Blue Peak faces angry backlash

[exnzpat]

BLUE PEAK DEALS
Here's how a typical deal would work A licensee finds a home they can buy for $275,000, perhaps from a family who have run into financial difficulties, but which a valuer is willing to rate as worth $320,000. An offer is made, conditional on Blue Peak being able to on-sell the property for $320,000 to a buyer without a deposit. Of the $45,000 price difference, $35,000 would be "given" back to the buyer as a deposit, initially as a zero interest loan with no repayments for two years, after which it becomes an eight-year principal and interest loan at 12%.

In effect, Blue Peak is delaying taking some of the profits from the purchase and sale in order to create a deposit. The remaining $10,000 would be divided between the licensee, Blue Peak, and costs. The buyer funds the rest of the purchase price, $275,000, with a loan sourced by a mortgage broker organised by Blue Peak.

When the "deposit" turns into a loan, the interest payments generate income for the licensee.

Let’s analyze the deal, shall we: first I’ll start by removing all the non-essential language and distracting commentary detail.

This is what I have:

1. A licensee finds a home they can buy for $275,000
2. An offer is made, conditional on Blue Peak being able to on-sell the property for $320,000 to a buyer without a deposit
3. difference, $35,000 would be "given" back to the buyer as a deposit
4. initially as a zero interest loan with no repayments for two years, after which it becomes an eight-year principal and interest loan at 12%.
5. The remaining $10,000 would be divided between the licensee, Blue Peak, and costs. The buyer funds the rest of the purchase price, $275,000, with a loan sourced by a mortgage broker organized by Blue Peak.


Clarified:

1. A licensee finds a home that they can buy for under market value, approximately 15%.
2. Blue Peak then resells to a buyer without a deposit for market value.
3. Of the difference, 15%, between market value and under market value, approximately 10% would be "given" back to the buyer as a deposit and the remaining 5% is taken up by the licensee, Blue Peak, and for other costs.
4. The buyer funds the rest of the purchase price, 100% of the under market value, with a loan sourced by a mortgage broker organized by Blue Peak. (Initially as a zero interest loan with no repayments for two years, after which it becomes an eight-year principal and interest loan at 12%). After that, presumably the buyer is own his own.


Implication here is: Blue Peak not only holds the 10% deposit as security, but is also appraiser and broker, or at least determines who that broker will be. This could become a pretty sticky situation if things start going south.

But, how could this operation go south?

Once clarified, as I have done above, you can see the common thread woven through this web-like structure: Market Value.

If market value were to begin to back-track this operation would suddenly begin to unravel because, essentially, the entire financing of the operation appears to be built on one, licensee fees, and two, the equity difference between purchase price and market value – a figure it appears, is determined, not by an independent body, but by Blue Peak itself and lastly, a mortgage broker selected by Blue Peak. The implication here is the credibility of the security in question, i.e. the house.

Oh, well -- live and learn.

[whitt]

Exnzpat this is exactly why wraps were not good for the buyer too.

Equitable interest may be given and the web gets very murky.

The license holders may be better off simply doing Lease options which are clearer and better for all involved.

Rather than losing a cut to another person.

[Monid]

Jones, whose Richmastery business claims to have a database of 60,000 property investors,was selling licences priced at $5000 (bronze), $25,000 (gold) and $50,000 (platinum) for a new venture, Blue Peak Wealth Management.

People paid $50000 to become bird dogs for Richmastery? I guess Henry Mencken was right:
"No one ever went broke underestimating the intelligence of the American public" (Obviously we need to swap American for New Zealander)

Cheers
David Hunter

[orbital]

People paid $50000 to become bird dogs for Richmastery? I guess Henry Mencken was right:
"No one ever went broke underestimating the intelligence of the American public" (Obviously we need to swap American for New Zealander)

Cheers
David Hunter

They can possibly sell it for more than $50,000 so its win-win

[halfempty]

I find this very interesting I was "offered" a franchise in this enterprise when it was first released and I turned down the opertunity for a number of reason's.

But from what I'm seeing in the media article and on this website and from having a little knowledge of the inner workings all I can say is ....Yawwwwn.

