Hi All,
To all of you who regularly do wraps: how hard is it to find wrapees? Does the "demand" exceed or at least match your supply?
Do you buy a house first and then during settlement period try to find a wrapee or do you find the wrapee first and then look for a house for them?
What weekly cashflow do you think is acheivable with houses within 250k-300k range (no renos, just quick flips)?
Do you have a clause in the contract permitting the person to sell/refinance within the first 1-2 years or so?
If well organized, how quickly can a wrap be done?
Do you have your wraps managed professionally? I'm purely conserned on the wrapee defaulting e.g. notices to pay, evictions etc.
How much time on average do you wraps last i.e. do the wrapees sell/refinance quickly or do the stay for longer?
Thanks,
Emil
Hi Emil
We find demand varies. We've sold every house we had for sale with Vendor Finance and yes, some of them did have more than one couple wanting the place.
We started by buying the properties first and then on selling them. We now do both. Steve, in his Wrap Kit, tends to recomend finding the people first and Rick Otton, in his Wrap Pack, suggests buying the property first. We started out with the Wrap Pack so that was the way we went. We now have the Wrap Kit but probably still buy properties first more than find the people first. Most people, when starting out, tend to worry that, if they buy the property first, they'll be left stuck with it. We definitely haven't found that to be the case.
We structure our wraps to generate around $300 per month positive cashflow.
Right from the first time we meet our buyers, we encourage them to refinance into a traditional loan as soon as possible. We explain that they will normally be with us, depending on the available capital gain in the marketplace, two to three years. Some Wrappers look for long term cash flow and structure their transactions so that their wrapees stay with them as lomg as possible. We, on the other hand, are looking for our wrapees to refinance asap so that we can get access to our backend profit and the wrapees can get back into the traditional lending system and get the title in their name.
If the solicitors get their act together you could get it done in three weeks, even less. We always insist that our buyers get independant legal advice.
Normally Wrappers self manage their first few wraps and then as the paperwork increases they move off to a management company. We know of two Wrap mamagement companies in NSW. I'm sure there are more in other states. A lot of Wrappers use the software Loan Alert to manage their wraps. It's UCCC compliant and generates all the statements and notices you need. The two Wrap management companies I mentioned also use it.
If it were boom times we could probably refinance our wraapees in 12 months. In this market we're finding that they refinance in 2.5 to 3 years.
I hope this helps. Good luck.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Hi Paul,
Thank you very much for your comments
.You say 300$ per month? How much interest do you charge the wrapee over the interest you are paying? From what I hear 2% is ok. So for a house that cost me [email protected]% interest which I sell for [email protected]% (both P&I@25 years) that gives me: 2069$ vs. 2621$ equaling 552$ per month positive. Say the wrapee gives me 10k deposit. It's then 464$ positive ([email protected]%). Am I missing something here?
In any case, I'd be more interested in a long term commitment. My "strategy" would be to first replace my job income with income from wraps and then balance wraps vs. buy&holds.
My next question, does buying a house first work this way: you look for a house and sign a contract that allows you access to the house. During settlement you advertise and show the prop to buyers and ideally you let them sign the contract with you starting on the settlement day. Do you make the contract "subject to finding a buyer" or something similar?
How would the strategy work to find a buyer first? You advertise and then they show up, then you look for a house for them and take them with you all the time?
Oh, and one last question, if you allow me:
How many of your wrapees default (percentage)? How do you handle this situation?
Cheers,EmilI think Paul has adequetly answered the question so I wount go over old ground.
I am not sure many Vendors would be too happy on accepting an offer on the property subject to you finding a buyer on the house at a higher price.
Why not forge relationships with real estate agents and get them to refer you deals where the buyer has found a property gone through traditional lending sources and been declined. They want the house and will be happy to listen to alternatives.
It also goes a long way to the transparancy of the whole deal which we prided ourselves on for 9 years. You tell up front the buyer that if they find a house for XYZ you will re-sell it to them for XYZ + $$$$. When you try and buy a property under value and then sell it the buyer at a inflated price this is where problems of non disclosure can arise.
With regards to wrap management we employ 2 full time staff to manage our properties so thankfully i have nothing to do now with the day to day running of the business. Managed properly you would like to think your repossession where under 3% and yes where they happen it is unfortunate but you need to act quickly and legally in order to recover the property.
Richard Taylor | Australia's leading private lender
Hey Richard, thanks for the answer.
What do you mean with "managed properly"? What is there to manage when a house is sold to a wrapee, I thought he takes care of everything from then on e.g. rates & maintenance? I'd just have to take care of insurance, right?The big unknown for me is the process of reposession. I hardly believe that goes smoothly. Do your managers take care of that? How long can the process take?Thanks,EmilHi Emil
We get the Wrapees to pay for all outgoings, i.e. water rates, council rates and building insurance but we'd suggest you get the bills sent to you and you pay them and get reimbursed by the Wrapees. You certainly don't want a nasty surprise like the house burning down, only to discover the Wrapees forgot to pay the insurance. You also need to monitor the Wrapees loan payments and record their payments into some form of software that will produce a loan statement for them, at least, every six months.
While the above doesn't sound like much, in terms of time required, it certainly adds up when you start to get numerous wrapped properties in your portfolio.
With a Wrap you are selling with an Instalment Sales Contract. You are therefore seen to be "supplying credit" under the Uniform Consumer Credit Code and must abide by all the UCCC procedures. This means your Instalment Sales Contract has to be compliant with the UCCC. Also, the UCCC procedures for re-claiming the property in the event of default are quite clear. We use the following protection to make sure we comply with the UCCC, especially at times of default, i.e. a very experienced Wrap savvy lawyer and good UCCC compliant software.
If you plan to pursue Wraps, I'd give you one more of advice; don't skimp on your education on this subject. Good luck.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Hey Paul,
Thank you, you have been most helpful.I'm thinking of getting Rick Otton's wrap pack for starters. Other than that, it's hard to find any decent literature on the subject. Of course I've read Steve McKnight and Craig Turnbull but, at least in the books, they only scratch the surface. What other source of info would you recommend?About all that management you just described, are there property managers that specialize in this (in QLD)? Would they use that software you mentioned and take care of the daily business? What would my involvement need to be? Do you know how much they charge?Cheers,EmilHi Emil
We statarted with Rick's Wrap Pack and it certainly got our business going. Apart from Steve's Wrap Kit that seems to be currently unavailable, you're right, there's not too much avaiable by way of a step by step manual.
Some experienced Vendor Financiers (Wrappers) do training type Joint Ventures with people who are just getting into the business as a training/hand holding exercise. Looking back we wish these had been available when we started.
May I also suggest you have a look at the web site for the Vendor Finance (Wraps) Association of Australia at
http://www.financewraps.asn.au/ They have regular meetings in Vic and NSW. I'm not sure about Qld. These meetings are great fornetworking with other Vendor Financiers.One of the Wrap Management companies in NSW charges 4% and the other charges 4.5%. I'm not sure what's available in Qld.
I'd also suggest that you give Richard (above) a call. He will definitely set you on the right path. Good luck.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Thanks again Paul
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Cheers,
Emil
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