I wanted to follow up on a previous post of mine. I wanted to get some ideas about selling my personal residence on a wrap. Just wanted to see if this would be feasible to sell the entire deal on a wrap to increase the chance of selling (faster sale as it is a slow market and a tough area to sell in ).
value 315K, owe 300K
rate low (5% or so)
how does that effect my financing numbers/ability if I am to buy another house? Etc.
any feedback or help would be appreciated. Thanks!
Eric
are you looking to wrap the 15k?
That’s not very much, if you’re in a tough area to sell and you’ve only $15k in equity how do you expect getting someone to pay retail?
I’m certainly not trying to be a jerk but if you owe 300k, you don’t really have much room for a wrap in my mind
I think that you may still be able to come out ahead by using a wrap, eventhough you do not have a lot of equity. If it was purely a subject to deal, than it would be better to have more equity. However, the wrap allows you to make interest above the interest that you are paying. So, if your interest rate is 5.25% and you seller finance a wrap at 7%, then you would essentially be getting something close to 1.75% per year on what is owed. Keep in mind that this will go down over time as the principle is paid off, so a ballon at 5 years would probably be a good idea.
I think that you would be better off trying to get $15000 in a down payment. Use it to cover your closing costs, and save the rest for a rainy day (i.e. in case the buyers stop maaking payments on your mortgage.
Here are my calculations:
$1,656.61/ month for a $300,000 loan at 5.25%
$2095/month for a $315,000 loan at 7%
$1995/month for a $300,000 loan at 7%
So, there is some cash flow.
If you buy a home that is less than 200 miles away, than your new home will be considered an investment property and yoiu will likely pay a higher interest rate. However, if you are buyinga home that is more than 200 miles away, then it could be considred a second home. I have read posts in other forums where you can show a lender that you have sold the house that is being sold subject to and that it can help you to get a lower rate, but I am not sure if it actually helps
on a wrap there are four areas where you make your money…
Down Payment
Payment difference
Pay down difference
Pay off difference
Good luck
Michael
$15k is typically not enought spread to warrant a wrap. If, however, it is the only way to get out of your home with a sale, you might consider doing so, depending on the terms of the note you are wrapping (ie: interest, and number of payments left). If it does not make sense, you might consider renting your home for a few years until the market recovers and you have the opportuninty to raise the equity in your wrap.
Regarding qualifying for a new loan, the mortgage business is changing their underwriting requirements daily (it seems). You need to find a good broker and get that question answered. Typically in the past, they would offset your mortgage debt and add back in 75% of the rental (or wrap) income to calculate your debt to income ratios.
Wraps are profit centers and are more valuable than mortgage companies credit your net worth. If you have equity in a wrap it will provide profits in many ways including monthly cash flow and windfall profits when the property is refinanced or sold by your buyer.
I recently purchased a home from a bank at $43,950, spent about $8k to clean it up, sold it on a wrap for $79,000 with $5,000 down. I took the wrap and sold it to an investor at a very high yield and was paid $18k for that equity held inside the wrap. $18k plus $5k down minus the clean up costs turned out to be a quick and profitable deal. Wraps can be major profit centers if you understand them.
In your case, with little equity, if you have a good interest rate, you can raise the interest and with the small principal spread, you can still earn a nice cash flow monthly. And if you put in your contract a prepayment penalty, you can increase your profit margins and the prepay would be justified as your profit center in this case would be collected on a montyly basis over years, which would be interrupted in the event of a prepayment.
Hope this helps.
Rob
R.E. Investor/Mentor