I was reading Fergus’ posts about his spread and how he prices his wrap properties and learnt a lot I haven’t done a wrap yet but I’m going to Steve’s seminar in November.
Do I have the right idea?
If I buy a house for $140k and wrap it for $165-70k, charge the wrappees 5% deposit on the $140k ($7k) and get myself a loan at 140k with 5% deposit and put that $7k in for the deposit. Then when they get the FHOG they give that to me as a further deposit and I mark it so on their wrap loan account between me and them, but I keep that money for my expenses, eg conveyancing, etc and I might even have a bit left over!
Hopefully they’ll cash me out in 1-3 years so by then it would look like this:
My loan with bank: bought property for 140k with 7k deposit, balance at beginning of repayments 133k, at end of 3 years approx 130k, plus the extra cashflow each month for myself from wrappee’s payments.
My wrap loan with wrappees: bought property for 165k from me, deposit 14k (5% + fhog) balance at beginning of repayments 151k, at end of 3 years approx 148k.
When they cash me out I would receive 18k after my loan is paid and then pay CGT on it, approx $4.5k? (I’m guessing here, and also guessing with the loan balances).
Would this scenario work so basically I don’t have any of my own money in the deal except for maybe the 5% deposit in the beginning when buying the property and then paying myself back with their 5% deposit?
JennyTerrywParticipant@terrywJoin Date: 2001Post Count: 16,213
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.
TerryFergusGartlanMember@fergusgartlanJoin Date: 2002Post Count: 7
If the house cost to you is $140K then if you allow 10% for buying costs, and then 20% on that again for margin, it brings your sell price to $184,800 ($140K + 10% + 20%)
If your prospect can give you the FHOG (which you get only after settlement) and 5% deposit ($7K) that’a total of $14K income.
At this value I would probably be asking for more than 5% from your prospect as 5% from them will leave you shorter, and take longer to recoup.
Also I would be surprised if the lender will lend you as much as 95%, but maybe they will.
I would expect to have to put in 10% ($14K) and pay the buying costs of 10% approx (another $14K) which is a total of $28K of my money in.
So I’m down $14K (my $28K out minus client $14K in) day one which to me is too much risk, and too long to get back on my weekly spread.
If I ask the prospect for 10% deposit, then I am only down $7K ($28K mius FHOG and $14K client deposit) which is better, and faster to recoup.
This all seems to work much better on lower value properties where you can settle on a $60K house and only be down $2K of your own money after receiving the FHOG and 5% deposit.
But on the $140K property with 10% deposit:
my mortgage $126K @ 6.4% over 30 yrs is about $181 per week
client mtge $163,800 ($184,800 less 10% and FHOG) @ 8.4% over 30 yrs is about $287 per week
so you get a weekly profit of about $105 per week or $5,460 per annum.
So you can see that after 18 months you have your $7K back and are making profit.
I hope this all makes sense as I have been writing as I am thinking.
Very bad habit.
thanks for your reply Fergus.
I would like to do it on the cheaper properties but I live in Sydney!
You mentioned 10% buying costs of $14k for a 140k property, that seems a lot? I bought a villa in Coffs Harbour last year and I didn’t have 8k buying costs.
I thought approx 2k for conveyancing, reports, etc, 1k for bank fees etc and 1-2k for extras (insurance and anything else).
What am I missing?
P.S. Going to Steve’s seminar in November where he will tell you how to get unlimited finance so I just thought a 95% loan but if I need a 10% deposit I would ask the wrappees for it.FergusGartlanMember@fergusgartlanJoin Date: 2002Post Count: 7
Maybe 10% buying costs is a lot on a property of that value.
Remember the stamp duty and transfer fee if you are borrowing 95% will be about $4K (NSW) or $5K (VIC – not happy Jan!), which I am not sure if you have allowed for.
Maybe Steve can give us some direction on this, as I have not bought anything of that value so far.
Can’t wait for the seminar next weekend in Melbourne.
yes I had forgotten about stamp duty! But isn’t there a stamp duty scheme for first home buyers so they don’t pay it? Because I would have applied for it except my property was an investment one and it was only for first home buyers living in the property, like the FHOG.
JennyStephenArrowsmithMember@stephenarrowsmithJoin Date: 2002Post Count: 3
Be careful with your tax treatment .
Firstly CGT only applies to a capital purchase sold after 1 year of being held , technically you are selling on day one ( buy propery and wrap the next day ) but are receiving paymnet of the monies over time so CGT does not apply ( if it did you would be up for tax on whole profit on day one ) .
Also your tax prfoit is not based on cash flow received ( $ 18 k ) but on profit on Sale ($165 less cost of $130 = $35 k less purchase costs of approx $7 )= $28 k that is taxable as it is received .
Also regarding stamp duty , you are purchser of the property not the client , you name is on title so the first home buyers exemption ( if applicable in NSW ) does not apply to a wrap property .AndrewBrenchleyParticipant@andrewbrenchleyJoin Date: 2002Post Count: 6
I live in Sydney also, i dont have the time to WRAP but i love the concept, i do Joint Venture agreements and put up the cash, anyway, my deals are done within 2 hours from Sydney, my purchase price is between 78-85K, my lender also lends me 95% + mortgage insurance, my deals costs me round about 9K each.
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