Wrap around mortgages

19 Replies

I am looking to purchase a distressed property here in NC. Purchase the property and rehab it for 25k. Property values in the area are in the 65k to 79k range. After repair I intend to sell the property with a wrap around mortgage putting cash flow in the bank. After a few months of receiving the payments I am thinking of selling the note to pull cash out. Has anyone done this and if so how was the outcome......Any advice would be appreciated!

hey teddy....i just did this for a few properties in charlotte, and a 4plex out in dallas off of new hope rd...just over by you..note brokers discount the note pretty heavily i've learned, so it seems that it's better to sell with a balloon so you could cash out after some time..unless you can find buyers in gastonia with great credit, 10-20% down, etc...but that would be tough in that area i think....not sure what part of gastonia you're looking in, but i'm seeing homes there that are listed less than 20 grand in some parts...some even less...what part of gastonia are you looking in?? overall i think it's a good strategy, as long as you realize you may take more of a hit than you'd expect selling the note....also, most brokers won't work with credit less than 600 or so...are you confident these homes would appraise for 65-79,000 after rehab? you have comps??

Well I do my homework. The area this particular home is in is out of Dallas. The Cherryville area. I dont know about the 10 to 20% down. I think I would be wiling to discount the note up to 25% to pull my money out. The home is listed for 30k and I just found the owner last night, they are based in Raleigh. The house has been sitting empty for about a year now and has had no offers on it. I am thinking to offer 15k. I would say it needs around 10 to 15k in rehab and comps in the area are in the 70 to 90k range. Its on an acre of land. Very private........

Hi, yes, I have done this many times, and the outcome was successful, made money. But, I was always in the position to ensure my buyer succeeded, can you do that? I don't see much of a question about it here? Why are you taking this strategy? What about a straight sale and carry a second? Is your market really slow? Whatsup? Sounds like you might have a good deal...Bill

Well for the most part Cherryville is more of a no town. I know of people there who would love a owner financed home due to the credit and banking issues. I can sell the note for up to 80% of the balance. The main thing is here I would make sure that the payment wouldnt be too high so they would be more obligated to pay their bills. Bill and Bryan what types of investing strategies do you do and how is the outcomes on your ends?

hey there teddy...you say it's worth 65-79k for resale. is that owner financed? you mention that the downpayment might be an issue for your buyer...that will lead to a bigger reduction when you sell the note...same if they don't have great credit..also are you sure about your purchase and rehab costs?? you say you'd be all in for 25k...but then you said they're asking 30, and you are gonna offer 15..are you not expecting to have to negotiate and have them counter?? will you not go up after the 15?? if so, i'd start a little lower, so i still had room to go up to the 15..you also mention 10-15 in rehab costs, which most likely means 15. so you're in for 30, and that's not counting closing costs, commissions (prob won't be any if you owner finance) holding costs (taxes, insurance, utilities, etc.) this is all assuming the owners who are asking 30 will jump at your offer of 15 as well. btw, you said this home was in they cherryville area...i saw a home that sounds just like this one out in bessemeer city, just outside of cherryville...not the same house, is it??

This property is out of Waco. On the other side of Bessemer. I think I can pick up this house for 15. I know the area and the people who own it obviously dont care about the property. I am a contractor so I can do all the work myself. It may take me a little longer, I do quality work. I am hoping that all goes well. I am going to call the owners in a bit and offer 15k for the property. I will go no more than 20. They will take it....... Rehab costs of 15k, owner finance with a wrap for 69900 with 5k down and a rate of about 7% for 15 years. I am hoping to get 80% for the note........If I cant I am looking at a 300/monthly cashflow.

do you have permanent financing set up already, or is it your cash invested?? i thnk it's a great idea..do this a few more times and you basically have an off hands salary coming in...this is what i've been working on lately...as for selling the note, 7% isn't the most desirable..you could prob get away with chargin a bit more...credit will be a big issue when sellling the note...and an appraisal...if it doesn't appraise for what you need it to, and/or the credit isn't above 650 you'er gonna take a huge hit when selling.....best option then would prob be to hold it and cashflow like you mention..nothin wrong with an easy 3,600/year for the next 15 years right??

This is true. Cash deal with partners. I just need to put it together. If I cant get it sold a few months into the term for a 25% discount I will hold the note......Rinse and Repeat........

Originally posted by Teddy Patrick Jr:
This is true. Cash deal with partners. I just need to put it together. If I cant get it sold a few months into the term for a 25% discount I will hold the note......Rinse and Repeat........


Hi, how do you rinse and repeat while having a note on that one, did you need the cash?

