I have given up buying a house

[wayneL]

Interesting article from the Land of the Poms:

http://www.telegraph.co.uk/property/main.jhtml?xml=/property/2003/09/17/prosy17.xml

The more sober press are turning into housing bears.

 

[cuttlefish]

And if wors came to worse i would wrap (vendor finance) the property to someone which ensures a higher return.

Just curious - how do you provide vendor finance for something you don't own? (I might be misunderstanding what you mean by vendor finance, or maybe I'm misunderstanding the leverage part ...).

 

[Ageo]

Just curious - how do you provide vendor finance for something you don't own? (I might be misunderstanding what you mean by vendor finance, or maybe I'm misunderstanding the leverage part ...).

Cuttle its called a wrap around your mortgage (instalment contracts is another name).


Lets say you buy a rural home for 80k @ 7% interest rate for 25 years. You then wrap sell it to another person who cant obtain finance/ doesnt have a deposit/ bad credit record etc.. You do all your checks to make sure he can make the payments, get all your legals etc... and basically sell it to them for say 100k and a 9% interest rate (higher price and interest rate because your taking on more risk) and they dont mind because they get to own there own home without worrying about a loan. They pay for all the expenses like in a normal home and you make a 2% interest difference after paying your mortgage off.

If they sell it you lock in a automatic profit (100,000-80,000 = 20k). Thats basically a quick rundown but there is more to it.

Another reason is in the country usually for an extra $50-$100 per week instead of renting they can own there own home so it makes more sense.

So as you see many ways of positive gearing properties.

 

[cuttlefish]

Cuttle its called a wrap around your mortgage (instalment contracts is another name).


Lets say you buy a rural home for 80k @ 7% interest rate for 25 years. You then wrap sell it to another person who cant obtain finance/ doesnt have a deposit/ bad credit record etc.. You do all your checks to make sure he can make the payments, get all your legals etc... and basically sell it to them for say 100k and a 9% interest rate (higher price and interest rate because your taking on more risk) and they dont mind because they get to own there own home without worrying about a loan. They pay for all the expenses like in a normal home and you make a 2% interest difference after paying your mortgage off.

If they sell it you lock in a automatic profit (100,000-80,000 = 20k). Thats basically a quick rundown but there is more to it.

Another reason is in the country usually for an extra $50-$100 per week instead of renting they can own there own home so it makes more sense.

So as you see many ways of positive gearing properties.

What I don't understand is how does the title transfer to they buyer when they purchase - surely the bank won't allow title to transfer until you discharge your mortgage with the bank. If the bank did allow that then aren't they underwriting the low quality debt that you are selling?

 

[Ageo]

What I don't understand is how does the title transfer to they buyer when they purchase - surely the bank won't allow title to transfer until you discharge your mortgage with the bank. If the bank did allow that then aren't they underwriting the low quality debt that you are selling?

The title stays in my name but basically what they are doing is paying me in installments and then until that is finished i still own the house. But i cant just kick them out as thats all in the legals etc..

Speak to your solicitor if he knows about them and he will fill you in.

this is where i learnt wrapping

http://www.rickotton.com/wrappack.htm

P.S i have no affiliates with that link.

 

[dj_420]

stop the clock

And whamo....fuel prices rocket up and what do you have, nothing but a pile of ****. Interest rates go up due to inflation, then the outer suburb homes lose value the first, and the poor old commuter is stuck paying $100 to $150 a week in fuel.

Do you realise that as a population increases those areas on the outskirts as a result become populated. AND when a population increases the price of land increases also. that is why rural development on the coast would have cost 30 000 20 years ago and can now be worth 2 million plus.

 

[cuttlefish]

The title stays in my name but basically what they are doing is paying me in installments and then until that is finished i still own the house. But i cant just kick them out as thats all in the legals etc..

Speak to your solicitor if he knows about them and he will fill you in.

this is where i learnt wrapping

http://www.rickotton.com/wrappack.htm

P.S i have no affiliates with that link.

ok - so you generously sell this $80,000 house to some lucky recipient for $100K at 9%.

After 10 years of hard work and saving they've managed to pay $99,000 to you so they've only got $1000 left to pay off "their" house. But before they make that final payment the bank reposesses the house from you because you haven't been meeting your own mortgage payments.

What recourse have they got?

 

[Ageo]

ok - so you generously sell this $80,000 house to some lucky recipient for $100K at 9%.

After 10 years of hard work and saving they've managed to pay $99,000 to you so they've only got $1000 left to pay off "their" house. But before they make that final payment the bank reposesses the house from you because you haven't been meeting your own mortgage payments.

What recourse have they got?

The only way i wont be able to pay my mortgage is if the wrapee fails to pay me and if thats the case i use my own money to pay the mortgage that month or 2 and he defaults and i re-posses the home off them and wrap it again ect..

If they continue to pay it to the end then i will have my mortgage payed off as its principal and Interest.

Remember they are paying 2% above my interest rate plus a loan size of extra of what i paid.

 

[cuttlefish]

The only way i wont be able to pay my mortgage is if the wrapee fails to pay me and if thats the case i use my own money to pay the mortgage that month or 2 and he defaults and i re-posses the home off them and wrap it again ect..

If they continue to pay it to the end then i will have my mortgage payed off as its principal and Interest.

Remember they are paying 2% above my interest rate plus a loan size of extra of what i paid.

ok - lets say the scenario isn't yourself but someone a little unscrupulous - and instead of paying off their own mortgage they gamble it at the races and a result the bank repossesses the property. What recourse does the purchaser that bought for the 9% have in this scenario?

Also is their rate fixed or is it tied at a percentage above some benchmark rate?

Also - if they fail in making their repayments to you and you decide to repossess it what happens if they've 'wrapped' it and sold it to someone else at $120K and 11%?

