Request for advice on wrapping please

[Lesley]

Hi All;

I am new to this forum and also to the world of PI. Through this forum I discovered "Wrapping" and have done some research to find out exactly what it is and how it is done.

I would very much like to hear from others who may be involved in "Wrapping".

My understanding is that "Wrapping" is used for generating cash flow.

Does Wrapping really work? Is it always successful? Is it as easy to do as all the information makes it appear? What are the negatives, the pitfalls, the problems and issues?

To me it all sounds a bit good to be true.

Eagerly awaiting some responses

Thankyou

Lesley

If you fail to plan, you plan to fail

 

[Lofty]

Hi Lesley

Yes it does work and it's not too good to be true. In fact an association of "wrappers" has been set up in OZ. It's called the Vendor Finnace (Wraps) Association. You can visit there web site at; http://www.financewraps.asn.au

May I also suggest you get a hold of John Burleys book, Money Secrets of the Rich (the Australian edition).

Good luck, Paul

 

[Lissy]

Hi Lesley,
Well, I'm still fairly new at the whole wrapping thing, but I'll have a go at answering your questions! Perhaps because all the joys of being a newbie are still fresh in my mind that may make my feedback more relevant to you - I plan to be a heck of a lot better at this as time goes by!!!

> Does Wrapping really work?
I'd have to say yes to this.

> Is it always successful? Is it as easy to do as all the information makes it appear?
Bit hard to define successful. Easy - no, I can't say I'd describe it as "easy". I certainly wouldn't want to be doing a full time job at the same time. My experience has been - finding houses is reasonably easy, getting finance gets harder, finding buyers has taken longer and been more frustrating and yet rewarding than I anticipated. I'm certainly nowhere near where I planned to be at this point in time, but at least I've started.

> What are the negatives, the pitfalls, the problems and issues?
Hmm that's a big one. Cashflow and cash reserves are vital. If you need to cover a mortgage while you're finding a buyer, you need money. Do a lot of learning before you take the plunge. Everyone I've spoken to says that your first few deals usually aren't your best, because you're still learning, and that's reasonably true. Certainly the experts run their business like a well oiled machine (or so it appears from the outside to me!!) and therefore streamline out some of the issues that I've encountered. I'm almost reaching the point now of critical mass - I actually have a couple of buyers waiting for me to buy another house, which means I can hopefully wrap the house to them asap after I settle, as opposed to in the past where I've needed to find a buyer after settlement - and it's taken a lot longer than I expected. But then I follow Rick Otton's strategy, Steve McKnight advocates always finding buyers and then getting them to find their house.

You missed a question - what are the rewards?
Well, there's definitely the cashflow aspect, once you get a few houses ticking over your running costs start to become less of an issue and so you make better profit each time you wrap a house. And there's nothing that beats the look on someone's face when you hand them the keys to their own home.


Hope that helps.

 

[michaelg]

Hi,

The negatives?

- You're buyer walks out prior to exchange
- You're buyer walks out in the middle of the night
- You're lender changes their lending policies
- A buyer's solicitor will more often than not discourage a buyer from buying because the house may be more expensive than market value (interesting, to me this sounds like investment advice not legal advice)

I suggest you buy and read;

- "E-Myth Revisted" by Michael Gerber - its a gives a good idea of the mindset of a business owner.
- "Cash, Customers and Ads that Sell" by Brad Sugars - a good collection of ideas for business owners.

I also suggest;

- You be open and upfront, people arent stupid, they know you're in this to make money, if you show them what's behind the curtin they'll trust you all the more. If you try to decive someone, and they find out, then they'll resent you, which could be up to 25yrs if the contract plays itself out totally.

- Now the rules, if you know the laws, credit code, sales act, FHOG act, etc, then you won't get stumped if there is a problem. Especially if you have to explain to the buyer's solicitor the benefits for their client, if they feel comfortable, then that will help.

Also think about;

- documenting everything you do
- make a checklist of what you do

And remember;

- you WILL make mistakes; and
- problem WILL occur.

When this happens, take a deep breath, know you're not alone.

If you have made the mistake, apologise immediately to whoever is inconvinienced and fix the problem.

I once had to delay settlement, so I bought sent a gift to the vendor with a personal letter of apology, I also bought a gift for the conveyancer for the inconvinience too.

Just a thought.

Michael G

 

[Mike]

Hi Michael,

When Wrappers get together at a function and chat and swap stories do they ever divulge where they buy wrap properties or is that kept a secret?

Regards, Mike

 

[Sim]

Originally posted by Mike
do they ever divulge where they buy wrap properties

I think the answer to that one is "anywhere the yields are high enough and there are buyers waiting for us"

 

[Mike]

Hi Sim,

I think, by your answer, you are saying that if you were a wrapper you wouldn't divulge the area you operate in. Okay, if you found an area you thought had potential but noticed in the local paper adverts from other Wrappers would you work the same area or look elswhere? If you were a Wrapper and had the area all to yourself until one day you saw similar wrap ads in the same paper as yours would you leave the area or stay? My guess is some areas may only sustain one or two Wrappers in which case these locations would be jealously guarded, wouldn't they?

Mike

 

[Sim]

Actually Mike, it was more a comment that wrapping is easy anywhere if you have two things... 1) a buyer 2) a property with high enough yields. It doesn't actually matter where it is !

Some of the successful wrappers seem to work mostly on finding the buyer first - and then getting them to find the house !

