Wrap Mortgage Private Money Partner Analysis

[Sheldon Alex]

Good day everyone. Here’s a quick example of a Private Money Partner funding opportunity I underwrote recently.
The borrower’s exit strategy is to Wrap the property to a homestead buyer. Below are the figures:

• Purchase Price: $225,369.78
• ARV: $199,000.00
• Mortgage Balance: $209,099.44

Great thing about wraps, however, is you can add equity, interest, and your own terms, which is what the borrower did here.
Via adding $101,000.00 in equity, the borrower plans to sell the property for $300,000.00 for a 30 year amortization and have the borrower place a down payment of $15,000.00. Thus, bringing the borrower’s principal and interest at $1,949.63.
Net Cash Flow for this may equal $808.66, with a 14.12% Cash-on-Cash Return.
In this scenario, the borrower is looking for $68,746.00 to fund the Entry Fee. Now the down payment from the homestead buyer wouldn’t cover a PMP’s loan. Thus, this borrower is offering 90% equity ownership, with the PMP receiving 90% of the cash flow to pay down the loan. Once fully satisfied, the split becomes 50/50.
When accessing this deal, here’s what went through my mind:

• A PMP would have to be okay with holding their funds long-term
• The borrower would need to be experienced with doing wraps, as it takes time to get willing and able buyer
• The borrower would need experience in pivoting to a different exit strategy should they fail to successfully execute a wrap
• With NO EQUITY on the property originally, and the PMP being in second position, the borrower would likely need to cross-collateralize if the PMP has NO INTEREST in taking over the property

My conclusion, from looking at this from a thoroughly analytical standpoint, would be only someone who has a moderate to high risk tolerance and cares about cash flow without pulling out and parking their money into numerous deals would likely lend on this.
Anyways, thoughts anyone? If a deal like this was sent to you, why or why wouldn’t you lend on this?