When it comes to selling your property, the majority of people consider only one option and that is to sell your home for a lump sum cash amount – the amount paid by the buyer is used to pay off any remaining loan on your own mortgage on the property plus any other fees with any excess remaining placed into your bank account.

There is another option though and it is called vendor financing or house wrapping. What this involves is selling your property to a buyer who, instead of giving you a lump sum cash amount, pays you the agreed sale value in instalments over an agreed period of time. Although you may still hold the mortgage repayments in your own name, and therefore ownership of the property, these payments are made directly each month from the new buyer, with the final transference of ownership papers made when the last instalment has been made.

This turns out to be an absolute boon for the plethora of Australians who are facing a battle within the rental crisis happening right now. Prices have been soaring so high that the Aussie dream to own your own home is near impossible to achieve; once the average one-third of an Australian’s average wage is spent on rental payments, there’s little left over to save to buy their own place. Just recently it was reported that rental prices in the Sydney area has seen the amount of people looking to pay over $400 a week double from 20% to 40% in the past four years alone and it’s taking them on average two months to find somewhere suitable to live.

People are almost falling over themselves to offer more than the asking price for rent in a desperate bid to put a roof over their head and even paying a month or two in advance to secure the rental agreement.

So you can see why the idea of not only finding a place to live, but finding a place that offers them the security of permanence is more than a dream come true.

Both the vendor financier and buyer are free to negotiate on the price and terms of the financing as long as they adhere to any laws and regulations in their state. A down payment is required and is often set at around the 20% mark but you can get quite a wide variable on this (as much as 30% or more).

It has to be noted that in South Australia, house wrapping is illegal (only the government can offer vendor finance). Apart from that though, every other state in Australia basically runs along the same rules though it is very wise to talk to an expert in property wrapping such as myself to ensure that you do not breach any laws or settle on an agreement that cannot be seen through.

What are the benefits to house wrapping?

The benefits to house wrapping are seen on both sides of the transaction making this a great way to achieve a win-win situation for everyone.

First of all, the new buyer has the opportunity of owning their own property whereas they might not get that anywhere else – self employed people are usually discriminated against when it comes to financial institutions lending them money for house purchases.

Secondly, until the final payment is made on the property, the current owner remains the legal owner of the property – this minimises the risk that you will lose your biggest asset if the new buyer fails to make payments.

Thirdly, once entered into the agreement, you as the vendor financier are no longer responsible for any repairs to the property. You are also no longer responsible for rates or any other taxes that a home owner is required to pay on a property. The responsibilities for all of these are transferred to the new purchaser.

Fourthly, instead of acting as a landlord in this regard with all of the responsibilities that that holds, you are instead acting as the bank or financial lending institution. Each month you receive money to pay the mortgage and also have enough left over as clear profit for you.

And finally, the profit you make from this arrangement is locked in at the beginning of the contract. For the purchaser, he or she gains on any increase in the property’s value.

Filed under: House Wrapping in Australia, What Is House Wrapping by AussieWrapper
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For many, positive cash flow property wrapping can be a magnificent and satisfactory experience for both the wrapper and the wrappee but unfortunately, if the homework hasn’t been done properly in the first instance, things can and do go wrong.

In this post I would like to talk about why this happens and what we can do to prevent it.

For the majority of times, it is the quality of the intended purchaser (the wrappee) that is to blame. Despite background checks, it is possible that you end up with a wrappee who causes problems or fails to make regular payments on time.

Often it isn’t the intention of the wrappee to fall behind on payments – like any loan repayment, you can never foresee problems like ill health, accidents, sudden loss of job or other factors that can drain a person’s income or increase their expenditure. Another reason why wrappee’s fail to make payments is because they have overestimated what they can pay in the first place, often in their eagerness to purchase a property, they haven’t fully disclosed all of their outgoings or haven’t taken into account all that is needed in order to maintain a house.

It is often a wise idea to ask them to seek proper financial advice before going ahead with a wrap property just to make sure that they do know exactly what they are letting themselves in for.

In this vein though, it is worth running through the reasons why people need to house wrap in the first place. Don’t just assume that these are people with terrible credit records who are rejected by the bank and other financial lending institutions for this reason. The majority of successful house wraps are in fact made with people who cannot get a mortgage (even though they can clearly demonstrate their ability to make payments). These people may be: self employed business owners, employees who have not been in their place of employment for a long enough period of time, people who have received a compensation pay out, people who perhaps have had a few gaps in their work record for various reasons, people who are paid in cash, those that perhaps have one or two blemishes on the credit record, ex-bankrupts who are now back in credit, pensioners/elderly, seasonal employees and New Australians.

