Self Funding property - Qu for Michael Croft

Hi Asy no sweat or disturbance and congrats on the agency btw - I'll be in touch post Jan 2003.

Sim, one of my pet assertions is that all buy and hold property investors will be renovators sooner or later. Either that or sell when the property is getting tired; which means getting less than an optimum price. Even the off the plan sparling new unit will need a reno come year ten or earlier. So if all IP owners are to be renovators or watch their returns slip they may as well get it right :D

Mark and Geoff, I truely believe the renovate before and/or during the holding of IP's will be around forever irrespective of the current flavour of the month seminar or TV infotainment. The buy, reno for peanuts and make a motza is pure hype; good cap gains and returns can be made though even taking into account op cost and own time factor.

regards, MC
 
Hi,

Ok, from a wrappers point of view... :p

Where NOT hiding, well I'm not, what I am doing is working ON my business, as opposed to working IN the business.

It basically goes like this...

a) Go to seminar/ read book

b) Do 12+ wraps test the theory

c) Lick wounds (if necessary), try again

d) Note procedural problems, systemise procedures

I'm at step (d) at the moment.

I'm also working on a software package that will level a whole new dimension of automation to the business. That's had me offline for about 6 months.

But the funny thing, I found the other day. Wraps work themselves.

How?, I had moved house and had let update my contact details, also I had not advertise my services for 6mths.

Then a couple of days ago I get a phone call....

"Are you Michael who sells properties?"

Basically the caller was a referral from a previous client, the caller, had got a hold of an info kit, tracked my number down, found her own solicitor, selected a property and had her application fee ready. All she wanted me to do was, buy it for her.

Now, consider this, once my software is ready, and I complete my operations manual. I could basically employ someone to take that call and run through the procedures.

And if I use OTP funds to cover deposits and what not, isn't that the ideal set up?

Here's a thought to compare wraps and renos (well one way). Consider the time it takes to develop reno skills and to do a reno. At first you may do a reno yourself, and then once you've developed a system, you hire others to conform to that system.

Same could be said for wraps. Its no more than a finance business, and should be treated as such.

Think of car yards. For the business, selling the cars is not the motivation, its selling the finance attached to the cars. The car itself is just something with which finance can be attached to.

Do you think a car yard likes to be knocked down by a cash buyer? not really, they prefer the person willing to sign the 5yr finance contract.

A wrap business, just uses the houses to do the same.

Opps, ok, I'm gunna get off my soapbox now (I can see MichaelC waiting in line behind me now).

Just to let you know, wraps arent dead, but like any knew idea, there will always be a % that drop off, after the initial excitement has gone.

Michael G
 
Hi michaelg,

Great point re: wraps being a finance deal at heart. I remember reading that Jac Nasser had said that Ford werent in the business of selling cars, they were in the business of selling finance. Some people leased cars for 30 years, simply upgrading every 2-3 years. In the process, they spent hundreds of thousand of dollars on cars they never owned.

I agree with you that wraps will never go out of fashion while there are people who want to own their own property.

Regards,

Jamie :p
 
Hi,

Another business model that not exactly what you think is MacDonalds. They're in the business of leasing commerical property, but in order to do that they need a business to lease to. Hence the burger franchise.

Michael G
 
Originally posted by michaelg
Do you think a car yard likes to be knocked down by a cash buyer? not really, they prefer the person willing to sign the 5yr finance contract.

Michael G
Click to expand...

Oh I don't know about that one Michael G

CASH is still KING :D

Regards
 
Investor, thats true,

Daily cashflow is crucial to any business.

btw...are you an insomniac?:D
 
Cash up front is nice. But more cash over a longer period can be better ! Why is it that Harvey Norman can get away with charging absurd prices for their products ? It's because it actually only costs the purchaser $X per week when they take the Harvey Norman finance option !

Harvey Norman is a FINANCE COMPANY - the computers and furniture and whitegoods and electronics and such are just a vehicle for signing people up for finance.

Another example, Fury Max is a FINANCE COMPANY - they will give up an up-front cash hit in order to sell cars to people who thought they couldn't afford them - because it's actually only costing them $Y per week when they take the Fury Max finance option !

Why sell for $Z now when you can sell for $Z+18% as an income stream over the next 5 years ? 18% return on your money is pretty attractive !
 
Hi MG,

Renos come in several forms but the main distinction (simplified) is - Buy, reno, sell = business; Buy, reno, hold = investing.

This is also an oversimplification however, McDonalds (the franchisor) Buy reno (add value) and hold well located real estate; the franchisee is their tenant. The franchisees as a rule do not own the site.

Wraps is a buy, finance, sell = business but not investing. That's not to say that wrappers don't make money or cross the line and become holders of property at times. I know it gets a little grey and confusing when you hold a mortgage over the property, but who 'owns' a PPOR when it is mortgaged? Not the financier. Who has first right of disposal of said property? Not the financier (unless the owners are in default).

