Wraps

[jasin]

Hi Everyone,
I have been doing some research into wraps and came across a company called Creative realestate who is owned by a gentleman calleed Rick Otton. Has anyone heard of this guy? Also is the wrap stratergy commonly used and is it a practicle form of investing for relative novices to use? He sells a pack for $2200 explaining the intricacies of the technique but i am very sceptical of such offers. Any help.



The eternal studnet

[Jamie]

Hi Jasin,

There have been MANY threads and discussions on both Rick Otton and Wrapping in the past. Your best avenue would be to do a search of the archives using these terms.

A couple of threads that should prove useful are:


Here (http://www.somersoft.com/forums/showthread.php?s=&threadid=3766)

and

Here (http://www.somersoft.com/forums/showthread.php?s=&threadid=3155)

Jamie

[Mike]

From now on any "Have you heard of..." type posts will be moved to the Coffee Lounge unless some useful info is posted in the thread in which case it will be moved again to the relevant forum.

Mike

[Jamie]

Originally posted by Mike
From now on any "Have you heard of..." type posts will be moved to the Coffee Lounge unless some useful info is posted in the thread in which case it will be moved again to the relevant forum.

Mike

Hi Mike,

Were the previous threads I linked deemed "not useful" enough to have the current thread left where it was?

Thanks,

Jamie.

[Mike]

Hi Jamie,

The comments in my previous post were not pointed at you or your post. I am referring generally to people who post "Have you heard of..." type posts which usually produce nothing more than a promotion thread without any new content. As you know Rick Otton has been done to death on this forum.

Jasin claims to have done research on Rick Otton yet did he check our archives? In your post you stated the obvious, check the archives and you will find plenty on Rick Otton. It shouldn't be necessary to spoonfeed people like this.

Our archives are full of discussions about people in the industry. As far as I'm concerned unless these "Have you heard of..." type posts produce a fresh discussion with new info then they don't belong in an information discussion forum. As I said, they'll be consigned to the Coffee Lounge and stay there unless the discussion is worthy enough to go into one of the other forums.

Regards, Mike

[jasin]

Thanks Jamie,
Most enlightening the links you provided. Sorry to be a pain mike but i am still getting to grips with driving this forum. It is plainly obvious after reading some of the threads that Rick is well known in investor circles. i unfortunatly only have access to this forum for advise at this point so these stupid questions are i would consider vital. Once again thanks all for your patience.

[Mike]

Hi Jasin,

Firstly, you are not a pain and, secondly, your questions aren't stupid. If the tone of my posts implied that I apologise.

However, please bear in mind that this forum has been going for more than three years and there are thousands of threads archived already. Chances are most questions you can think of have already been asked. Sometimes re-asking those questions will unearth fresh information from somebody new but mostly we get repetition.

Despite the huge amount of repetition a few diehards like me have stayed with the forum. While the forum is fresh and exciting for newbies like yourself please spare a thought for us oldies that need some occasional freshness as well to maintain our interest. Without that this forum would have no oldies. Without the oldies I wonder how good the Somersoft forum would be.

So please read the archives before posting and ask a fresh question or a similar question with a new angle. Be advised that I have taken out my big stick for those irritating "Have you heard of..." posts.;)

Regards, Mike

[jasin]

No worries Mike. The oldies are the goodies 9not sugesting you had a tone). I will try to do abit more homework before posting. Thanks for the paqtience.
Jasin

[michaelg]

Hi,

Mr Otton also founded the Vendor Finance (WRAPS) Association in Australia to help promote the concept of vendor finance to the public.

The URL is www.financewraps.asn.au

This may also provide some alternative views.

Michael G

[Mike]

Mr Otton also founded the Vendor Finance (WRAPS) Association in Australia to help promote the concept of vendor finance to the public. - michaelg

Of course this is NOT fresh information but what IS fresh is that MichaelG ie Michael Gruber is the newly elected President of the Vendor Finance (WRAPS) Association of Australia.

We are proud of you Michael for taking on such a responsible role. Congratulations.

Regards, Mike

[michaelg]

Sssshhhh!!

Michael G

[Mike]

Is that an impression of Donald Rumsfeld?:)

[perky29]

Hey good one Michael !!!!
I think they picked a damn good person to do it !!!

[Bazza]

Hi All,

I read through a previouse thread http://www.somersoft.com/forums/showthread.php?s=&threadid=3766 which is no longer accepting posts so sorry if this is a bit off topic (although it is about wraps).

The thing I don't like about wraps is that I like to sleep at night. It seems to me that wrapping is taking advantage of less fortunate people. If they default so what - just throw them out and onsell the property to the next sucker.