I have other ways of obtaining cash.......Its just a matter of when I get it is all.

Ok, short answer...short question, rinse and repeat means churn the property again?

Hi, well I think I aited long enough for an answer, so I'll assume that it means churn the property!

Got some news folks, that means everyone:

First, there are regulators that visit RE sites and they are fishing for people you pull stuff that's off center. So, open your mouth at your risk if you're doing something illegal.

Next, under the SAFE Act it will be very easy to nail scoundrals, cheats, thieves, scammers and ripoff installment sellers that put people in deals, collect a down payment, then declare defaults, (the rinse cycle) and go on to the next buyer (the repeat cycle).

I have assisted and will assist buyers who get screwed over by these transactions. If it is a legitimate default, where the buyer fails to pay as agreed and resonable opportunities have been provided to cure such defaults, then the buyer needs to sell or move, IMO.

If, there is an indication that any investor is acting otherwise, I will assist them to the extent allowed by law, which can be considerable assistance.

As an example, in Mo. a minor can bring suit in small claims court and they may be represented by a "friend" (that would be me). Currently, there are three minors involved in a foreclosure and unlawful possession. Seems the seller didn't file as required for eviction and entered the home while the family was gone and threw out belongings. The minors lost clothing, toys, television and computer games, etc, etc. so the kids are filing suit individually. That's three seperate suits that can amount to $10,000.00. The adults have seperate claims for damages. This does not include the unlawful foreclosure action for demand for payments that were not due that triggered the whole thing.

The builder built the hosue and sold it seller financed. He has other foreclosures in the county as well. The pattern is not a problem to show nor was the intent as there was no qualification.

Our intent is to seek the greatest amounts for the indemnification of damages the law allows in each seperate case.

Don't worry, I have been at this long enough to recognize a default, all of the excuses you can imagine and when the borrower/buyer is at fault, they need to move on. I can also recognize sellers trying to pull a fast one, so if anyone has ill intentions I suggest you reconsider. There are many other people out there that will be doing the same thing.

IMO, it's up to investors to keep your investment backyard clean, in other words, keeping the industry players in bounds, following the rules and keeping transaction above board and honest. If you allow some guy to operate in any other manner, you're hurting yourself. Short sales are a good example, half the world thinks they are illegal, and why did all of that come about? Because of some rotten apples in the basket!

One last comment, this ,may not be a popular position to take, but it is the right position to take, for myself and the industry.

So, if that is your strategy, good luck, if ya want to play hard ball ya better bring a really deep bench! (In baseball lingo that means if you want to play you better have alot of talent in alot of players sitting on the bench for replacements, lol)

Well maybe that was a little too much about it, but I just as soon take a shister behind the barn as look at them! Lowest form of life in real esatate! I have spent more than twenty years getting good people out of trouble, so it's deeply ingrained. Good luck....Bill

hey bill...i'm thinking/hoping we jsut have a miscommunication here...when YOU HEAR rinse and repeat you're thinking that he will boot out the current buyers and sell on terms the same property to new buyers, right?? but when HE SAYS rinse and repeat, i'm thinking/hoping that he means find more money to find another property to rehab, and sell on terms...maybe he wil clear it up for me...and i know this is a soapbox for you as i've seen yu post that before a few times, so thanks for the reminder for everyone..but again, i'm hoping/thinking that's not what he meant..let's see his response...

Well, I realize he may have just left the building and I'm not saying that IS what he meant, so it's not to threaten or anything, just more like a public notice of my position. I hope it wasn't either!

I'm not lurking for such people, if I find one, I call them out right then, I don't sneak around about it at all. I don't bushwack anyone nor do I play any regulatory enforcement role. People do call or contact me for help and I have and will assist on a personal basis, that's all.

Yes rinse and repeat can be the next property.

Sorry, it is a soapbox of mine, just have seen too much of it! Bill

When I say rinse and repeat I mean What it means. I have cash in the family that can fund what ever I want. I need credit....... I am a young investor/contractor so please dont think I am like these scandals. I am just trying to find a deal that can be funded that can put some cash in my pocket and build relationships. I would not do such thing.........

If you screen your buyers carefully, you could pick one that just needs some help to clean up their credit. Clean them up and let them refinance to cash you out. You'll get a lot more cashout that way.
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I will do so Ed thanks. You can email with more info.........

Hey Ed....Is this generally what happens with lease option deals as well, find someone with credit problems. Find them a home and hope they can find funding in a year or two.........I dont like lease options. I think only 30% or so actually exercise the option to buy.......Didnt mean to throw you off I was just curious is all.

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