RM set up a property margining system to take advantage of the fact that there's piles of people who can't afford to buy their first home.

Franchisee's flocked to the system with no regard to the fact that it was untested brand new and just didn't work.
This was not RMs fault they gave it a shot.

The franchisee's were probably over promised as is RM standard procedure but then they bought into an un tested system.

Next we have a downturn in the property market that takes around 80% of the buyers out of the market was that RMs fault....no

The media article seems to imply some form of commercial neglect but I just don't see it.

I think Blue Chip was criminal, But Blue Peak was simply well conceived Ill timed and ultimatly didn't work.

Lets face it if it had worked the post's on this thread would be about how the RM crew are trading proeprty and making too much money by fleecing people who had to sell.......

[whitt]

Halfempty
Maybe you are right.
Possibly a poor business model and bad timing.

[typhoon]

timing

the market changing when it did in this last 12 month period caught a lot of very experienced people out.

as already pointed out, very difficult for a commercial business to predict everything 100% right.

vendors price resilience in the market, has drifted at least 6 months past the start of the mass sentiment, which originally stopped the phones ringing in real estate agencies October last year. This drift has also caught a lot of very experienced people out.

Neither of the above mean the model was flawed. If the new owner did not sell within this cycle, and the affordability on a Blue Peak deal would appear to be better than a lease options (cashflow wise) - whats wrong with that?


Lets remember people, the government is getting in the same business (and gaining collateral voters also - although of course completely by accident ).

take a look at the property press in South Auckland now. Very few agencies committing to the print cost because buyers . homeowners . consumers all hunkering down with the pressure of fuel costs etc etc. Was that predictable also? Not sure that would be fair.

should everybody who has paid for a lease option course in the last 6 months, who cant sell them to cashflow squeezed consumers, ask for a refund from the varying Lease Options trainers? of course not.

when the market changes, you have to change what you are doing to make it work. this may not mean spending zillions on marketing to trawl a very reluctant/scared/tight-fisted potential home owner in to an office when all his/her colleagues, family influencers and financial advisors are all sending the signal -:dont buy property !

the answer will be something that is a little out of the box - love them or hate them - out of the box is where richmastery operate well.

to those in fear that /or in their experience, the system has not worked for them, the best suggestion i can think of at the moment is, change what you are doing ! Numerous property commentators on PT, in the public media, are suggesting this will be a long period of settling in the market.

So be innovative, tailor your efforts to the new circumstances, utilise the resources you have paid for to help you, push the business partners for that help if you need to, but whatever you do, DONT GIVE UP !

[tanmedia]

the market changing when it did in this last 12 month period caught a lot of very experienced people out.

as already pointed out, very difficult for a commercial business to predict everything 100% right.

I don't know about that. 12 months ago, I thought (along with many others) that there were some serious imbalances in the economy. The signs were there that something major was brewing. It's a flaky business model if you consider the fundamentals of affordability and market dynamics.

[Bob Kane]

Don't forget that GST refund....

Let’s analyze the deal, shall we: first I’ll start by removing all the non-essential language and distracting commentary detail.

This is what I have:

1. A licensee finds a home they can buy for $275,000
2. An offer is made, conditional on Blue Peak being able to on-sell the property for $320,000 to a buyer without a deposit
3. difference, $35,000 would be "given" back to the buyer as a deposit
4. initially as a zero interest loan with no repayments for two years, after which it becomes an eight-year principal and interest loan at 12%.
5. The remaining $10,000 would be divided between the licensee, Blue Peak, and costs. The buyer funds the rest of the purchase price, $275,000, with a loan sourced by a mortgage broker organized by Blue Peak.


Clarified:

1. A licensee finds a home that they can buy for under market value, approximately 15%.
2. Blue Peak then resells to a buyer without a deposit for market value.
3. Of the difference, 15%, between market value and under market value, approximately 10% would be "given" back to the buyer as a deposit and the remaining 5% is taken up by the licensee, Blue Peak, and for other costs.
4. The buyer funds the rest of the purchase price, 100% of the under market value, with a loan sourced by a mortgage broker organized by Blue Peak. (Initially as a zero interest loan with no repayments for two years, after which it becomes an eight-year principal and interest loan at 12%). After that, presumably the buyer is own his own.


