Not sure that the heading conveys what I want to ask!
What I am wrestling with, is how do you determine the end price for a property to put into a wrap? If you simply take the price of the property now and increase it by a compound interest rate equivalent to current inflation, it would seem to be prohibitively expensive.
Am I missing something?
PT
Today is a new day. You will get out of it just what you put into it.
No you’re not missing anything, just complicating it!
The end price of a wrapped property is simply the price you initially sell it for. If you wrap a house for $100k, it will be $100k at the start, middle and end.Hope this helps… G7
Hi PT
With a question like that, are you sure you’re thinking of wraps, and not lease options? Sounds like you are maybe thinking of a future price for when the other person exercises their option to buy.
If that’s not the case, just pretend I’m not here. If that is the case, I have no idea, but will be eager to hear the answers!
Cheers
Kez
The end price usually starts at around 20% more than current market value. This gradually reduces over time like a normal home loan – which this is really.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | 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
Thanks for the feedback.
I suppose what I was trying to say was, how do you determine the price to sell the wrap property at to the wrapee, having just purchased it.
For example:
Purchase porperty at $100k
Sale price for wrap deal $100k x X%Given these deals are a 25year mortgage, what is a reasonable % gain to expect on the original cost?
Hope that is clearer and someone can provide some insight for me.
PT
Today is a new day. You will get out of it just what you put into it.
Hi
In your example, it would generally be marked up to $120,000.
The value on cashout doens’t matter (to payout costs), contracts are exchanged on the $120,000 price and it reduces from there, depending how much the wrapper has paid in repayments + interest.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | 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
Thanks Terry.
One last question. Is 20% a rough rule of thumb? It certainly means the compound interest on the initial purchase price is <1% if viewed over a 25 year period, which seems very low.
PT
Today is a new day. You will get out of it just what you put into it.
I think most people do wraps to turn a CF- property into a CF+ one, or as an exit strategy. If you are more intersted in CG, maybe a wrap isn’t the right thing to do. Once you sell the place to the wrappee, the end price has nothing to do with you. You have sold it, the same as if they paid cash, except they are paying you off over a period of time.
Cheers
Kez
You could do basicaly whatever you can negotiate. Maybe 0% with a higher interest margin would work better in some cases, or a 40% with no interest markup.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | 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
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