Wrapping

[WebBoard]

From: Neil Smith


I have done some reading, but I still don't know what this is, could anyone kindly explain.

Thanks,
Neil

 

[Jacque]

Reply: 1
From: J Parker


Neil,

Hit the Search button and put in "wraps". You should have more than enough reading information to keep you going for quite a while. Happy reading!
Cheers, Jacque

 

[Kevmeister]

Reply: 1.1
From: Kevin Frey


Wrapping in very simple terms (because that's about as much as I know) is also called vendor-financing.

The scenario is that you act as the "bank" for a potential buyer, thereby financing their purchase of your property.

The profit from this arrangement stems from you charging the buyer an interest rate which is above market rate by one or two percent.

Because you still own title to the property issues such as rates, water rates, building insurance etc are usually all passed onto the buyer, or built into
the monthly repayments.

You retain title to the property until the purchasers make their final payment, or they refinance.


Now the question I ask myself about wraps is the type of people it attracts, if they are happy to pay above-market interest rates or are not savvy enough to know this is the case. This leads me to think that they are higher-risk individuals who have probably been declined home loans through traditional lenders.

(By all means, other please clarify my misinterpretations if there are any).

 

[Lissy]

Reply: 1.1.1
From: Felicity W.


Estimates vary, but a common figure bandied about is that 20% of the market can't get traditional finance.
Most of the people I've talked to who want to use vendor finance don't have enough deposit, but other categories are self employed, difficulties proving income or seasonal income, credit marks, recent separations, pension recipients....
I'm sure there's more!
Keep smiling
Felicity

 

[Jacque]

Reply: 1.1.1.1
From: J Parker


I recently had an interested buyer who had been applying through other financial institutions (B grade lenders) unsuccessfully for a home loan. Funnily enough, their interest rate was actually more than 1% higher than what I was offering.
So, yes, there are people willing to pay that extra to get into their own home. Getting a foot in the door is important to that 20% who are motivated, and wrapping is a vehicle that allows them to do just that. Their alternative is to always rent for the rest of their lives.........

Cheers, Jacque