Wrap Details request for options

[vbasic]

A wrap sounds pretty similar to me as assuming a mortgage. Can someone plz outline the process for me, including the necessary paperwork/contracts?

For example, I know of two properties in foreclosure. One is a beautiful one-year-old home in a developing and prestigious neighborhood. There is no equity and it is currently listed with a realtor for full market value but not moving. The mortgage is not assumable. The seller wants out.

The second is an extreme fixer-upper (possibly condemnable) in an established, rejuvenating neighborhood with high-end "period" homes. The seller wants to stay but can`t work and has already been through every option for re-financing and turned down. Possibility of equity ~$40K.

I was wondering about a wrap for the luxury home. Not sure about the second home. Suggestions..?

thx in advance for your input...

 

[Bill]

QUOTE (vbasic @ May 27 2008, 02:01 PM) For example, I know of two properties in foreclosure. One is a beautiful one-year-old home in a developing and prestigious neighborhood. There is no equity and it is currently listed with a realtor for full market value but not moving. The mortgage is not assumable. The seller wants out.

The second is an extreme fixer-upper (possibly condemnable) in an established, rejuvenating neighborhood with high-end "period" homes. The seller wants to stay but can`t work and has already been through every option for re-financing and turned down. Possibility of equity ~$40K.

I don`t see a lot of strategy available to you for either. First one is full price, so unless it is a potetnail rental property you are just as well off buying a straight MSL listing versus a foreclosure at full pop. If it is not moving, perhaps it isn`t that good a deal and everyone else has already figured this out??

The second property also has limtied potential for you. From your other posts you are looking to create short term cash through flips, wholesaling, wraps and various other methods, you need a pretty big equity gap to make most of those worthwhile, especially in a slower market. A near condemned property sounds like a ton of work and if there is only $40k equity you are leaving yourself wide open to obtaining a lovely little money pit.

 

[vbasic]

QUOTE The second property also has limtied potential for you. From your other posts you are looking to create short term cash through flips, wholesaling, wraps and various other methods, you need a pretty big equity gap to make most of those worthwhile, especially in a slower market. A near condemned property sounds like a ton of work and if there is only $40k equity you are leaving yourself wide open to obtaining a lovely little money pit. Yes, it`s not a lot of equity but...I see this property more as "land value" than the actual property itself. (Many residents are tearing down and re-building homes within a 4-block radius!) Only problem there is, I`m assuming that that sort of property is a harder sell than typical investments and besides, I don`t know too many developers. This is why I was looking at this property....

 

[Bill]

QUOTE (vbasic @ May 27 2008, 05:35 PM) Yes, it`s not a lot of equity but...I see this property more as "land value" than the actual property itself. (Many residents are tearing down and re-building homes within a 4-block radius!) Only problem there is, I`m assuming that that sort of property is a harder sell than typical investments and besides, I don`t know too many developers. This is why I was looking at this property....


You might need to find the developer first before you get in over your head. The first deal or two you may even have to give to them for a small fee just to build the relationship. Without background financing it could be tricky.

 

[Nir]

Ensure you find a developer first as Bill mentioned.

In general, if you`re into rental business, make sure you have positive cash flow from the first month!

Regards,
Neil

 

[BarryMcGuire]

You wondered about the procedure and paperwork surrounding a wrap. Firstly, I think the word wrap is used to describe two different scenarios. The first scenario is where there is an existing mortgage on a property that is too small to assume. You and the seller agree to a wrap mortgage that is much bigger than his existing mortgage. For example, if a property is selling for $300,000 with a $100,000 mortgage the seller might agree to carry a mortgage in the amount of $260,000. You make payments based on 260000 and pay him $40,000 cash. He takes your payment from the $260,000 wrap mortgage and makes his existing payment on the $100,000 mortgage. His existing mortgage might be a 5% mortgage but he might be charging you 7% on the wrap mortgage. He could also achieve the same objective by simply carrying a second mortgage.



The more familiar, "wrap" is something more definitively called an "agreement for sale" . In the agreement for sale scenario the seller sells to you for $300,000 and you give him a small down payment of say, $30,000. The, "unpaid vendors equity" under the agreement for sale is $270,000. You make payments to the seller based on $270,000 and if there is an existing mortgage on the property, he makes the payments on the existing mortgage. The difference between the wrap mortgage and the agreement for sale is that under the agreement for sale scenario title stays in the seller`s name. Where an existing mortgage is not assumable, the agreement for sale scenario is often used to bypass a lender who is concerned that the property has been sold and the mortgage assumed. If title remains in the seller`s name and the seller continues to make the payments on the existing mortgage , the lender either doesn`t know about it or doesn`t care about it. On a technical analysis a sale by way of agreement for sale is a sale like any other. On a practical basis lenders don`t seem to care if title remains in the seller`s name.

Sorry, that was a mouthful but hope it is starting to get at your question regarding the procedure and paperwork for a, "wrap".

Cheers

Barry

 

[dwb]

QUOTE (BarryMcGuire @ May 27 2008, 10:50 PM) You wondered about the procedure and paperwork surrounding a wrap. Firstly, I think the word wrap is used to describe two different scenarios. The first scenario is where there is an existing mortgage on a property that is too small to assume. You and the seller agree to a wrap mortgage that is much bigger than his existing mortgage. For example, if a property is selling for $300,000 with a $100,000 mortgage the seller might agree to carry a mortgage in the amount of $260,000. You make payments based on 260000 and pay him $40,000 cash. He takes your payment from the $260,000 wrap mortgage and makes his existing payment on the $100,000 mortgage. His existing mortgage might be a 5% mortgage but he might be charging you 7% on the wrap mortgage. He could also achieve the same objective by simply carrying a second mortgage.



The more familiar, "wrap" is something more definitively called an "agreement for sale" . In the agreement for sale scenario the seller sells to you for $300,000 and you give him a small down payment of say, $30,000. The, "unpaid vendors equity" under the agreement for sale is $270,000. You make payments to the seller based on $270,000 and if there is an existing mortgage on the property, he makes the payments on the existing mortgage. The difference between the wrap mortgage and the agreement for sale is that under the agreement for sale scenario title stays in the seller`s name. Where an existing mortgage is not assumable, the agreement for sale scenario is often used to bypass a lender who is concerned that the property has been sold and the mortgage assumed. If title remains in the seller`s name and the seller continues to make the payments on the existing mortgage , the lender either doesn`t know about it or doesn`t care about it. On a technical analysis a sale by way of agreement for sale is a sale like any other. On a practical basis lenders don`t seem to care if title remains in the seller`s name.

Sorry, that was a mouthful but hope it is starting to get at your question regarding the procedure and paperwork for a, "wrap".

Cheers

Barry

Fantastic clarification!
Thanks
Based on your experiences, how tough is it to get the vendor on board with this strategy?

 

[vbasic]

Thanks, Barry - exactly what I wanted to know!

QUOTE Based on your experiences, how tough is it to get the vendor on board with this strategy?I`m also curious about this....

Tacky question but I have to ask you, Barry...
Can you recommend a sophisticated and patient RE lawyer?