At this point, I really do need to stress that you should follow the advice of a positive cash flow property wrapping expert such as myself in order to minimise any problems. Of course, you can never absolutely guarantee that there won’t be any problems but by knowing what the pitfalls may be and putting strategies into place that will help minimise or negate any problems, you are less likely to run into issues. You really need to know what you are doing.

If it is still in your mind that you can do this on your own and work it out, please follow your head and not your heart. While it is wonderful to think that you are helping somebody’s dream come true by giving them the opportunity to own their own property – if you know inside that this is a risk that’s not sitting well in your gut, don’t go ahead or you just may regret that decision. Make sure you go through absolutely every little minute detail and know clearly the risks ahead for both you and your client.

Filed under: Due diligence, House Wrapping in Australia, Legal Issues by AussieWrapper
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Many people are put off by the thought of positive cash flow property house wrapping because it seems a little bit too technical compared to the idea of purchasing an investment property or even a number of investment properties in order to see a profit coming in each month so I have decided to take you through a short journey on how easy it can be to create a good income through house wrapping without the headaches.

The first thing that you need to do is find the right property in the first place. This is actually no more difficult or different than it would be if you were purchasing an investment property. And just like investment property purchasing, you must go through and actually acquire the property in your own name before you can go ahead and start on the wrapping process. This means that it is up to you to organise the finance on the property and everything needs to be settled in your name or your investment entity’s name before going further.

One thing that you must bear in mind when purchasing your property is that, once you have entered into an agreement to house wrap the property, you can no longer enter into an agreement with your lender to refinance the loan on that property.

While all of the details are being finalised with your own financier to acquire the property, it is a good time to advertise the property and the deal that you are offering. This can be as simple as putting an advert in your local paper but if you are going to be entering into house wrapping as a major form of investment (and I truly hope you do) it is a great idea to set up your own website from which to advertise your properties available – this will increase your exposure immensely. You can also consider advertising the property through sites such as Craigslist.

Once you have found someone in which to enter upon a house wrap agreement, there are a number of legalities that you need to sign off on – while this is different to the agreements and checks that you need to make when you have bought and are now renting out an investment home, the agreements are no more difficult. What is essential though (and this goes for all forms of property investment) is that you seek expert advice and never go ahead with anything until you absolutely know what you are getting yourself into. Many people have been burnt by ignorance.

The next step in the process is really just to keep yourself up to date with the payments that are being made on the property and other administrative tasks. You will need to prepare periodic loan statements which are required under the Consumer Credit Code for instance. I would always insist that the payments from the new buyer are made directly by direct debit from their bank account to your loan account.

The final step happens when the contract ends and this is when the final payment is made by the new purchaser to you on the property or the new property owner decides to refinance or sell the property. In the case where the new buyer fails to make the obligatory payments on the property, the contract is cancelled and you take back possession of the property.

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An idea that doesn’t always immediately spring to mind when selling your property is that instead of selling it for a lump-sum monetary settlement, why not sell it to your buyer by an agreed instalment plan? This instalment plan can be organised over a mutually agreed timeframe so that you have cash flow coming in each month and your buyer can pay within their budget.

The beauty of this is that if your buyer does fail to make their payments, the house remains in your name so you do not lose your asset.

By selling your house in this way, it is you rather than a bank or other financial lending institution that is providing the buyer the means to buy – they will not need to go anywhere for mortgage as it is theoretically you that has become the financier. The majority of the profit that you gain from doing this (it is called house wrapping), is interest and most of the risks of owning the property are passed on to the buyer.

Positive Net Cashflow

When your buyer is paying you more each month than you need to pay on your own loan repayments, you are seen to be in positive net cashflow – this is an ideal situation to be in as you don’t really need to think about how the mortgage on the property is made each month. It is a great idea to receive your instalment payments from the purchaser via direct debit.

Why Wrap?

There are many people who are desperate to own their own properties but for whatever reason can’t get a mortgage. This is often because they are self-employed. Banks don’t like to take the risk in offering a mortgage to self-employed as they do not consider that it is a safe enough bet that the buyer’s business will survive the term of the mortgage. However, often business owners are the most responsible when it comes to money, after all it’s their own livelihoods that are on the line if their business fails and what the banks also do not appear to consider that in today’s climate, no paid employment is bullet proof safe either.

