Hi Folks,
Bronchick wrote an article - see here http://www.reiclub.com/articles/create-cash-cow
which includes an example of a wrap around mortgage.
"Consider this example: Susie Seller buys a $90,000 house for a 10% discount ($81,000). She borrows $81,000 from First Federal Financial on a favorable 8% thirty-year loan. Her principal and interest payments are roughly $594 per month. She sells the property to Barney Buyer on an installment land contract for $100,000 (about 10% above market), taking $10,000 down and carrying the balance of $90,000 at 11% for thirty years. She does not pay off the underlying loan, but rather collects payments ($952/month) from Barney on a monthly basis and continues to make payments on the underlying loan. She collects $358/month cash flow on the “spread” for 30 years! "
Why wouldn’t she pay off the underlying note, thereby increasing the amount of the monthly cash from from the wrapped mrtg – and protect herself in the event that the wrap around loses the ability to pay?
Did I miss something here? I wouldn’t carry the 1st mrtg for 30 years. If the wrap’s going to pay me $952 (less misc expenses) I’d collect as much of that as I could!