I may be wrong - can someone please explain the ethics of wraps?

Cheers,

Bazza

[geoffw]

Bazza,

I've seen both sides of wraps being done by the TV tabloids-

"Shining knight helps unfortunates to own their own homes"

or "Evil landlord rips of unfortunates".

Rick Otton (as far as I remember) aims at well off people who cannot get finance through normal means- eg, high income earners from overseas; recent divorcees; people having recently recovered from financial troubles. These people know that they are paying a high interest, and that the house price is high- but that's a price they are willing to pay. Rick encourages them to refinance as soon as they get a good record with the banks- typically two years.

My knowledge on that is sketchy though- I don't wrap, and I've only been to one evening seminar he presented.

[yuch.]

Hi Bazza,

Wrap is just an alternative financial arrangement to give the "less fortunate" people a chance to own their own home.

Most of the wrap deals do not require the wrappees to come up with 10% deposit. Even though the property is sold to the wrappees at a higher price, their repayments usually work out to be about the same as their current rent. So instead of paying rent, they are now paying off their own home. So this is really a win-win strategy that the wrapper gets his/her cashflow and the wrappee gets his/her house, so how can the wrappees be disadvantaged?

Moreover, as soon as the wrappee has enough equity in the property, they can refinance the wrapper out and have the title transferred across to themselves.

If the wrappee defaults, the wrapper still has to go through the normal foreclosure procedure to foreclose the property, like the way banks do. Being a wrapper, you are providing finance therefore you have to comply with the comsumer credit code.

Personally, I don't think the wrappees are disadvantaged at all.

[Mike]

It seems to me that wrapping is taking advantage of less fortunate people. - BazzaHi Bazza,

A couple of points:

Firstly, you have tarnished the entire wrap industry using a scenario that doesn't often occur. What percentage of wrap defaults have you heard? If 50-100% of people defaulted and had their property repossessed then your comment could be considered reasonable. Some people default on normal bank loans. Are the banks taking advantage of those people?

Secondly, as a wrapper you are acting as a bank. Like a bank you have to do a risk assessment and credit check on the buyer. It is rediculous to suggest that because a home can be repossed that a wrapper will sell to anyone. Due to the legal costs involved any profits would soon be eaten up. How could the wrapper stay in business if this happened on a regular basis?

Regards, Mike

[Bazza]

Thanks guys for your replys.

Mike I am not attempting to tarnish the entire wrap industry. I was merely comenting on a previous thread (which I pointed out) that I thought was a bit heartless:

'From: Greg Mowat
If wrappee doesn't pay (even if only 1 day late) we can send them a letter to become TOTALLY current on payments within 30 days, this means no part payments.
If they don't we come in, move their stuff out, change the locks and resell the house.'

'From: Darren B

Who says that you have to pay there equity, if any, if they default. If they default, tough.'

This is certainly not the way I like to treat people. Do you Mike?

Cheers,

Bazza

[michaelg]

Hi,

In any investment there is risk, in obtaining finance there is risk.

My parents purchased through HomeFund, a "government" finance deal to help the "disadvantage", it was a debarkle and my parents had to fight legally to discharge their debt because HomeFund wanted them in to support those who couldn't pay as well as they. (Bad experience #1).

There are many ways to look at wraps, consider the viewpoint of a worker on the poverty line, their income is split 30% tax, 30% living and 30% rent. Its possible such people may never be able to save a deposit fast enough to jump ahead of the captial growth. In such cases these people may always have to rent. Are they considered better off, renting forever than given the opportunity to get a foot in the door. If they can manage to tie the property to them, then given time they can build equity and finally manage to ride the growth train everyone else is riding.

Now its all about choice, and the freedom to act.

First, before they enter into a wrap, they must seek their own independant legal advice, where they will be informed of the normal costs of owning a property (ie they not the landlord will cover repair costs and rates). So they will need to consider their cost of living.

Next they can choose whether to service the mortgage or walk, or buy "doodads". These choices are the same for everyone.

Also consider what they are buying when they pay for a more expensive property under a wrap. What they are buying is time. Instead of them having to save a deposit, they swapping that for the "foot through the door opporunity".

Do defaults happen, yes, can you evict them at a moments notice, that depends on the contract, in most cases credit code compliance requires 60 days before eviction, though there are other means.

Talking about evictions, I had one couple purchase through mean, previous bankruptcy, small deposit, offer on a 3bed house.

One month after settlement, they dissappeared. They story?

The business they were running on the side, racked up a lot of debt to alot of people, they had fled to QLD and owed not only their customers, but the solicitor doing the conveyancing on the wrap for them. Who's choice was that to make?