If you have a tonne of equity available then you can pre-purchase houses and THEN find buyers, but it makes more sense from a cashflow point of view to find the buyers first.

Unlike regular IPs held for capital growth where location is very important - since you are counting on sentiment to increase value over time, wrapping has no such limitation on it - you can buy practically anywhere so long as you have someone willing to live in the house and pay you for the pleasure.

The other factor is that yields are easy to measure - rents and purchase prices for an area are easy to find, so anyone can do it. There is no "magic suburb" for wrapping - as opposed to buying for growth where some crystal ball gazing is required.

 

[Tony]

Hi Lesley,
I live very close by & have wrapped a couple of properties. While i don't claim to be a guru or anything, am happy to meet & assist where possible.

Regards Tony.

 

[michaelg]

Mike,

Interesting question

Depends on how you operator I guess, if you;

a) buy properties, then find clients - then "turf" may be guarded; or

b) find clients, then buy properties, then the properties are less relevant.

Here's a few more thoughts...

If we thought of wrapping as a alternative financing business, then does this mean having competition wipe you out?

What about the number of mortgage brokers out there?, do they have a problem with competition?, actually I think the good ones have problem with time. Wrapping is a service based business, and when it comes down to service, good service always wins.

I've heard some shocking stories from people who have contacted us, who have had contact with other wrappers, and I do not feel threatened by them.

Sure I could screw the price of a property so that my profits are maxed, but how would the buyer feel?

Then think about the margins, there's a number of factors;

a) deposit
b) markup of purchase price
c) markup of interest rate
d) entry fees
e) exit fees
f) etc, etc.

Once you start thinking about this, there's is a great deal of variation that can exist between wrappers.

What about the wrapper, who has no entry fee, but hefty early payment penalties, so if the cap gain rises quickly, you have to decide whether to refinance and get penalised.

What about the markup, some may markup as much as possible, others may have a flat rate.

Some may let the buyer choose the properties, others give you a range to select from.

Some may have finance ready to go, other put you on a waiting list.

Its a business, as such there will always be competition, the idea is to work on the reputation, word of mouth will spread, you'll be amazed, I was.

Fact is, while Ive been busy with other stuff, Ive been getting leads and referals, why?, because people have been happy with how I operate.

By the way the answer is Lithgow

Michael G

 

[Mike]

Thanks for that great reply, Michael. I forgot that a lot of wrap business may come from referrals which is why, as you say, building a good reputation by not screwing the client is important.

Just to comment on something Sim said:

Actually Mike, it was more a comment that wrapping is easy anywhere if you have two things... 1) a buyer 2) a property with high enough yields. It doesn't actually matter where it is !

Generally, that's true. But if you are working the blue-collar areas then, according to Rick Otton, stay clear of rough or crime neighbourhoods. Although these areas may provide high yields some of the characters who answer your ad for a house in this type of area could be a bit dodgy. Rick advises to go slightly upmarket to avoid these undesirable locations. Call me paranoid but if I suspected the house I was considering buying was in a crime street or neighbourhood I'd pay a visit to the local cop shop and ask them about the location and whether there was any "trouble" there.

Here in London on New Years Eve a couple of girls were killed in a hail of bullets when they stepped outside during a work party. Apparently, the hair salon was located on the border controlled by two rival gangs. Sad story but, as investors or wrappers, there are lessons for us. Do your homework before you buy.

Regards, Mike

 

[Sunstone]

Dear Mike/guys,

It's funny how different people perceive areas in different ways.

What is a simple definition of a "rough or crime area"?

Does an area by having this type of perception encourage less buyers in the area thereby driving up yields? (Now being driven down by investors who have woken up to the area.) Or is it just a case that some locals believe it has some stigma but do not understand the fundamentals of the area that make it appeal to investors and not home buyers who can recognise change taking place in an area.

Is it a case that an area has moved on but some people have not adjusted their perceptions? (I still remember talking with a fellow investor who believes that "Mt Gravatt" is out in the sticks. Have a look on a Brisbane map. This certainly is not my definition of "the sticks".)

We as investors need to look outside the squares to find opportunities that are ignored because of these perceptions.

Cheers,

Sunstone.

 

[darren b]

What Michael G says is true, wrapping isnt easy. I've had a house trashed and I've had people wanting out after a few months. People not paying is a pain as well.But these negatives are an opportunity to resell a house that has appreciated in value and get another deposit.
The positives:- lots of positive cashflow each month, enough that I dont do 9-5 anymore.
As for disclosing where I wrap, no big deal:- Geelong and Werribee. The more competition the better it is that I dont have to give prospects a detailed explanation of what I'm doing everytime.

 

[paulzag]

I've wrapped or lease/optioned in

NSW: Kings Cross, Chippendale
Qld: Kingston, Caboolture
Vic: Dandenong North

So I've done local and long distance wraps.

Normally I don't broadcast the area because nothing muddies the waters for my relationships with buyers or agents like newbie wrappers walking in with questions or brags.

As my system has evolved I wouldn't do some of those deals now. All have made money - even the ones that failed. The most spectacular "failures" actually made the most money. e.g. The buyer stops paying and I discovered they'd spend $40K renovating the house.

Regards

Paul Zag
Dreamspinner

 

[Savanna100]

starting to wrap

Hi,

I'm about to go house-hunting in 2 weeks time for my first wrappable property. I've done some research and I've selected Goulburn, Wagga and Young to start in.

Is anyone here wrapping in those areas????

Sav