We have been looking into selling a couple California (Bay Area) properties using seller financing and a Wrap Mortgage. Of course we've gotten many reports and opinions from many different people that questions the legality and the "due on sale" clause.
I'm not look to discuss any of those details here.
I would like to ask: is there anyone out there who has successfully done wrap mortgages in California and can you recommend any contacts I could begin a conversation with as far as executing a wrap mortgage in CA (or whatever it's legal name might be in California).
I have done literally hundreds of them.. but that was long ago.. I don't think anything has changed... There is a Deed called an" All Inclusive Deed of Trust".. This deed spells out the wrap in the deed itself.. I think this will get you were you want to be.
Unless they have changed in CA since I last did those and that was early 90's.
PS as hot as bay area RE is why would you even want to carry paper.. ? just curious is all
please see my response below
Thank you Jay for your input.
We want to carry paper for several reasons:
1. Greater Positive Cash Flow - We purchased both properties while living in CA and was able to receive a small cash flow. Since we moved out of the state, we have been paying out-of-state tax which cut the cash flow to almost none. With notes, we hope to bring up cash flow by (1) sell the properties at higher prices; (2) charge higher interest rates.
2. No Remote Management - We have been remotely managing our property manager on weekly basis. The time and effort spent on management is not worth the low cash flow we are receiving.
3. No Stress on Finding 1031 Exchanges - Our initial thought was to 1031 the CA properties for NV properties, but the 45-day limitation makes it difficult to find the "right" properties.
We welcome your thoughts and suggestions. :-)
I'm curious why you moved from SF to Henderson?
My husband and I set the goal to retire early. That means we can live off our rental properties with enough positive cash flow. After purchasing our first two rentals, we tried to buy our own house 30 mins south of SF, only to get the sticker shock of $800K for a 2bed/1bath, 1200 sq. ft, 1950s house. We both held very demanding full time jobs in SF; the $800K meant one of our salaries would go into mortgage and maintenance costs, while the other salary would go into living expenses. That would leave us with no room to travel, do fun things and retire early. It would also put tremendous pressure if one of us lost our jobs.
After much soul-searching and at the blessing of a friend that already lived in Henderson, we found our "way out". With the housing prices at a fraction of the Bay Area and W-2 jobs that paid 90% of what we made in SF, we can live comfortably while pursuing our goal. Also, because jobs here are much less demanding - mentally and time wise - we now have the ability to spend more time learning and focusing on RE investments.
To answer your question in one sentence, the move was very strategic and we have not regretted it so far.
@Tiffany C. good story and goals.
@Tiffany C. - Have you discussed your plan with your tax advisor? It appears to me (not offering tax advice) that selling for a gain may create a taxable event.
I understand the fear of working "under the gun" in a 1031 exchange. Working with a competent real estate broker can help alleviate some of the stress of the 1031 exchange. There are ways of structuring a contract that can legally give you more time to identify the next investment property.
As well, a reverse 1031 exchange could be executed prior to the sale of your existing properties.
Success in your endeavors! Feel free to reach out with other questions!
The Reverse 1031 Exchange would allow you to take your time to find the exact property that makes sense for you and then to acquire the replacement property first and then sell your relinquished property with in the 180 calendar day Reverse 1031 Exchange period. These are more complicated exchanges, but take much of the stress and risk out of the transaction because you have already found (and closed) on your replacement property.
Thank you Peter for your insight! Your mention of reverse 1031 exchange is the first time I heard of it and have already reached out to our contacts in L.V. for recommendations of experienced brokers in this niche. Thank you again for opening my eyes and options! :-)
Your information on how to handle the reverse 1031 is amazing helpful! I will read through your website and be in contact.
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