There have been many concerns about the ethics involved in house property wrapping and this has mainly come about because of the minority of people who clearly are out to gain purely for themselves and not consider the welfare of the property buyer. There are always risks involved and that’s why it is of the utmost importance to go to an expert in property wrapping such as myself to ensure that you are getting the best deal.

When a house wrap is done with a win-win situation in mind, rarely are problems created. This technique can offer not only an excellent return for the financier (current house owner), it also provides a fantastic opportunity for the new buyer to finally own their own property when they have probably been turned down so many times before by other lending institutions.

It has to be said though that you should not rush in and try and make these deals yourself until you have had some expert guidance – each situation is different and you need to create the house wrap that caters for both you and the other party involved.

For this reason, I have come up with a unique house property wrapping guide and full one-on-one coaching program that will take you through all the steps needed to ensure that your first property wrap is a successful one. Ultimately this will save you thousands of dollars in the long run.

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To become extremely successful at house wrapping, you have to develop a unique strategy that you have tailor made specifically to your own personal circumstances, that is why it’s so important to talk to an experienced and licensed investor such as myself to understand how you can create your own plan.

This way you are working to your personal strengths and advantage instead of having the herd mentality which leaves you with a narrow minded view of where and how to invest in a cashflow property.

Investing the time to learn the skills needed to find and purchase the perfect property long before the competition knows about it will give you the advantage to buy in the most viable areas before the rest catch on! How you recognise a fantastic and positive cash flow property for yourself comes from education, care and time not from rushing to buy where everybody else is.

If you are already doing this, you are already aware that investing in positive cash flow properties is serious business and you really do need to run it as a business rather than as a hobby.

And as in any business, you need to set it up properly. You need to think about your business plan, you need to set goals in place and you need to look at all the advantages, disadvantages and risks involved in setting up this business. You cannot blindly start buying properties because someone has told you that this is the best thing to do for your future. It may simply not be the right decision for you.

Every aspect needs to be looked at carefully and decisions need to be made wisely. You should never buy a property based on emotion or because it appears to be a cheap investment. You need to put strategies in place to protect yourself and this can be as simple as acquiring a business address or post office box. After all, if you are running your WRAP business from home, it is not a good idea to put your address on advertising material. You can always give out more personal details once you have a deal in progress.

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I have often talked about how important it is that you must ensure that when you buy your property that you must be able to generate a positive cash flow. Quite simply this is because it is the only through this positive cash flow that you are able to leverage.

It gives you the extra cash that you need to put into your mortgages allowing you to create equity much more quickly.

It’s important then to buy the right property in the right area to ensure that you can generate this positive cash flow. For instance, it’s not generally considered a wise decision to buy a property where houses are of low value and few people want to live in.

But there could be exceptions to this rule. The current rise in house prices close to cities and larger towns are forcing people to move out of the area and into suburbs, local councils are starting to invest money into areas that have been considered undesirable suddenly making them a much more attractive prospect for those first time buyers who perhaps could not afford to buy elsewhere.

As our rail networks develop, travelling from areas considered isolated a few short years ago is now becoming much easier for city commuters to bear. And as welfare housing is sold off, you naturally find more and more people willing to take pride in their area and homes, thus increasing the likelihood that others will come into the area to buy too.

So there is no hard and fast rule and this is why it is so important to find out whether the property you have your eye on is going to be the right one for creating positive cash flow via wrapping. We need to take in many factors including the population of the area, how much vacant land there is around and the economic vibrancy of the area amongst other things.

Many people think that they should know the area before considering purchasing a property but if you take your time to do your research properly, you will probably know more about the area than the locals!

Filed under: Due diligence, House Wrapping in Australia by AussieWrapper
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One thing that all successful positive cash flow property investors will tell you is that investing in the residential property market is a markedly different business than it is when buying your own home.

There are altogether different reasons why people choose to buy a property for themselves and buying a house or houses with the intention of creating a positive cash flow investment portfolio.

Investing in a residential property should be seen as purely an investment activity with the whole concept or idea being that you want to make a profit or regular income by spending a lot less on the property than you earn from it.

