carport, have much would the value go up? etc
I too have a great love of language learning and was planning to go to Beijing this year to improve my Mandarin. I’m just trying to improve my cashflow a bit before hand. (pls email me off line at [email protected] so we can talk more about China).
Have you thought about being an investor? There are people/companies that wrap for you. You put up the deposit and get teh loan and they arrange it all. Many people living o/s use these companies. I did my first 3 wraps using a company in Melbourne, my total upfront costs were about $8000 per property and I got the FHOG back as deposits ($7000 each!), but I was working and able to qualify for 95% loans. As you are not working here, you may have to go Low doc. That might get you a bit of cashflow, (ie $2500 to $3000 per property), you could go back to China and wait for them to cash you out and tehn go and buy 2 more and so on. just some ideas.
ps what are the living expenses like in Beijing?
You figs look about right. it is pretty good isn’t it. Imagine if you have a few of these and they start cashing you out at 1 per year. that’s an extra $18K per year-based on your figures, plus all of that cash flow in the meantime.
If you concentrate on the cheaper properties and get the FHOG from the buyers, then it wouldn’t require much money out of your pocket at all. You could probably get a few of these loans at a high LVR before you hit serviceablity problems, by that time you will have all that cashflow comming in which will help you save up the deposits for the next property and so on.. snow balling.
Here are some quick thoughts. What about doing some type of rejuvenation to your house. something that will increase the value without costing much. Paiting, gardening, carport etc.
Also when you go to apply for your line of credit or next loan put down your house as being worth a lot more than you think. I know someone that thought his house was worth $440,000 so he put down $470,000 and that is what the bank valued it as-they didn’t even do an inspection.
Also have you got a 100% offset account linked to your home loan. These can save you heaps of interest, and it is a snowball effect when you start saving interest on interest!!!!
I can’t see why you couldn’t wrap at the high end of the market. There would be people who could afford the high rent, but couldn’t afford to borrow to buy such a property. For various reasons they don’t want to live in cheaper houses which they could afford.
The highest valued property that I know of being wrapped is about $300,000 with a interest spread of 3% and a markup of about $30,000 on price. The wrapee was a restaurant owner that had just divorced and therefore didn’t have the deposit, but still had high cash income!