What is the main difference between a WRAP and Leases to Purchase.
To me they look the same but are packaged differently. In both cases is not the wrappee a tenant with the option to purchase at some set period down the road?
I look forward to everyone’s thoughts.
Regards,
Bearhunter
A wrap is where you basically offer finance (loan) on a house, while with a LO, a proportion of the rent is set aside for either a deposit or pay off a loan. As you noted though, in reality there isn’t that much that is different (on how they ooperate day to day).
I guess you use within different situations. If someone is on rent assis. with the Gov, you cannot sell them a property (as they will stop getting ret assis.) so we structure a LO for them, also people use LO in Sth Aust, because only theGov. is allowed to wrap in that state. For everyone else we do a normal wrap.
Rgds.
Lucifer_auLucifer_au
Thanks for the reply.
James
Hi,
It’s a matter of ownership status:
Lease-Option: Tenant (lease agreement or right to occupy with also an option to purchase)
Wrap: Purchaser (formal sale contract signed)
Getting creative, some people like the idea of having an initial lease option while people prove their ability and then convert it into a wrap at a later date.
Cheers,
Steve McKnight
**********
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Steve,
With a lease option your right the tenant get the option to buy. The tenant has to come up with the rest of the downpayment plus the financing to cash you out of the property.
In a WRAP there is a sale agreement but title and therefore ownership do not transfer till the tenant/buyer pays out the unpaid balance or the agreement terminates.
Given that in both the WRAP and LEASE OPTION have similar time element and title transfer terms I find it difficult to distinguish the difference between the two.
What are your thoughts? [confused2]
Bearhunter
Bearhunter
With capital growth, the tenant in a LO may not need to come up with anymore downpayment to cash you out. Even if there is no capital growth, the rent credits may enable them to cash you out – but would take much longer.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Bearhunter,
Maybe this helps…
With a Lease Option, they only have the Option to buy at a later date, but don’t have to purchase if they decide later to rent somewhere else.
Also, the people leasing from you don’t normally pay maintenance & repairs, insurance, rates, etc. These would be your responsibility.With an Instalment Contract Wrap, they are buying the property from you, so they take on all the expenses, and hopefully they may also add to the value of the property (eg. by doing up the garden, painting, whatever else).
Lozza
Lozza
The tenants on my lease options are responsible for all maintenance, repairs, rates and building insurance.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi all,
It is really another tool … just like a formula one technician has all the right tools for the job…. they know in very intimate detail how each system and sub system and how it operates (Air System, Fuel System, Electrical system, Braking system, Transmission System, cooling system, Lubrications system and so on…) and interacts together and use a very precise process of elimination to determine the correct tools and procedure required to solve and rectify the fault.
My point is …. the same is applied to an exit strategy when selling a property… If you completely understand each part and the systems involved with selling properties…you can solve people problems by applying the best Fitting solution to fit the persons situation … even if your exit strategy changes a little from the one that was intended to be used in the first place…… food for thought! – Good practice too for flexibility
Cheers
Kiwi
[cap]I talked for quite a well with a guy who is doing WRAPS up here in the Great White North! er Canada.
The way he structures his deal is the “buyers” are treated legally as tenants and they have a completion day. That is they have to take him out of the property. The reason he structures it this way is doing arbitrage on the underlying first mortgage. He settles for a downpayment, non-refundable and a 1 to 2 percent on top of the first mortgage rate.
He sets his completion date about 30 days in advance of the mortgage renewal date so that he can, as he wants, negotiate a new rate such that he maintains his margins.
I get the impression that you folks structure your deals differently.
Bearhunter
We don’t like to structure our deals with buyers being tennants (unless doing LO’s and we are forced too). Mainly because of non-payment issues. If people stop paying we don’t want to have to wait long periods of time to take back the house (and where we have to pay for it with a non performing buyer).
Rgds.
Lucifer_auOriginally posted by Lucifer_au:We don’t like to structure our deals with buyers being tennants (unless doing LO’s and we are forced too). Mainly because of non-payment issues. If people stop paying we don’t want to have to wait long periods of time to take back the house (and where we have to pay for it with a non performing buyer).
Rgds.
Lucifer_auI agree to a point …. however, if you are doing this as a full time job then you will have people queing up at the door for the opportunity!
Cheers
Kiwi
[biggrin]Terryw
Sorry, I must be partly mistaken on that one.
I had just assumed on the rates & insurance, because it was a Lease, not an instalment contract.However, I do know of people who don’t charge for repairs & maintenance items.
Lozza
So Lease – Is lease, an option to buy later on!
What happens if you lease and pay the rent and your biulding up a deposit money with a bit extra each week. And you get to three years and you’ve saved $10,000 deposit. And you decide not to buy it and to not rent it anymore and move on!?
What happens to the deposit?
Also if you wait three years in a cooling market can you get the option to buy the property at the market value. So therefore secure a property you might want (by using a lease aggreement) but buying it when the market drops in price?
Jaffasoft
Jaffasoft
All depends on how the LO is set up, each is different. It is your deal so it is your rules. Say 10-50% depending on how long they’ve been there, 10% in year 1 to 50% in year 5.[buz2]
Acts as an incentive to eventually cash you out and not just stick your toe in the water and try it out. If so, they should stick to plain renting.[cowboy2]
They can be set up realy as differently as you can imagine. Get the tenant to pay for all maintenance and rates etc if you can. In the end it will help your bottom line.
IRR’s of close to infinity are not unheard of and very real!!!![biggrin]
Later……..
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