To all you wrappers and ex-wrappers.



From: Anonymous

To all you wrappers and ex-wrappers out there I want to see if I have got this “WRAP” methodology right.

 All I need to do is go to a low socio-economic area and find a cheap property.
 The rental income needs to be just short or above what the loan payments would be if I had a loan. .(ie rental potential $160 p/w repayments $150 p/w.)
 Where the house prices are at the minimum end of the house prices scale.
 An area where it would take an investor about 5 – 7 yrs to achieve a 10% appreciation in the value of a property.
 Where there are a high amount of rental properties.
 Where residents usually can not become home owners under their own steam.
 An area where there is a very low income ratio of residences.
 Then I find a bank that will provide me with a loan for the property, which I will then sell to someone else. I will not pay out my loan at this point, the new buyer will pay me and I will then payoff my original loan with the bank.
 The new owner will pay me 2%…to …5% or whatever above what I have obtained my loan for with the bank.

When I have located this area I then need to take the contract I have had drawn up, through one of the few solicitors that know about the ”WRAP” methodology and find a bank manager that is prepared to accept it.

This bank will then let me take out a fixed P&I loan, where I will be paying dead money into the principal until I can sell, entice, or locate a potential buyer or s_ _ ker for the house. The buyer will be shown that by increasing their weekly rent by $20.00 p/w week or so they can purchase their own home. They don’t need to know what the monthly payments will be, nor what the valuation is of the property. They don’t need to have a good credit, or have a savings record, because if they, or when they default I will come in and turf them out. Then resell the house to the next potential s_ _ ker.

I have been only told about the good things that can be achieved from wrapping a few dozen properties. I have been told there are no risks to me as the investor it is a lot safer than “Buy and Hold”. I will become wealthy in a very short time. "Yeah pigs might fly", if you have not yet guessed I have not been converted from “Buy and Hold” to “WRAP”. There appears to be too many closed doors and “What Ifs” that have not been answered.

To start with a few of questions that I still have:

 To be good at doing a “WRAP” do I have to be a really good salesperson? (Will you have fries with that?)
 From what I see, I need to sell a non potential property to someone at a price above the current market value, so how is this going to let me sleep well at night?
 If “WRAP” is such a good system, why don’t the Banks know about it?
 What happens when your buyer defaults and you can not find another buyer to take over the loan?
 What happens when interest rates increase and the buyers can not keep up with payments? You are then stuck with a string of principal payments that are not tax deductible.
 Has this system been tested in any courts in Australia? If so what were the results?
 What is the view of “WRAP” by the ACCC? Where the investor is being charging the buyer 2%…to …5% or whatever above what the banks are charging?. How is this a fair system from the view point of the buyer?
 What are the advantages of buying and selling a property in a month to make $10K to $20K profit and then pay CGT . On top of that see the tax department treat you as a trader and increase your tax rate. Where are my profits going?

There are the “Haves” and the “Have Nots”. I currently "have" +ne rentals that are built on sound trusted wealth creation principles, with which I am very pleased. I "have not" got a desire to jump into something that has got so many gray areas.

No I do not need to attend a seminar on “WRAP” or read the book again, I want you simply to tell me how you have translated “WRAP” into a working system for yourself.

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Reply: 1
From: Sergey Golovin

Dear Moonshine,

I have posted that article some time ago on other forum. And as you will see from my response I was all over the shop.
But never the less it gives you an idea.

Serge G.

Re: Steve McKnight

From: Serge G.
Date: 4/2/01
Time: 10:30:20 PM
Remote Name:


However, I do have one thing on back of my mind.

I think it would be similar to Pioneer Homes "No deposit and No legals" finance, land and house package deal -

AV Jennings used to do it here in Sydney NSW as well, just recently. Not any more, they had enough. You would need 2.5% of deposit, I think?

Only difference would be that with Pioneer's you would get brand spunky new house with new carpet, toilet, coat of paint and kitchen etc. and no termites.

