Wrapping a house confusion

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 $500 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. 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.

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To Your Success
Paul Zalitis
The Aussie Wrapper