Need some input about using wraps to resell property. Coming across situations where individuals will sell with owner financing and it is possible for me to resell on a wrap. What is more important a spread on the interest rate, property price or down payment? How can you tell when its beneficial to wrap a wholesale deal?
And Jackie I really messed up. The statement that a confused mind will say no is true. I used an option contract to do a transaction on a wholesale deal and offered cash and the seller stated he thought I was paying cash instead of an option. I should have used the contract in your book. But I had used the one’s I had all up.
There are a lot of factors to take in to consideration when doing a wrap. You definitely need a cash flow spread so you can create a reserve just in case the buyer moves out and you have to start all over again. That spread can usually be accomplished with an interest rate adjustment. But if the underlying loan has a high interest rate, then you need to rely on the higher sales price to make your spread. It is ideal when you have a higher price and a higher interest rate.
I’d be very careful about buying a house subject to the mortgage if the mortgage balance is close to market value. I thoroughly anticipate that we will see a market drop in 2017. If that happens you could be stuck with a house that is upside down. Ideally, you’ll buy at 20% below market.
If you can’t get the house at 20% below market, forget about buying subject-to or with seller financing and switch to master lease mode instead. You still get cash flow. If you get an option, you could still get the upside if there is one. But it is much safer. A master lease is easier to get out of than buying if the market tanks.