So, you do not have to worry about renovation cost.

It is OK to go with'm, if you want to by it and have no money (deposit). I think you need about $70-75K joint income to get qualified (Pioneer, AV Jennings, etc.).
And $1,000 (deposit? Oops! - "Initial instalment…") + $100 (admin. cost?)=$1,100 to get started. Subject to finance approval, of course.

You would not get any equities in it for quite some time (so, forget about refinancing), simply because house is overvalued and you are paying minimum repayment
amounts a week practically possible as well (principal and interest, no tax deductions and no discounts).

Part of that money you pay for the house, goes towards "Retention account". Pool of money set aside by financier and paid by the buyer in order to cover any one
who failed to come up with regular repayments (for any one who gets kicked out).

But if you are in business to sell those packages (vendor finance) it could be quite good proposition. I think.

Are you in business of banking or real estate? Or both?

Tenants are going to love you initially but then hate with passion. For 25-30 years. The clever ones would (who can look after them self). But stupid ones, would not
give a damn who are they paying to and what for. They would love it.

You are going to build and rule an army of poor, desperate and not very well educated people. Is it a charity or are you simply ripping them of? Have to make sure
that they are not going to rebel against the "authority"…But if you will provide free rum (in order to look after the crowd) they will keep quiet and other then that you
are on White Horse, ahead of troops…

Yes, can be done. I think…


Serge G.
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Reply: 2
From: Michele B

Is that you KM? Or did you really want to be anonymous? I think wrapping is an excellent subject for some lively debate on this forum and I think you raise some good points. But I feel too angry to reply appropriately at the moment. Your attitude is a real turn-off.

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Reply: 3
From: The Wife DONT WRAP!!

whoever is twisting your arm?

you like buy and hold?? so stick to it?

I think your showing extreme narrowmindedness by thinking you have to be either in the "wrap camp" or the "buy and hold camp" Its possible to do both, IF YOU WANT TO!

Gee I hope whoever has your arm twisted behind your back trying to make you choose lets you go soon....
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Reply: 3.1
From: Rasputin .

Just for the rest of us newbies, can anyone actually answer the questions raised above Please...<P>
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Reply: 3.1.1
From: Lewis O'Brien

I think that the somewhat negative discussion above is the result of another unbalanced and polarised view of property investing.

Like the positive / negative gearing debate, there are no absolutes in the buy / hold vs wrap debate.

Clearly wraps have been oversold. Most discussions of wraps ignore the following:
1. it takes a lot of time to buy a house, finance it, wrap it, do the legals and then administer 25 years of repayments. Even if you choose to ignore the fact, your time has value. Part of the 'profit' from any wrap is simply payment for your time. In addition, to do it well you need complementary skills - those of a negotiator, real estate agent, communicator and the administrative skills to manage it.
2. Entering into a wrap involves assuming credit risk. Banks do not lend to various groups in the community based on their long term default experiences. Clearly, banks do not lend to some people who are deserving - but many are simply bad credit risks (add credit assessor to the list of skills required). Part of the 'profit' of wraps is simply a reward for assuming this risk.
3. There is a concept called the time value of money. Intuitively, a dollar in 25 years time is not worth a dollar today. In fact I suggest that a dollar in 25 years time is worth something like 15 cents today (this depends on your assumptions though). To add up a series of receipts over 25 years without allowing for this is just misleading - it overstates the profits that wrappers make.

Having, set out the cons of wraps, wraps can be a profitable real estate investment technique. Those such as Mr McKnight and Mr Burley who have mastered the technique, have the skills and are prepared to invest the time have clearly done quite well for themselves. Add to that the emotional reward of being able to help people into their first home.

The rewards are clearly there. But these rewards, like every reward in life, do not come without risk or effort.

Overall, wraps are not the once in a lifetime investment opportunity that you MUST be a part of. They are a profitable niche in the supermarket of investment opportunities.

