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  • Profile photo of joshknackjoshknack
    Member
    @joshknack
    Join Date: 2004
    Post Count: 8

    Hi,
    I am interested in starting up a business offering wraps, and I have a few initial questions that I hope someone can help me on:

    1. What sort of investment vehicle is best? At the moment I am thinking it should be a private company, but are there ever problems with securing finance for such a vehicle?

    2. What is the best way to find buyers?

    3. Is it possible to secure a 100% financed loan to do a wrap, but require your purchaser to put forward a deposit? If so, does anyone have any tips about which finance companies/banks are best?

    4. How do you ensure purchasers effect a refinance of the property? I would prefer not to be stuck with repayments for 25 years.

    Cheers,

    Profile photo of adambcadambc
    Participant
    @adambc
    Join Date: 2003
    Post Count: 145
    Originally posted by joshknack:

    1. What sort of investment vehicle is best? At the moment I am thinking it should be a private company, but are there ever problems with securing finance for such a vehicle?

    You’re best to speak with an accountant on this one. I’ve taken out my further comment here, as I am not qualified in any way to give advice. So definitely speak with an accountant.

    2. What is the best way to find buyers?

    ADVERTISE! Put ads in papers (decide where you want to concentrate on first), put up flyers, speak with REAs, tell them what you do and hand out your info to them, do mail outs through Aust Post, put ads on the internet property sales sites, etc etc. Carry business cards around with you wherever you go and hand them out to people and tell them what you do. There’s no secret easy way of doing this (well I haven’t found it yet anyway!).

    3. Is it possible to secure a 100% financed loan to do a wrap, but require your purchaser to put forward a deposit?

    I guess it’s possible, but why not use the deposit that you require your purchaser to make as YOUR deposit too? I understand that you want to try and do this as close as possible to “no money down”, but there has to be SOME money in there. Also, if your purchaser is contributing a deposit, you will want to put this directly against your loan in order to reduce your debt as quickly as possible. You always want to maintain a good margin between the amount of your loan and the amount of your purchaser’s loan. Meanwhile, you might struggle to get many people who have a deposit who also need your services. One of the big reasons a lot of people can’t get finance is because they can’t get a deposit together (on top of other reasons). So you’re dismissing a large section of your potential market by demanding a deposit. That’s just how we work based on the advice we have received and our subsequent experience – I’m sure others may disagree.

    4. How do you ensure purchasers effect a refinance of the property? I would prefer not to be stuck with repayments for 25 years.

    You could simply write it into the contract – a term of XX yrs, with a balloon payment of $xxxx on settlement. But my question to you would be WHY? To use an example – You purchase a $100K property. You onsell it under an installment contract for $120K over 30 yrs. Your interest rate is 7% and you set the purchaser’s rate at 9%. Therefore (assuming you took out a %100 loan – for simplicity), you will be receiving approx $70 net per week. If you decided that you only wanted the deal to go on for 5yrs, you could write that into the contract, with a balloon payment of $115K on settlement ($115K being the approx residual on the purchaser’s loan after that time).

    So, you take that $115K and pay off the residual of your loan of $95K (approx), and put the remaining $20K in an investment earning 10%. This will give you about $2K per yr.

    Alternatively, you let the deal run it’s course, and continue to receive $70 per wk for the next 25yrs. $70 per wk translates to $3640 per yr, which equates to about an 18% return on that $20K.

    Now, before the hounds jump in and tear my little (oversimplified) example to shreds – this is just a very quick calculation and example to give you one reason why you would let the deal run it’s course. Others may prefer to get their money working for them more. That’s fine. Each to his own. I like the idea of “set and forget” – especially considering all the work that was required to get that deal up and running in the first place.

    Well I hope this has given you some food for thought, and perhaps helped to answer some of your questions. I want to leave you with the fact that Vendor Finance is certainly NOT easy to start up – it takes a lot of hard work (and a MASSIVE amount of assistance and advice and encouragement from our wonderful mentor!). The rewards are certainly there, but there is no doubt whatsoever that you DEFINITELY earn them!

    Cheers,

    All the best,

    Adam

    Oasis Finance
    for your Vendor Finance solutions
    Achieve the Dream!
    [email protected]

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

    Hi joshknack

    My first suggestion would be to get yourself as well educated as you can about Wrapping before you dive in. I’d recommend either Steve’s Wrap Kit or Rick Otton’s Wrap Pack.

    We started two years ago with Rick’s Wrap Pack and are now working on vendor finance transaction number eleven. Since then we’ve also got Steve’s Wrap Kit. They’re both excellent and effectively a “business in a box”, i.e. it is possible to go out and do wraps if you simply follow the step by step procedures outlined in each of these resources.

    1. We use a Trust with a Corpoate Trustee as our business structure. We recommend you get a book called “How to legally reduce your tax” (one of the authors is ed Chan). We haven’t had any problems getting a loan for a Company or a Trust. The lenders just take a personal guarantee from you ;-) I’m sure the finance specialists on this forum can expand on this for you.

    2. We use very small ads in the Real Estate classifieds. They only cost about $23 and you wouldn’t believe how they get the phones ringing. One tip though; word your ad like your an “average joe” and don’t use any real estate agent terminology.

    3. Some Joint Venture partners have secured 95% loans and then capitalised the Lenders Mortgage Insurance (LMI) into the loan, effectively giving them a 97% lend. Our minimum deposit for our Wrapees (wrap purchasers) is $10,000. This can be made up of (in NSW) $7,000 from the FHOG and $3,000 from them.

