The property and financing - Bought my 1st rental property (2019 new construction 3/2 with a 5 year home warranty) which I paid 20% down at 139k and refinaced in 2020 108k at 3.75% on a 20 year note resulting in a $646 monthly mortgage payment and renting @ $1535 per month resulting in a cash flow around $250 per month after PM fees Taxes and Insurance. Current zestimate is $225,600. (I know that’s not totally to be trusted but is adequate for my question) Great equity as the loan is currently around 97K

The current situation - The tenants are breaking the lease and leaving. I was planning to sell next year anyway and put the equity into two rentals using a 1031 exchange. Current interest rates and pricing make this strategy look thin to me from a purchasing and cash flow perspective at this time. So instead of paying for a make ready and putting new tenants in for 1 year it’s seems prudent to do a make ready and sell.

Given that I have a 3.75 mortgage rate it appears that selling with a wrapped mortgage could result in getting my initial investment (about 30k) back and more. If sold for 225k with 25% down from the buyer and using a minimum 8% interest rate with a 30 term I would get $56k down payment and the mortgage payment to me would be about $1239 a month. So $1239-$646=$593 per month arbitrage cash flow for 30 years.

I do plan to hire a quality real estate attorney to guide the transaction and make sure all is on the up and up. I am aware of the due on sale clause.

It seems strong… But I have never done this and am sure I am missing something… looking for BP advice. Shoot holes in it. Pat me on the back and guide me. :) I know this is not the easiest way and there are more moving parts and risk but I am very much considering this approach and look forward to, and am grateful for, any BP wisdom to flow my way.

Selling my rental in Texas on a wrap-arbitrage play

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