Due Diligence' on wraps / rent to buy

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From: Susan Pope


I wondered if anyone could suggest some things to watch out for when selecting an investment property to "rent to buy" or "wrap"?

Thanks in advance.
 
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Reply: 1
From: Steve McKnight


Hi,

Well - there are lots of things that could be the difference between a good property deal and a lemon.

But if I had to pick the biggest factor, I'd have to say that for a wrap or lease option then the physical property isn't your main worry.

Rather it's the person to whom you wrap to, since s/he/they will be the source of the cashflow.

Don't get me wrong, the property is still very important... but what's the use of having a great property if all you have in it is a non-paying client?

My advice is to place more importance on trying to attract the right person and thoroughly 'qualifying' them to find a property that s/he/they'd like to call home.

In my latest newsletter at www.propertyinvesting.com I point out that I believe the three components to real estate success are:

A. The right people
B. The right team, and
C. The right property

It's no accident that 'the right property' is last.

Best regards,

Steve McKnight
 
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Reply: 1.1
From: Susan Pope


Hi Steve,

Thanks for taking the time to reply.

I totally agree with your comments "put people first".

By the way, I thoroughly enjoyed your post at Stock Central.

It was very interesting to see the (generally) negative human emotions (ie know nothing much about it so it couldn't possibly work).

I'm sorry I missed you on "A Current Affair".

Susan
 
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Reply: 1.1.1
From: Mike .


Hi Susan,

Although Steve made some valid points, your question regarding the 'right' property still deserves an answer. So I'll make a few comments on the subject.

The first thing to consider is that you will be generally marketing your wrap properties to people unable to save a deposit but have a good and stable work history and also have a good rent record.

The rent they are currently paying is used as a guide to the repayments they will make on the wrap mortgage.

That figure Steve likes to use as a 10% yield. In other words, if their current rent is $100 per week, ie $5000 pa then the value of the property is $50,000.

Next step is to locate 10% rental yield properties. Normally they are found at the bottom end of the market. Steve has done many wraps in country towns, for example.

Inspect them yourself and cross-out anything that is not near transport, schools or shops. Cross-out anything which needs major repairs. Your wrap client should be able to move in straight away.

Get an independent valuation and bear in mind that the Valuer will have regard to the "apparent" state of repair and condition of the property but will not inspect those parts of the property which are covered, unexposed, or inaccessible. Those parts will be assumed to be in good repair and condition.

Based on that criteria and depending on the age of the building I'd urge you to get a property inspection report done. If there are hidden problems you can negotiate the price down or not purchase at all.

Finally, if you purchase, get a quantity survey report done so that you know what depreciation amounts you can deduct for tax purposes.

Regards, Mike
 
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Reply: 1.1.1.1
From: Susan Pope


Hi Mike

Thanks very much for your post and your help.

This site is terrific - I feel I have learned so much in only a few days!

Regards,

Susan
 
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