    4. If you have an exit strategy which involves refinancing your wrapees in 2 to 3 years, first of all, chose the right people, i.e. somone who you can reasonably expect to be able to refinance into a traditional loan in two to three years time. Then tell these people, right from the begining that that’s what your planning to do. Most people are happy to hear that you’re planning to move them back into the traditional lending system in two to three years time. Also tell them that you will be increasing the interest rate at the end of years two, three and four.

    Lastly, consider a Training Joint Venture. There are plenty of Wrappers out there who will happily instruct you in how to put a Wrap transaction together. It’s a great way to learn, hands on, and gives you an excellent return on investment as well.

    Good luck.

    Cheers, Paul

    Paul & Karen Dobson
    negative2positive
    Turn your negatively geared property into a positive cashflow investment.
    Phone: (02) 4984 9540

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

    An alternative way to finance your home.

    Profile photo of joshknackjoshknack
    Member
    @joshknack
    Join Date: 2004
    Post Count: 8

    Thanks for all the help!

    I have heard that because house prices are so inflated, it may be difficult to pull wraps off because there isn’t really a very good market for them. Is this true? Where can I find the market? My guess is regional centres or outlying suburbs in capital cities.

    Profile photo of mapleleafmapleleaf
    Member
    @mapleleaf
    Join Date: 2005
    Post Count: 51

    Hi joshknack

    Vendor Finance is viable not due to location, but as a result of clients being unable to obtain finance.

    So, if you are wanting to provide such a service you must be sure your client can afford the repayments to you and that they are a quality applicant.

    We prefer to work with clients in regional areas because property prices are more affordable and the risk is less for us. But you could do Vendor Finance in a city if you had a client that qualified.

    It can be a difficult market, so we encourage our clients to get Pre-Approval and then start looking for a home in the designated price range. This helps to prevent a mix match of expectations where a client falls in love with a house only to find out they can not afford it.

    Vendor Finance is possible in today’s market. It just takes alot of adverticing and patience in screening your applicants.

    Good luck,

    mapleleaf

    Achieve the Dream!

    Profile photo of joshknackjoshknack
    Member
    @joshknack
    Join Date: 2004
    Post Count: 8

    Thanks again for all the help everyone! I’ve been a member of this forum for a couple of years now, but as you can see, have only just started being active.

    I have another question: with wraps, is it necessary to inspect the property you are buying as you would in an ordinary buy and hold scenario? Can you get your client to do all of that work for you (as well as doing the legwork in finding the property), and get them to provide you with the information?

    The reason I ask is that if country towns are the best market (due to affordibility), it could be a difficulty to do so much travelling. What do wrappers generally do?

    Cheers,
    Josh

    Profile photo of adambcadambc
    Participant
    @adambc
    Join Date: 2003
    Post Count: 145

    Josh,

    I suppose you could get the client to do that work for you, however you must bear in mind that they will be looking at the house from a very emotional point of view, whereas you will look at it purely as an investment. Therefore there is quite some potential for them to either miss, overlook or gloss over various problems or issues with the property. I’d say that it’s best to do all the due diligence on the property yourself, or at least get someone you trust to do it.

    Remember – the reason you’re doing this due diligence on the property is in case the client leaves, and you’re stuck with a vacant property. Can you re-rent it, re-wrap it or sell it? You need to determine all of this.

    Also remember the returns you will be getting on your money invested. They are quite substantial, and I’d suggest certainly worth a few hours driving and a few dollars in petrol. My wife and I don’t even own a car, so when we go to inspect a property we have to add on the cost of a car rental for the day – but it’s still worth it in the long run.

    Plus doing your own due diligence gives you a bit more confidence in the whole deal, and you can sleep better at night knowing that you’ve crunched those numbers yourself and it all works out.

    These are good questions that you’re asking! Good work! I’m enjoying this thread!

    Cheers,

    Adam

    Oasis Finance
    for your Vendor Finance solutions
    Achieve the Dream!
    [email protected]

    Profile photo of mapleleafmapleleaf
    Member
    @mapleleaf
    Join Date: 2005
    Post Count: 51

    joshknack

    We prefer clients to find the house they want and then we take a preliminary look at it before involve Building and Pest Inspections. We look at the overall location of the property, the neighboring homes, proximity to schools, shops, transport, health care and child care services.

    If we think the overall location of the place is good and that there are no obvious structural issues, then we go ahead with a Building and Pest. The client pays for this, so we make it clear from the beginning that it will be a cost along the way.

    We are not keen to buy sight unseen at this stage, but I know many people do. It all depends on how much risk you are willing to take and how much experience / knowledge you have.

    Good luck,

    mapleleaf

    Achieve the Dream!

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

    Hi joshknack

    Two friends and fellow wrappers have been caught out buy using the “find the buyer first” technique. Why? Well, they bought the property and the wrapees walked.

    We still sometimes use the “find the buyer fist” technique but we ensure the wrapees have paid us a substantial amount of non-refundable money before we purchase the property.

    Cheers, Paul

    Paul & Karen Dobson
    negative2positive
    Turn your negatively geared property into a positive cashflow investment.
    Phone: (02) 4984 9540

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

    An alternative way to finance your home.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,018

    I am with Adam with only 3 reposessions in 9 years and over 200 wraps later we must have done something right.

    Underwrite your buyer properly and you won’t have any problem.

    Richard Taylor
    Residential & Commercial Finance Broker
    **Lodoc Commercial loans from 7.19%**
    Licensed Financial Planner
    http://www.yourstatefinance.com
    [email protected]
    Ph: 07-3720 1888

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

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