They did put $2k into the deal before they left, and a few months later (ie no income) that same property was resold to another couple, who's parents helped them with the deposit. They've been in that house now for near a year, and I'm sure if they chose to check it would have grown in value since this property rise. Did I advertise the resale?, no they asked a solicitor to check the title, they then looked me up in the white pages and asked to buy the property. Who's choice was that to make?

Now we have another client, how?, well the people of the house I just mentioned had friends come over, and they told their friends how they bought this house (or are buying this house), their friends have since called us, and are now going through the process of buying their own home through us. Who's choice was that to make?

There are always two sides to every story, and yes either can be taken to the extreme, personally I can't trade shares, its too risky for my liking, can I sleep at night?, yes, with full disclosure (and yes the buyers know exactly how much I buy the properties for) and with independant legal and property drafted contracts, I know they buyers are completely informed and the choices are theirs to make.

Just some thoughts
Michael G

[Bazza]

Thanks Michael for the reply.

I guess people on the poverty line don't have the opportunity that others do to own their own home. And, yes you are certainly doing the right thing by them. I can see that wraps are benefitial providing the wrapee is fully aware of the arrangement.

Cheers,

Bazza

[geoffw]

Bazza,

wraps aren't only for people on the poverty line- they can be for very affluent people as well.

The impression I have is that Steve McKnight (a well known wrapper) aims at this lower end of the market- but Rick Otton aims at much more well-to-do people, who are credit impaired for a variety of reasons.

[perky29]

Hi all,
Just noticed this article....

http://finance.news.com.au/common/story_page/0,4057,6325407%255E14302,00.html

[Bazza]

Thanks Perky - excellent article.

It's interesting to note that the statistics are about 1 in 10 wraps falls over. I guess they are a high risky group - that's why the banks don't want to know about them?

Cheers,

Bazza

[michaelg]

Hi,

That's an interesting point you bring up there, "risk", as investors we always need to evaluate the risks, and determine how to manage it.

If you consider;

- superannuation (managed funds)
- direct share trading
- options
- buy/hold property
- renovation
- off the plan
- development
- wraps

they all have their risks, with wraps, when a wrapper UNDERSTANDS the people they are dealing with, that immediately changes the nature of risk. In theory if they know the risks, they can start to plan effectively to neutralise it. And that's the trick with wraps, learning to manage the risks.

Why is there a perception that wraps are hard?, because of the risks. Once you realise that with planning the risks can be neutralised, then its not so daunting. But it takes time, I'm still learning after 2 years, but Rick Otton makes it look easy, but then his had over 10 years experience :)

What about our developer forumites?, they too would be learning risk management as they progress too.

And what about the wrappees?, well even the Goverment didn't get it right the first time (Home Fund) nor is the Dept of Housing a smooth operation without risks.

But wraps aren't just marketed towards to low end of the market, wraps are for anyone who are unable to obtain tradional forms of finance. Consider a business owner, cashflow is good, but company is new, wants a house for new family decides on wrap. Then fire from next door warehouse damages their own area, insurance doesn't cover situation properly, struggles to maintain payments, informs wrapper that sadly they have to let the property go and go back to renting while they sort themselves out. Through bad luck successful businessman fails on wrap.

The point here, is not risky, is a higher level of risk.

Michael G

[Mike]

Interesting example of the business owner, Michael. Usually wrap repayments are set to match what a person would comfortably or normally pay in rent on their current wage. Since income from a business may fluctuate due to market and economic conditions should the same ratio of repayments to monthly income apply to business owners? Or should it be lowered to match the risk of a downturn in business profits?

In your example, the BO chose to go back to renting because it was the cheaper option. Perhaps this would not have happened had they had been living in a cheaper wrapped property which they could still afford despite temporary cashflow problems.

Question for wrappers is, "do I wrap to a business owner where the level of repayments is dependent on the success of the business?" We all know that a large percentage of small businesses fail in the first five years. Is the risk, in this case, all with the buyer or should a wrapper insist that the buyer buy into something more modest that didn't rely heavily on the success of the business and good economic and business conditions?

Regards, Mike

[NealeT]

Jasin,

Refer to repy to Prince re WRAPs.

I use a lawyer in Melbourne, Lewis O'Brien. Last contract $660. He is very good.

http://www.lawyer4nix.com.au/mainpage.html


Neale

[jasin]

Hi Nealet,
Thanks for that contact. Let me ask do these guys only specialise in Victoria or do they do interstate deals as well? Thanks everyone for the in depth examples of wrapps it certainly shows that it is a matter of experience and following a tried and proven method.