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Author Topic: Wrap arounds  (Read 1975 times)

Offline realnew

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Wrap arounds
« on: June 22, 2006, 05:08:26 pm »
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!

Offline Keith Palmer

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Re:Wrap arounds
« Reply #1 on: June 23, 2006, 12:01:59 am »
real new,

I agree with you. Pay as much as possible to the principal and increase cash flow.
Keith Palmer
American Home Buyer
Licensed in FL only!!
407.580.1998 (cell)/407.571.2297(office)
[email protected]

Offline drcpr

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    • PrescottFSBO.com
Re:Wrap arounds
« Reply #2 on: June 23, 2006, 12:16:46 am »
when we do wraps, we do 2-5 yr balloons... so on a new mortgage the buyer named Barney essentially pays the interest on your 1st mortgage. you collect the difference in your pocket creating a small cash flow... you have reduced cap gains cuz you are holding it over 1 yr. & you get enough cash (I'd get more than $10K down) to move to next project knowing that in 2-3 yrs you'll have your mtg pd off & a nice bundel in your hand when they refi & get their own loan

remember... use other people's money & if you do this often, space you balloons so they don't all fall in the same year :P

 




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