Implication here is: Blue Peak not only holds the 10% deposit as security, but is also appraiser and broker, or at least determines who that broker will be. This could become a pretty sticky situation if things start going south.

But, how could this operation go south?

Once clarified, as I have done above, you can see the common thread woven through this web-like structure: Market Value.

If market value were to begin to back-track this operation would suddenly begin to unravel because, essentially, the entire financing of the operation appears to be built on one, licensee fees, and two, the equity difference between purchase price and market value – a figure it appears, is determined, not by an independent body, but by Blue Peak itself and lastly, a mortgage broker selected by Blue Peak. The implication here is the credibility of the security in question, i.e. the house.

Oh, well -- live and learn.

You forgot the GST refund.
One of the innovative twists that Blue Peak use is to claim back GST from the purchase price.
It's claimed that this can push the deal into cash positive so it's win-win all round.
Orbital is onto it.
We discussed this on PT last year sometime.

[typhoon]

I don't know about that. 12 months ago, I thought (along with many others) that there were some serious imbalances in the economy. The signs were there that something major was brewing.

(Yes agreed i started selling my place in June for same reason. But nobody knew WHEN market would stop. And i personally strongly believe there is a hugely new previously unconsidered angle to the speed and severity of the stop - information technology means that the negative sentiment got to many more Kiwis gazillions times faster than ever before).

It's a flaky business model if you consider the fundamentals of affordability and market dynamics.

on the contrary its a great business model when you consider housing affordability issues. as to market dynamics, yes the market went down. they do that. but its not like RM were stopping them earning money through property !

[SuperDad]

We discussed this on PT last year sometime.

Did you?

Paul.

[muppet]

Bob Kane said

We discussed this on PT last year sometime.

But you only joined in May 2008.

Soooooo what name were you using last year?

[exnzpat]

You forgot the GST refund.
One of the innovative twists that Blue Peak use is to claim back GST from the purchase price.
It's claimed that this can push the deal into cash positive so it's win-win all round.
Orbital is onto it.
We discussed this on PT last year sometime.

Sorry Bob, a property investment that derives its profit from a tax return? I don’t think so. The goal of property investment is to make more money from invested money -- relying on some paltry tax loss to return a dividend is just weak.

If I were to package this enterprise and sell it to American investors I would be laughed off the stage. The reason has less to do with the semantics of the operation and more to do with the incredulous give back of the deposit. Why give back pure profit? And that is a very good question to ask. In Blue Peak’s case the answer is obvious: its prospective customers don’t actually have the deposit nor could they qualify for a regular mortgage in the first place. So, in a normal market or a retreating market the system is fundamentally flawed because it relies heavily on low income high risk buyers. Only when the market is in high gear and moving at a good clip is this thing even remotely viable.

If there is any cleverness to the system it must be the distance Blue Peak keeps from its end-clients using a shield of licensees’ who, in the end, will be left holding the proverbial bag.

[tanmedia]

on the contrary its a great business model when you consider housing affordability issues. !

Utter nonsense. Selling houses to people who can't afford a deposit (and obviously a property) is unsustainable.

[Weasel Driver]

Seller Assisted Down Payment Plans Outlawed

Utter nonsense. Selling houses to people who can't afford a deposit (and obviously a property) is unsustainable.

The US is well ahead of NZ with examining data on seller assisted financing data.

The 2008 Housing and Foreclosure Rescue Act signed into law last week very specifically outlaws seller assisted financing (especially when it is created out of air!) as the borrowers in these situations have an abnormally high mortgage default rates.

Appraisers are now held to a higher standard and are criminally liable for over-valuing property.

Same sort of default rates in lease option conversions which are close to 100%.

If you can't sell discount.....then if you still cannot sell it....give it away.

The Blue Peak model is beyond flawed, based on aggressive appraisals and an attempted ruse to get away from the obvious conflict of tipping students into over-priced properties. No one can defy economic gravity. Not even RM, PJ and Ron and their new real estate development math.

Best: Andrew Waite