When looking for houses to buy how many come with finance attached? Not many. Only new estates or companies like Delfin or Devine supply houses with finance attached. So why not buy a house then sell it to someone over 30 years and live off the surplus each month. On a side note, if you were to just buy a house directly from a vendor and made payments to him without interest, you would most likely pay it off well within 10 years.

A Wrap business sells houses with finance already in place from me to the new buyers of houses.

They do this by way of an installment contract or a wrap. This is how it works. Its called a wrap as it usually has one mortgage ‘wrapped’ around another.

1. You buy a house and settle on it, using bank finance.
2. Then you make it available for buyers to buy it off me over 25-30 years at a slightly higher price than what I paid for it.
3. Usually I, the seller or investor, require a deposit, just like the banks. Not usually as much as the banks require though.
4. They make payments to me just like with the banks. These are of a Principal and Interest nature, not an interest only type loan.
5. The wrapper charges an interest rate a little bit higher than what they are getting from the bank to make sure they make a profit.

After 2-3 years the new buyer goes into mainstream lending from the bank and refinances the loan out to one of the banks.
The wrapper makes a back end profit of what is outstanding, minus their expenses. This varies on what they paid for the house compared to how much of the new buyer has paid off.

The benefits to the buyer

1. The buyer can get into a house without jumping through all the hoops of the banking system.
2. The process is much faster and can be done within days.
3. The buyers can use the first home owners grant as their deposit.
4. They have a house and are out of the rental cycle.

The benefits to the seller or “Wrapper”

1. They can make a regular income from the difference of both price and interest rate
2. They don’t have to keep finding tenants for investment properties.
3. The people living in their house are ‘owners’ therefore they cover rates, insurance and upkeep.
4. There are no property management costs.

The property is sold and therefore the profit is locked in, although can be taken back if the new buyer defaults. Ownership does not transfer until the loan is paid in full.

Wrapping houses is slowly becoming a very widely accepted way of buying and selling properties. Most people are finding that they get more buyers than they have houses and they actually find themselves going full time into this business after 2 or 3 years as people start to refinance and the weekly profit replaces their income from working.

Before too long a wrapper will realize that they are the people in their market place who finance people into houses and they have a business that is very flexible and fluid. These people find that doing deals is what they use to pay for their long term buy & hold property and daily living costs.

Next time you are buying, why not ask the vendor to ‘finance’ it to you? They usually don’t need the money straight away and if you give them the price they want they may be flexible on the way you pay for it. You could always just ask for some of the price to be vendor financed.

There has even been an association incorporated to allow for further information for both investors and buyers of wrapped property. www.financewraps.asn.au

Providing Vendor Finance you really are not making any money on the house or unit. You are making the profit being a credit provider who manages the buying and selling process with your client. The money can be made in today’s market and is made in the management of the deal.

I am wrapped!

Don Christie

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