Wrap around Land Contract

[Sergio Aguinaga]

Hello all. I have a couple quick questions: I’m in Michigan and we only do land contracts for wraps or seller finance.

Scenario: If a seller owes 40k on a mortgage and the ARV is 100k while he's 16 years into the loan and has a 250/month loan pay down since his PI payments are 420/month, to wrap around land contract, if I set purchase price to 100k (which is full market value) and 0% interest with payments of 450/month, here's my questions:

1. Am I literally building 700/month in equity? 450 for the monthly payment to seller and 250 for the mortgage loan pay down.

2. The sellers mortgage has nothing to do with the terms I wrap with him even though the amount he still owes is part of the purchase price I give him. So I’m getting loan pay down with mortgage and loan pay down with him all in 1 land contract equal with purchase price of 100k (60k equity + 40k remaining mortgage). The wrap still has the seller in charge of making the monthly payments cause it’s still in his name but I expect he pays for it.

3. Even though mortgage stays with sellers name, I’m the one benefiting from that loan pay down and not him, right?

4. There should only be 1 land contract that wraps around his existing mortgage and equity with new terms me and seller make in this case 100k, 0% interest 450 monthly payments. I shouldn’t have 2 land contracts (1 dollar for dollar with the existing mortgage and another land contract with the sellers equity).

5. Even if I gave him 3% interest and it comes out to 450 monthly payments, since his interest is 4.25% and I’m offering 3%, after 5 years let’s assume he now owes 30k but my pay down to him let’s say is 15k, after those 5 years I will owe him 75k now, right?

With these answers I can confirm my understanding is correct. Thank you!

[Tim Herman]

@Sergio Aguinaga 1 seller benefits from mortgage paydown on a wrap. 1 year of payments you would owe the seller still $94600. His underlying mortgage will be paid down $3k. For you to benefit from mortgage paydown you would need to have two separate mortgages.