All Topics / Hotch Potch / What is the process?

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  • Profile photo of rakkyrakky
    Member
    @rakky
    Join Date: 2004
    Post Count: 26

    I am new to the concept of wrapps, having not absorbed much about them untill reading Steve’s book. Can you break it down for me please because I don’t understand the general mechanics.

    Is it that –

    You purchase the property via your own normal channels
    whereby you then have a mortgage to the bank
    -then-
    create a private and legally binding contract between you and your wrapp buyer which is formalised by a solicitor but is completely independant of your own mortgage provider.

    Who’s name is the property in for the duration of the wrapp?
    Does your own lender require any involvement in the process?

    I am just having trouble grasping reselling a property to someone else that is legally mortgaged to you.

    However, of what I do understand, it sounds like an exciting concept.

    Profile photo of Paul DobsonPaul Dobson
    Participant
    @pauldobson
    Join Date: 2003
    Post Count: 1,196

    Hi Rakky

    As far as I can see, you’ve got it right up to and including,
    “Who’s name is the property in for the duration of the wrapp?” – Usually your name stays on the title.

    “Does your own lender require any involvement in the process?” – I now know of 2 mortgage organisations who are advertising that their underlying funders and mortgage insurers are fully “in the loop” as far as knowing and approving that the house may be on sold using a wrap strategy.

    Also, if you haven’t already, go back to the home page of this site and click on the “wraps” link. You’ll find a lot of good information there.

    I hope this helps.

    Cheers, Paul

    Paul Dobson | Vendor Finance Institute
    http://www.vendorfinanceinstitute.com.au
    Email Me | Phone Me

    An alternative way to finance your home.

    Profile photo of MOBMOB
    Member
    @mob
    Join Date: 2004
    Post Count: 8

    Paul,
    You said
    “I now know of 2 mortgage organisations who are advertising that their underlying funders and mortgage insurers are fully “in the loop” as far as knowing and approving that the house may be on sold using a wrap strategy.”

    Can you tell me who they might be.
    Thank you,
    Michael

    Profile photo of Paul DobsonPaul Dobson
    Participant
    @pauldobson
    Join Date: 2003
    Post Count: 1,196

    Hi Michael

    1. Contact David Cook, Commanding Heights Mortgage Solutions P/L, on (02) 4926 2277, or maybe

    2. http://www.araf.com.au

    I hope this helps.

    Cheers, Paul

    Paul Dobson | Vendor Finance Institute
    http://www.vendorfinanceinstitute.com.au
    Email Me | Phone Me

    An alternative way to finance your home.

    Profile photo of mdpearcemdpearce
    Member
    @mdpearce
    Join Date: 2004
    Post Count: 7

    I’m new to investing, but would it be fair to say that in the modern real estate climate wraps are the most viable way of creating positive cashflow?

    Electric

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    Just think of as wrap as selling a house with a 30 year settlement, and the wrapper giving permission for the purchase to occupy the house while they give you the money in installments.

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of lozza123lozza123
    Member
    @lozza123
    Join Date: 2003
    Post Count: 81

    “Electric”

    Yes, to the best of my knowledge.

    The good thing about a wrap with instalment contract is that (unlike a normal rental property), you don’t have to pay for repairs and maintenance, rates & insurance. (Generally the wrappee pays for all of those things)

    Also your return is higher than rent, because it’s a mortgage payment, generally about 2% higher than you’re paying on your mortgage, and on a higher sale price.

    Lozza
    [biggrin]

    Profile photo of AdministratorAdministrator
    Keymaster
    @piadmin
    Join Date: 2013
    Post Count: 3,225

    >>Just think of a wrap as selling a house with a 30 year settlement<<

    It doesn’t have to be a 30 year contract of course.

    If you select the right kind of buyer they would able to obtain finance from a mainstream lender (like a bank) within a couple of years if they happen to have a default which presently prevents them from obtaining a loan immediately and provided such a default will be removed from their credit file within that period of time.

    Another type of wrappee may not have sufficient deposit to obtain a loan though, after some time has elapsed during which the property’s value may have increased, they may be able to qualify for a loan from a bank.

    It is very important, the way I see it, to be very selective with choosing your wrappees as at some stage the mortgage insurers will limit the number of properties you can buy by applying a cap on the maximum loan amount they would want to be involved in with you.

    If you find yourself in such a situation there are two solutions :

    1. to get one or more of your wrappees off your books (and at the same time thus realising your captive profit) so as to make room which enables you to make another purchase.

    or

    2. to obtain a loan from a lender who doesn’t use either GE ot PMI as a mortgage insurer.

    Pisces

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