There are skill sets required for renos and wraps and both are relatively easy to acquire. I suspect it is easier to assign they task of doing renos to someone else (or a team) than it is to assign the job of vendor finance though. There is an existing industry (6% of GDP) geared facilitate renos; where as wraps?

Anyway just some ramblings - Regards, MC
 
Another thought MG, I really think there is a mottza to be made in combining straight renos with wraps.

It goes like this; buy well, add value though reno, add value through alt finance (wrap), sell. The right combo would have 3 lots of cap gain; in the buy, the reno and the finance.

I know we are dealing at the bottom of the market but if a $5k reno could add $20k??? Increased equity in the project may also may financing the deal easier. What think you?

regards, MC
 
Sim,

The reason Hardly Normal can charge absurd prices for their products is a thing called rebates (cash back bonuses), which are everywhere at wholesale/retail level.

A company can sell their whole stock at cost price and still make money through rebates from the supplier, because they are moving so much stock by selling it so low, they get bigger rebates.

So next time someone offers a deal at "cost plus 10%" dont think they are being generous.

There is a discount chain around Sydney called The Good Guys, they are sooo cheap especially as they offer big discounts for cash, not credit card or eftpos but cash.

Because the amount of stock out the door hence bigger rebates and cashflow are important.
 
Also, I understand that the reason certain chains can advertise "12 months interest free" is that a majority of people do not make their payments on time- and that can lead to less generous conditions.
 
Hi geoff

Yep, Harvey Norman use AVCO and AGC for interest free finance, and after the 12/24 months expires the interest rate is
27%
 
Hi,

Originally posted by Michael Croft
Another thought MG, I really think there is a mottza to be made in combining straight renos with wraps.

It goes like this; buy well, add value though reno, add value through alt finance (wrap), sell. The right combo would have 3 lots of cap gain; in the buy, the reno and the finance.

I know we are dealing at the bottom of the market but if a $5k reno could add $20k??? Increased equity in the project may also may financing the deal easier. What think you?

regards, MC
Click to expand...

I think that is a viable option, the same technique could be used by Developers wanting to offload slow moving stock.

I've heard (un-confirmed) that some developers have had to rent out their properties, which I guess takes off that new-home shine.

Actually, some companies who sell home-land packages do it anyway. So they know the system works.

The only downside for a renovator, maybe the cashflow since they don't get their money as fast to be able to proceed to the next deal, if they we're to use any of their own money.

Michael G
 
also with those interest free purchases, if you don't pay in full by the end of the interest free term, the 27% starts from the day of purchase, not the end of the interest free term...........ouch!!!!!!

Macca
 
craa's re Jamie?

Jamie

this thread has gone ten ways so I will be short.
Perhaps u wish to start another with that question regarding does CRAA (HARVEY NORMAN, AVCO ECT affect your craa & how?

You will proberly get a shock?

cheers ocean
 
Originally posted by brains
The reason Hardly Normal can charge absurd prices for their products is a thing called rebates (cash back bonuses), which are everywhere at wholesale/retail level.
Click to expand...

Actually - I think you are confusing Harvey Norman with some other companies. I agree with your analysis of some of the discount stores - but Harvey Norman is definitely not one of them !

My comments were based on Harvey Norman charging AT LEAST (if not more) than recommended retail - particularly on electrical goods. They are incredibly expensive !

The reason they get away with charging more than most other retailers ? Because paying $X per week over 5 years seems so much easier to most people than saving several thousand dollars up front.

I window shop at Harvey Norman but almost never buy there - quite easy to get items significantly cheaper elsewhere.

(Of course, there are some items that they are quite competitive with, my comments relate mostly to electronics, particularly computers)
 
Sim,
I reckon that people who buy computers from ANY department store are a bit up the duff. I mean, really who in their right mind pays, say, 2K for a computer that they can get from the local computer dealer for 1300 bucks?
Okay, so people say they don't understand computers. What, does walking into a department store make them magically know everything there is to know? There really is no excuse for it.
Then again, your theory on paying $x a week over a few years is so much easier for them, cause the local guy doesn't have these nice finance deals. Just goes to show that when it comes to learning about money and how to be smart with it, that people like those that frequent this forum truly are in the minority.
On a slightly different topic, those of you that feel like the rest of society is going to catch onto how great property investment is and take away all of your opportunities to make it in the investing world, if you want to allay your fears, go to any department store and stand around the finance department or wherever they organise loans for consumers and your fears will disappear in about five seconds flat.
People that go for these deals aren't going to threaten your financial independence dreams anytime soon, believe me. In fact. listening to people at work talk about money issues really astounds me. I mean, I seriously shake my head in utter disbelief sometimes at what comes out of people's mouths.
My favourite one in recent memory was one woman that I work with telling me that all rich people (yes, all) were arrogant and greedy. Had the laugh at that one, only problem was holding it in until I was alone. And let me tell youse, these ideas are very, very common. Which is why companies like H.N. do so well with all these nice finance deals. Cause most people in our society are only too happy to give their money away to all those 'arrogant, greedy' types.

Mark
'no hat, some cattle'
 
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