Wrap around mortgage in the state of WI

[Pari Thiagasundaram]

Anyone done a wrap around mortgage in WI ? I have a property that i hold free and clear, but wanted to cash out. So doing a 30 year fixed now. In the meantime, i am advertising this property for seller financing so i can hold the note and not the property.

Anyone done a wrap around in the state of WI? What are the steps involved and how to go about this ?

Any help is greatly appreciated.

[Marcus Auerbach]

@Pari Thiagasundaram I can't give you advise with the legal side, but here are some financial considerations. First question, who is going to buy a home and is going to volunteer to pay higher interest rate? As a first time home buyer you can get a FAH loan with 5% down. A person who can't qualify for that has either demonstrated a lot of financially iresponsible behaviour (in that case why would you take the risk) or they had a one time situation. But in my experience these people are usually smart enough to know that they can rent for a year until they haev fixed their score enough to qualify for a low interest bank loan. 

The other issue you have is trust: people will be suspicious to a home made mortgage from a private individual compared to a well known bank. Finally look at the numbers: the most you can get IMO  is a 3% spread. So in todays world 7-8% tops compared to 4-5% from the bank. On a 100k note that's $200 bucks. Looks alright for passive income at first glance, but keep in mind you loose your tax shelter, so to my best knowledge it is full taxable. On top of that you loose the tax write of from property taxes and mortgae interest rate, because that goes to the new owner now. Bottom line it's not very attractive to do; you hear it in a guru seminar once in a while, but nobody really does it, at least not in todays low interest rate environment.

You want your cake and at it? Here is something to think about: get a cash out refi and market the home as rent to own. On a typical Milaukee property you should cashflow $300-500 before property management expenses. Repairs and maintenance will be the responsibility of your tenant and in the mean time you keep all the tax write offs. Be careful to not include a rent credit (not legal anymore since the Frank Dodd Act). If you are ok with some risk take a 5 year ARM to maximize cash flow (vs a 30 year fixed), but keep in mind that you have a 50% chance that your tenant buyer is not going to execute and you need to go for another round before it may sell (keeping the deposit, so not so bad).