 

[Ageo]

ok - lets say the scenario isn't yourself but someone a little unscrupulous - and instead of paying off their own mortgage they gamble it at the races and a result the bank repossesses the property. What recourse does the purchaser that bought for the 9% have in this scenario?

Also is their rate fixed or is it tied at a percentage above some benchmark rate?

Also - if they fail in making their repayments to you and you decide to repossess it what happens if they've 'wrapped' it and sold it to someone else at $120K and 11%?

The answer to your 1st question i have no idea as i would never do that so you would have to ask your solicitor or someone that knows.

2nd There interest rate will be variable as is mine so it will always be around the 2% difference (or whatever agreed apon.

3rd When i set up my contract i would state that only a sale of the property will be valid and no vendor finance will be allowed to be issued on the property. Not sure on the legalities but again its all set up before hand plus it wouldnt be worthwhile for some1 to wrap it again as the interest/repayments would be to high for the other person.

A good solicitor will give you all the details your after.

 

[cuttlefish]

A good solicitor will give you all the details your after.

thanks but I think I'll leave you to it - sounds too clever by halves for the likes of me.

 

[Ageo]

thanks but I think I'll leave you to it - sounds too clever by halves for the likes of me.

Mate i left school in yr 10 and i turn 23 this year so im not that clever hehe.

 

[Smurf1976]

ok - so you generously sell this $80,000 house to some lucky recipient for $100K at 9%.

After 10 years of hard work and saving they've managed to pay $99,000 to you so they've only got $1000 left to pay off "their" house. But before they make that final payment the bank reposesses the house from you because you haven't been meeting your own mortgage payments.

What recourse have they got?

According to a real estate agent I heard speaking on the subject of wrapping a few months ago, the short answer is that the person buying the house is completely screwed should the wrapper decide not to pay the mortgage or otherwise go broke.

 

[cuttlefish]

Reading the mortgage terms for my loans they all have:

"No Dealings - not do any of the following: ... (b) sell or otherwise dispose of the property (c) give any one a right over or to use any of the property (d) give or alllow another morgage or charge over the property ... unless the lender first gives consent."

If this practise goes on I think its a shame for the people on the receiving end of it who would generally be unsophisticated investors and not realise the situation they are entering themselves into, and I'm also surprised the law doesn't provide some protection against it.

I could potentially accept an argument for it if the vendor owned the property outright and transferred title to the purchaser but retained security over it until the loan was paid out. (effectively then they're just acting as a finance company, offering higher rates for less creditworthy clients).

 

[Happy]

Simple solution would be to give them 7% loan in a first place and monitor progress of the loan repayment.

But nobody is prepared to do that and everybody is up in arms for outrageous shody practices.

Just stupid, both ways.

 

[robots]

hello

here's something for you realist, article mentions lower north shore

http://www.domain.com.au/Public/Article.aspx?index=PropertyNews&id=1151778974533

what many have been saying, good property has not dropped, but been in good demand

as mentioned wages have gone nowhere,

thankyou
robots

 

[krisbarry]

2 Rate rises on the way ...sounds nasty, hope those rates are being locked in.

Anyway glad I don't own a house or have a morgage.

I will just be dumping more money into my superannuation fund

 

[Realist]

hello

here's something for you realist, article mentions lower north shore

http://www.domain.com.au/Public/Article.aspx?index=PropertyNews&id=1151778974533

what many have been saying, good property has not dropped, but been in good demand

as mentioned wages have gone nowhere,

thankyou
robots

Interesting, but it is a "Good News" article. If I was a Real Estate Agent I'd be telling everyone that houses are a great investment. And If I was a stock broker I'd be telling everyone to buy alot of shares, then sell some, then buy even better shares. I'd list specific examples of success and deliberately overlook any bad news.

Agents have their own interests at heart not consumers.

One thing about houses is people in Sydney in particular spend quite a bit of time and money rennovating them and improving them - so when they mention they've made thousands of dollars profit they nonchalantly overlook agents fees, stamp duty, mortgage interest, time and effort spent, builders costs, materials, new kitchens, new carpet, remmovalists costs, insurance, rates, taxes etc. all which are real costs that renters don't pay. They eat away any profits (if you made any)

So someone buying a 2 bedroom dump and spending 2 years living through the pain of renovations doing it up into a 3 bedroom "palace" may have spent $100,000 and made $100,000 off it - the house price has gone up but they've made nothing. they'll sure as hell tell you they sold it for $100,000 more than they bought it for though.

I'm a bit skeptical of house price figures because of this.

I know Sydney apartments have dipped for 3 years now, menawhile the ASX has soared. Renting and investing was the best thing to do for the last 3 years, it will change though - when is the question?

 

[Smurf1976]

According to media reports, housing is undergoing a bit of an uptick at the moment. Such an event marks the end of the "plateau" and has preceeded previous crashes in the UK etc.

So I think we're about to see a resolution of the crash / no crash debate. Too early to tell which way though but it should become apparent over the coming months. Either a new boom of sorts, or a crash...

 

[Realist]

but it should become apparent over the coming months. Either a new boom of sorts, or a crash...

Well a crash would suit me fine. Can't see it being possible though.

When was the last house price crash?

What is the definition of a house price crash??

Houses have gone down in Sydney 15% over 3 years apparently. When that is inflation indexed at 3% it equals - about 25%.

And as I said, people are forever adding value ot their house by adding rooms, new storeys, nicer kitchens, new carpets, new gardens etc. They're pumping money into the houses and they are still going down.

To me we've had a bloody strong correction already.

My guess is another 5% downturn over the next 9 months then we'll see pissy little 3 to 5% rises for 3 to 4 years then some significant rises.