Sub2 + Wrap = Good Idea?
I have a question for investors who are experienced in both "Subject To" and "Wraparound Mortgage" deals.
I have a guy who wants to mentor me in the following investing strategy:
- Put a house under contract for a 90 day option to purchase subject to.
- Find a buyer interested in an owner-financed deal.
- Purchase the house Sub2.
- Sell the house via a wrap.
Mr. Potential Mentor says that because you're offering owner financing you can typically boost the sale price 10% and the interest 2% (assuming the original owner had an average flat rate) and collect 10% down, creating an early payday plus pretty good passive income.
If you can't find a buyer within your option period you walk away, making the risks comparable to wholesaling. It's the buyer's house so there are no landlord headaches. If the buyer defaults you can foreclose, rehab and resell or return title to the original owner, with reselling being preferable both ethically and financially (carry the costs and sell the house twice, doubling the DP's and extending the passive).
There are obviously several legal considerations, but the potential mentor's partner is an experienced and highly regarded RE attorney so I feel comfortable there.
Lastly, the potential mentor doesn't want any payment up front. His compensation will come in the form of profit-sharing.
It sounds like a pretty sweet deal....
My question to those of you who are experienced with these forms of creative financing is this:
Assuming I can avoid buying bad properties and assuming the lawyer competently covers the legal bases, are there any risks to this strategy not captured above? Or does this mentor and his strategy seem like a pretty good deal for a newbie investor?
Thanks so much for your time, insights and advice.