Procedures & Closing Costs on a Subject2/Wrap

[Jason Hodge]

Hello,

My question is about the procedures and costs of closing a Subject2/Wrap deal.

Let me set up an example, I'll use these numbers since I have seen them used a few times on BP:

Property Value = $100K

Repairs  = $0

Sellers Mortgage Balance = $90K

Sellers PITI = $830 /mo

I buy via Subject2 for $90K

I sell OF for $110K (due to OF premium)

buyer puts $20K down

Buyer PITI = $1030 (Pmt and all terms set through RMLO)

I carry a note worth $100K and receive monthly payments

Before closing, the buyer must be qualified by a RMLO to comply with Dodd-Frank & SAFE. (RMLO fee is assumed to be in buyers closing costs for this example, or should it be an extra expense to me?)

I am assuming for this example that all needed disclosures for either the seller or buyer are made by the law firm and appropriate paperwork, and all parties agree.

Closing costs for the subject2 deal:

Since I don't have any cash, I will need to go to a transactional lender to borrow the closing costs which I will know from a HUD-1. I am going to estimate that my closing costs will be around $2030 (including the transactional lender fee) for the purposes of this example.

At the actual closing of the subject2, I will bring my borrowed closing funds, sign the paperwork, and be done.

Soon after, at the closing of the Wrap, the buyers must pay closing costs (to the title/law firm) in addition to the down-payment of $20k that they will give me. We sign the paperwork, and we are done.

I hire a escrow/collection agency to handle receiving payments from the buyer and then sending them to the wrapped lender. Other than that relationship, I am "hands off" (as long as there are no issues like the wrapped lender calling the loan due, or having to foreclose on the buyer for nonpayment).

Directly after the second closing, I take the $20K downpayment and repay the transactional loan.

Net Income Breakdown Year 1

Revenue

Buyer PITI Income: $1030 x 12 = $12,360

Down Payment: $20,000

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Gross Income: $32,360

Expenses

Wrapped PITI: $830 x 12mo = $9,960

Advertising: $100

Finders Fee (Wholesaler): $500   - based on podcast 70

Closing costs: $2030

Collection Agency: $10 x 12mo = $120

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Total Expenses: $12,710

Net Income: $19,650 ($2,400 in note payments, $17,250 in DP - Expenses excluding PITI)

Net Income Year 2+: $2,280 (Note payments $2,400 - $120 for collection)

I am not sure how the insurance will shake out (as in who needs to be on what documents) but I am assuming that if the seller cancels his policy that the replacement from myself or the buyer will be the same price, for sake of the example.

So basically I walk out of the closing with $17,250 in my hand, and residual income each month for the life of the note, which I could hold or sell for a significant discount.

Am I missing anything, are my assumptions about how the process works and my numbers fairly close to reality?

Thanks,

Jason