But buying an investment property can be a risky business because you are making such a large commitment of money in the one area. This is a completely different scenario from say investing in managed funds or shares whereby the risks of losing such a large sum of money at the one time is almost too insignificant to mention.

One of the biggest mistakes that new property investors make is to choose a home based on emotion.

They see a property that they like, think of it as a wonderful place that any young couple with a family would love to live in, lose their calm attitude and rush in to buy it without real thought behind the original reasons for buying an investment property in the first place.

They become distracted with imagining what it would look like with blue curtains and a white picket fence when their only real concern or attraction should be with the property as an investment.

What happens then is that when they either rent the house out to tenants or sell it as a wrap property, they have become attached to it and that can lead to unnecessary problems. Instead of looking at the new tenants or owners with an eye of whether or not they can afford payments on the property, they are looking purely at whether or not they deem them to ‘be good enough’ to reside in the property.

So it really is important to keep calm and not to rush into any positive cash flow property investment without doing your homework first. The short term potential for your income and the long term potential for your capital growth should really be your primary concerns, not whether or not the neighbours are nice!

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When buying an investment property with the intention of creating a positive cash flow through wrapping, you really need to be able to put down a great deposit. After all, the whole idea of a positive cash flow investment property is to be able to make payments that are significantly smaller than the payments that you are receiving from your buyer.

You will find that looking for a mortgage for your first investment property will be a different experience to the one you had when you were putting together the finance for your first home and property investors are treated differently than owner-occupiers. You may be considered a bigger risk to financial institutions when taking out another mortgage.

You also need to be really careful that you don’t borrow too much. Remember, the finance institutions are really out for themselves and the last thing you want to do is create problems for yourself down the track.

But if you are new to property investing yourself, you may not have the funds necessary to put down a large deposit on your first wrap. So let’s explore some ways that we can use to rectify this.

If you’re really serious about starting your positive cash flow investment portfolio and want to put down that great deposit, how about taking on a little bit of extra work for a while such as overtime or an extra part-time job. It may cut into your spare time for a while but it may just be worth it.

Think about where you might trim costs for a while – for instance are you even using that gym membership? Could you make your own sandwich each morning instead of paying out a small fortune at the local deli? Could you cycle to work instead of taking the car on short journeys or cut down the amount of times you eat out at a restaurant per month?

As you save your money, don’t leave it lying around in a jar or low interest savings account – put it to good use in the best savings plan you can find and watch it grow!

Before you know it, you will have saved the extra cash needed. Even by cutting your costs by around $200 per month and bringing in only around $400 extra per month to invest it in an account paying around 8%, you would have amassed over $10,000 in only one year. Something that is very easily doable indeed!

Filed under: Finance, House Wrapping in Australia by AussieWrapper
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When finding the right lawyer for your WRAP property, you need to know that they have expertise in conveyancing and it is also preferable if he or she has handled ‘Vendor Finance’ contracts as well and is comfortable working with them.

You are going to find a solicitor easily within most metropolitan areas of Australia and certainly you will find several law firms in all regional cities.

You may need to look around and visit a few solicitors to discuss with them what sort of business you will want them to handle. When you know that they are comfortable and you are happy with their attitude, then you’ve likely found the right one. If not, look around and make further appointments until you do feel you’ve made the right choice.

When you have found the right solicitor, you will need to give their details to your wrapee. There is absolutely no problem with them using the same legal firm that you are using but you will likely find that they prefer to find one of their own.

Because wrappers focus on the capability of the wrappee to make regular payments rather than because they fill a certain check box criteria that the banks insist upon, there has to be an acceptance that both th wrapper and wrappee are carrying some risk. Of course, the wrapper most certainly balances the risk he or she takes with the most attractive positive cashflow return from the property they purchase.

But the Wrapper is providing a service which not only matches but often betters what the financial institutions can provide because it needs to be tailor made to meet the circumstances of both the wrapper and wrappee.

For these reasons, and because of the more unusual circumstances of purchasing the positive cash flow property, it is of the utmost importance that the right Vendor Finance lawyer is found for both parties.

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For a number of years now, the Australian property market has been splitting itself into a number of very different sub-markets. The residents of Western Sydney are certainly experiencing price movements distinctly unlike those in the Inner City suburbs for example.

In Sydney, the cost of buying a house has more than tripled within the last few decades while most of the other major cities have doubled in value, but both Adelaide and Perth have seen a much slower movement. (more…)

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