warp property in melb.metro?
- Thread starter jomik
- Start date
jomik said:
The problem with wraps in capital cities is that the yields are so low.
Thus renting (paying 3-4% yld) is cheaper than buying the usual way (ie 6.5% bank finance) and vastly cheaper than being a wrappee paying 8-9%.
This is different to many country areas where (until recently) yields were 7-10% and house repayments were less than rents, especially for houses under $150k. In this environment it would have been possible to craft wrap deals that are only a little more expensive than renting.
But nowadays, because of the low likelihood of high capital gains in the next few years and the extra interest margin payable to the wrapper, I'd much rather be a tenant or conventional purchaser than a wrappee, especially while interest rate rises are mooted.
The other aspect about wrapping is that it provides cashflow but you miss out on capital gain (unless the 'buyer' defaults). This may be fine for no-hope country areas, but some of these have actually done quite well (even if they were non-descript fibro housing commission homes) and the wrapper will have missed out on these gains.
Regards, Peter
Peter
Whatever you may personally feel is the best option, reality is that people still choose to buy with a wrap, and that includes Melbourne suburban. I sold 3 in Melbourne just last month.
Also, the whole point of wrapping is to get cashflow - it's a cashflow business, not a property investing strategy. However at some point that excess cashflow can then be used to buy long term buy and holds which provide the capital growth element.
John
I am surprised that you say Rick Otton suggests prices below $200k, I have certainly never heard him say that. If anything, he says the opposite - you can wrap anything as long as it's not a total "war zone" of a suburb. Having said that, it may well be best to start off with something cheaper in an outer suburb, so you can follow your learning curve without paying out too much. Just pick a cheaper outer suburb near wherever you live. There's no such thing as a "right" suburb to wrap in.
Whatever you may personally feel is the best option, reality is that people still choose to buy with a wrap, and that includes Melbourne suburban. I sold 3 in Melbourne just last month.
Also, the whole point of wrapping is to get cashflow - it's a cashflow business, not a property investing strategy. However at some point that excess cashflow can then be used to buy long term buy and holds which provide the capital growth element.
John
I am surprised that you say Rick Otton suggests prices below $200k, I have certainly never heard him say that. If anything, he says the opposite - you can wrap anything as long as it's not a total "war zone" of a suburb. Having said that, it may well be best to start off with something cheaper in an outer suburb, so you can follow your learning curve without paying out too much. Just pick a cheaper outer suburb near wherever you live. There's no such thing as a "right" suburb to wrap in.
