Wraps (Vendor Financing)
Wraps are another way to invest in property where instead of buying the whole
property at once you buy it on Vendor Terms or Instalments. You sell the
property and set forth terms that the buyer must make periodical repayments,
instead of the usual 60 days lump sum.
An example is Jane is very interested in buying a house but doesn’t qualify for
a normal housing loan. In this case John (the property investor) offers his
vendor terms to Jane. The sale price of the house is $200,000 and the sale price
to Jane is $240,000.
John also states that interest will accrue on repayments at the rate of his
finance plus 1 ½ %. The term would be 30 years but Jane can pay out the
remaining balance at any time. John then takes out a loan to cover the cost of
the house and Jane will then make payments to John.
While this seems like an exciting option there are many things that must be
considered.
·
You need to trust the person doing this. Having
to deal with legal issues and eviction at a later stage can be much aggravation
to both parties.
·
Ensure you have consulted a lawyer and done your
research on this. You are dealing with lending people money and this should not
be taken lightly.
·
Laws on this process differ in countries and
states. It is actually illegal to do this in some states/countries.
·
Make sure you are aware of any privacy laws and
consumer credit laws before continuing.