wrap around?

Question

I am seeking a creative solution for a deal I'm in. Here's the jist ..

I bought a SFR for 63, 10% down, seller finacne (SF) for 5 years, amortized 30, baloon after 5, 6% rate. My totals costs for repairs, etc. another 10, and I'm selling for 81k.  Now I'm doing the same thing for the buyer (30 year amort, 5 year baloon but 15% down and 7.5% interest rate) -- so the only option I know of is to take me own money out of the bank, pay my note off, so I can give my buyer proper deal.  I know there's gotta be a way I can keep old mortgage alive though, so I can enjoy the 1.5% spread for a few years.  Any thoughts???

(p.s. the man I bought the house from, and who holds the note, is a member of our church and my health insurance man, so we know him pretty well -- if that helps with any ideas)

Bill Gulley · Answer

Hi, there are several ways of doing this. If you know your seller and he agrees to allow you to remain responsible for the loan, do not pay it off, use his money! If you're a RE Investor, your money is worth more than 7.5%! So use that as long as you can. I believe in your state you can do a contract for deed. Sell at your terms and your financing will wrap the existing loan.

Another way is to sell with your buyer assuming the first and you do a second. Since you have agreed to the higher rate, you can bring the difference in interest back to the present value and add that amount to your second, you'll need to explain that to your buyer and show that as points of the second rather tna raising your sale price for the difference. You can also incorporate this startegy in the contract for deed.
Another way is to do either the sub-2 or contact with a 2 part promissory note. This has two principal amounts and rates of interest and can have different amortizations/balloon payments in one promissory note (like two loans rolled into one). One loan picks up the terms of your existing loan and the other makes up the difference as explained above.

By far the easiest way is to use a contract for deed as first mentioned.

Without a calculator looks like you'll be financing about just over 4K. Some states have a minimum second mortgage amount at 5K. You could simply allow him to assume the first and add to your second, again for the interest rate difference, and do a second amortized fo 5 years if they can make the payment. You might take just under 15% to round out your second to 5K if that is applicable in your state. Then you have your money in 5 years and your buyer will be under the magic 75% LTV in 5 years to refinance the original loan.

Either way or in combinations, but try to keep the old loan in play! I'd be happy to walk you through the deal if you like, just PM me. Bill

Michael Quarles · Answer

Good to meet you...

Does the note from the seller have a call if you transfer? If not why are you having to pay it off?

This is either a wrap, seller second, or contract for deed. Wrap being the better choice.

Also the value you're selling at should be increased up to 6% per year to your call date. Therefor if it is worth 81 now ad 24300.00 to your price and sell for 105300.00.

Congrats..

Michael