Part 2: Wraps & Holiday Property
When it comes to wealth creation & asset protection, investing in property is one of the most reliable and lucrative ventures. But its success can depend on a number of factors, the most significant of which is your choice of investment property strategies.
There are several ways that one can go about investing in property, and in our previous post, we discussed two of the four most common. Here, we’ll discuss the other two.
A wrap is essentially when a buyer purchases a property and instead of taking out a loan, pays instalments to the seller within a predetermined span of time. This is also known as vendor finance or an instalment sales contract. This often occurs when a buyer is unable to qualify for traditional financing, but is capable of making weekly payments that will amount to a value greater than the original purchase price of the property. What happens is that the buyer still pays a deposit, but instead of settling within 60 days, the balance is paid off in a series of instalments over an agreed timeframe, which can be several years.
There are many buyers who cannot qualify for traditional financing and would be interested in a wrap for the flexibility that it offers. But you need to be very careful in selecting your buyer. The success of a wrap is primarily dependent on the buyer’s capability to make repayments, so you need to pre-qualify potential buyers to ensure they can afford the payments.
Because of these pre-qualifications, there are various regulations for wraps that vary from state to state, particularly those related to privacy laws and consumer credit laws. So apart from ensuring the financial capacity of your buyer, you need to get well acquainted with these regulations, and make sure you abide by them.
Among all investment property strategies, purchasing a holiday property sounds the most appealing. This is mainly because holiday houses are located in attractive tourist spots, and can be rented out or enjoyed for one’s own pleasure. But there are several factors that separate holiday property from all other types of investment property, and these are factors that you must consider carefully.
Firstly, holiday property can come with complicated tax rules, especially if you plan on renting it out some of the time, and staying there for the rest of the time. If this is your plan, make sure you’re well aware of the taxes applicable so you can better determine if it would be a good investment option for you. It would be wise to talk to a business accountant in Sydney or in your locality to clarify these details.
Secondly, there is no guarantee that the property will make profit immediately or consistently, or of how much you will make from it. So if you’re planning to buy, do not include rental income in determining whether or not you can afford it. You should also consider that while covering the cost for your holiday property, you have to cover those of your primary residence as well.
Thirdly, holiday properties often come with unique features as well as problems. Unique features include such things as proximity to water or other tourist destinations, whilst unique problems include local wildlife or pests that may inhabit the area. These are things that only local realtors and professional inspectors can point out, so it would be wise to avail yourself of their advice and services.
When you’re planning to invest in property, it’s crucial to do your research and determine which strategy is best for you. Once you have invested in your property, the next best step would then be to secure it through property investment structures, like Chan & Naylor’s Property Investor Trust® (PIT®).
The Property Investor Trust® (PIT®) is a premium structure for holding real estate investments that’s well recognised in the investing community. It offers investors great flexibility, protection and control. To know more, give us a call on 1300 250 122 or submit your query online.
Disclaimer: This article contains general information. Before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs.