Wrapping comes in a number of forms. The strategy has originated in America and been adapted to suit Australian laws and culture.
Wrapping is also known as:
- Vendor financing and installment
- Rent to buy or lease
- Lease option
Technically, this type of purchasing is a little different and is treated differently for income tax purposes. I will explain these nuances later; however, they are all wrap contracts.
Basically, a Wrap is when you purchase a property (normally at the lower end of the market) then on-sell it to someone else (offering vendor finance) who would not normally be able to get a loan to buy the property themselves through regular financing channels.
Because someone might not fit the traditional financier’s box does not mean that they are not suitable purchasers or finance applicants for your vendor financing deal.
The type of people who would normally slip through the cracks of the main stream finance industry would be, for example:
- Some self-employed people who have large write-offs for tax purposes, but still have good serviceability for repaying a
- Self-employed individuals who have not been in business very long.
- New migrants to the
- Individuals with marks or defaults on their Credit Reference Association of Australia file (CRAA).
- Those with a large percentage of their income in the form of social security
- Young people who are venturing into the market for the first time and need a kick
- Those who have trouble saving large amounts for a
- Individuals who have been through bankruptcy, sometimes through no fault of their
- Individuals coming out of divorce who do not have assets for a conventional financiers deposit
We always recommend that you seek professional advice as this blog is for general information only