Lewis O'Brien
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From: The Wife

Lewis.....are you really free? :eek:)
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From: Kelvin Mooney


Thank you for your forthright up front approach to my questions. The view I have been given was very slanted towards profits, profits and a no risk way to invest and it just did not appear to ring true.

Sorry also to Michele B if I upset your vegie patch, I just wanted some straight answers. I would like to hear your point of view down the track. As I said I am not against investing to create wealth, but I am not prepared to set myself up to be hung out to dry.

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Reply: 4
From: Mike .

Hi Anon,

This is one of those posts that always gets an undeserving good response because of the petulant attitude displayed in the post. These sort of outbursts always get peoples hackles up and they usually want to tell you that.

Because I'm a nice guy, I won't stoop to such obvious tactics to get attention. I never ask squillions of questions in one post because I don't expect an individual to sit at the keyboard for hours typing a reply.

If I can give you credit for anything it's that you have shown that Wrapping involves many issues which is why it is suited to the more entrepreneurial type of investor.

Wrapping is a source of positive cashflow and I see it as a way to compliment negative/positive geared "buy and hold".
If Wrapping is done in a business-like manner and a business plan presented to the bank/lender, then I'm sure banks will come to the party with loans, as they have shown already.

The main issue that I want to touch on, however, is the ethical issue. You seem to think that Wrappers sell over-priced property to disadvantaged suckers. Where your theory falls down is that you think that most of these so-called suckers will eventually default for one reason or another thereby crushing their dream of owner-occupier and leaving the Wrapper high and dry with a property they may ill-afford.

Firstly, most Wrappers don't choose the property for the buyer. Based on the buyer's current rental, and after factoring in his/her profit, the Wrapper will determine the purchase price limit that the buyer must not exceed. The buyer chooses the property and the Wrapper buys it. So financially, the buyer is not disadvantaged. Rents normally rise with interest rates so rising interest rates is not an issue. In fact, the buyer has the option of asking the Wrapper to fix the interest rate on the loan, thereby fixing the rent/repayments.

Secondly, without Wrappers, many people won't have the opportunity to own their own home. Those people who are already financed by wrappers are usually grateful not resentful. In fact, it is by this singularly important point that Wrappers will or will not finance someone. Because it is a long-term relationship, Wrappers want to avoid defaulting buyers, therefore, the buyers must be happy with the deal.

Thirdly, the Wrapper fully discloses how he/she profits from the deal so that the buyer accepts the Wrapper is entitled to a fair profit for the inherent risks in the deal.

Fourthly, the buyer can have the contract vetted by their solicitor and the terms explained to them.

After all that, if a default occurs, the buyer doesn't lose because they were only paying "rent" until they paid out the mortgage. The Wrapper doesn't lose financially because the property is immediately rented until it is wrapped again or sold to take the capital gains. No wonder banks, who understand the concept, are quite willing to give loans to Wrappers.

As to the area and price of the Wrap properties...the area is determined by the market, which is why Wrappers advertise. Some areas will get a better response than others. So that's where the market is. You can Wrap a property worth a million dollars if you can get a loan and a buyer, but as an investor, why put all your eggs in the one basket? Better to Wrap 10 $100,000 properties to spread the risk.

I could go on but I want to spare the readers another long post. In future, may I say that it is not necessary to unload your frustrations on this forum. We would appreciate just a simple question in a civil tone.

Regards, Mike
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Reply: 4.1
From: Paul Hendriks

Excellent debate gentlemen!!!
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Reply: 4.1.1
From: Sergey Golovin

Well-said Mike.

If banks do recognize this as good investment strategy why they do not give those poor (money and credit wise) people loan when they are applying for it? Why do they need a buffer between them and crowd?

We have a few people at work who was sucked into those "hot" deals - vendor finance (Pioneers, AV Jennings, etc.) and they are not very happy....
They have got brand new houses no termites. And this is only 1% above market interest rate. What about if it is more then 1%?

I guess it is all depends which side of the fence you are on…

Serge G.
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