All Topics / Creative Investing / Wrap, lease option or stright sale ?

Viewing 8 posts - 1 through 8 (of 8 total)
  • Profile photo of latinozlatinoz
    Member
    @latinoz
    Join Date: 2005
    Post Count: 14

    Hi all!

    This is my first dilema though I’m sure there are many to come as you (more experienced people) probably know, having gone through the experience already.

    I have a townhouse in a good location close to a major CBD. It’s valued between $400K-$410K and currently tennanted at $285pw.

    Here is the good part. The currend debt on it is $250K at 7.5% with an obvious capital margin for re-investing.

    Here is the bad part. As you can tell it’s negatively geared so I want to dispose of it.

    Can anyone give me some insights as to what you think my best course of action would be?…

    I thought about doing a wrap or lease option and would prefer so but I can’t get the formulas to give me a win-win outcome for the current tennant.

    he is a professional earning around 80K yearly and wants to buy a home but can not borrow from traditional lenders. Migrated with his family on a permanent contract in his profession so makes a very good candidate for a wrap/lease option but how can I make this workable?

    Carl
    [suave]

    Latinoz

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Another option. What about hanging on to it and keeping it for capital growth? It must not be negatively geared too much after tax deductions?? You could also probably get a much low interest rate than 7.5%.

    If you want to help the tenant, you could also offer vendor finance – lend him the deposit and let him get the loan in his name.

    Do you know why can’t he get a loan? on an income of $80,000 he could probably borrow up to about $500,000.

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of latinozlatinoz
    Member
    @latinoz
    Join Date: 2005
    Post Count: 14

    Hi Terry,

    Thank you for the input. I appreciate any comments/ideas on this.

    Keeping it for capital growth was my initial intension. In fact, it’s probably all I can expect from it at this stage.

    I don’t see how I can make it positive cashflow for a few years without putting a large sum of money into the principal and being negative CF it’s also limmiting my max borrowing capacity.

    Offering the tennant vendor finance is something I’m looking into at the moment though his problem goes back to his ability to borrow from traditional lenders for the rest of the money.

    The tenant has only been in the country 13 months so he has no credit records here. That’s why I can only suggest creative finance such as a wrap or lease option.

    He has enough credentials (character/capasity) for me to take a bet on him. Specially if I can tailor a low risk deal around his situation but for the life of me I can’t come up with a successful formula at this time.

    Ofcourse, I can still take the property to the market if I can’t find a workable vias with the tenant.

    I’m also in the process of finding a skilled and experienced solicitor in this areas (who is also honest in his dealings if I may add).

    thanks again,

    Carl

    Latinoz

    Profile photo of skippygirlskippygirl
    Member
    @skippygirl
    Join Date: 2003
    Post Count: 127

    My very rough calculations are:

    Your current loan $250K @ 7.5% P/I
    Sale price $400K @ 7.5% P/I
    Deposit $7K (assume FHOG)
    Term 30 years

    Current rent $285 pw.
    Loan repayment on $393K = $633 pw approx plus rates and insurance pro-rated to per week amounts.

    Need to then check affordability against his income and any current debt.

    This is about $644 positive cashflow per month (get your accountant to advise on the after tax amount) and $7736 pa.

    Just watch that if you only do 1 wrap you should get your accountant to check if you can use the emerging profits rule or if you will be slugged capital gains upfront.

    Note – if you charged him 6.5% interest the weekly repyament would be around $575 pw plus rates and insurance and the monthly positive cash flow would be around $381 per month and $4575 pa. A great deal for both of you.

    The missing item is your COCR. Not knowing what you paid for the property and therefore what equity you have in it now, we can’t work that out.

    I also like to take COCR out to a SCAT (spendable cash after tax) ratio as well.

    Hope this helps.

    skippygirl

    Profile photo of latinozlatinoz
    Member
    @latinoz
    Join Date: 2005
    Post Count: 14

    Thank you Skippygirl, that was very helpful.

    Regarding the equity on the place: I mentioned in my initial post a debt against the property of $250K so the equity is around $150K. About 100K left after (CGT/Vendor)+costs if sold.

    The concern is mainly that I must keep tenant payment to around 30% of his income which means if it costs him around 30K per year he(or anyone else for that matter) needs to be earning 100K.
    Did I work that out correctly?

    Cheers!
    Carl

    Latinoz

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    If you are looking for a good solicitor in NSW that is familiar with wraps, try Anthony Cordato http://www.businesslawyer.com.au

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of latinozlatinoz
    Member
    @latinoz
    Join Date: 2005
    Post Count: 14

    Thank you Terry,

    I’ve been looking through Anthony Cordato’s website and I’m going to contact the firm.

    As a form of reference, can you tell me your views and experience with this firm?

    I appreciate your comments.

    Carl

    Latinoz

    Profile photo of skippygirlskippygirl
    Member
    @skippygirl
    Join Date: 2003
    Post Count: 127

    Sorry, I meant for COCR I use the cash amount you tipped into the property when you bought it, and show the annual positive cash flow as a ratio or return on that..

    Then you need to also look at the final back end profit made when he refinances and pays you out and your total return will be sizable.

    skippygirl :)

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