Anyone Doing Seller Financing Wraparound Mortgage these days?

Question

If you’re well versed in seller financing please chime in.

How would you structure the deal given this info? If more info is needed please let me know.

Wraparound mortgage or all-inclusive trust deed (AITD)

Property is located in Los Angeles

Sales price 3,800,000

Down payment 950K

Seller will give Buyer AITD for 2,850,000

Current loan 2M

Seller carry 850K

Interest only 5%

No prepayment penalty

Balloon in 24 months

Account Closed · Answer

Not to put too fine a point on things but you said nothing about it being a "redevelopment into a 58 unit apartment complex"  and "you are an agent", now did you?

I answered the question you asked, looks like it's your "ego" on the line, not mine. ;-) What we have here is a failure to communicate. Lol

Getting financing for a 58 unit is totally different than most types of investment, especially in this environment and I'd recommend having two sources that will commit to doing the financing before I'd begin the project. 24 months goes really, really fast. And not having a couple of sources that at least "say" they will do the financing means that there are problems down line. My 2 cents.

Account Closed · Answer

The danger is in the balloon. 24 months is far too short. A minimum of 60 months should be used and that is "iffy". Unless you can see what is to occur in the future, and if you can, I want to know who wins the superbowl in 2024. You get my point. Also, it's tough to cash flow in LA and SoCal in general.

You haven't told us what the value currently is and how you came to the conclusion that it is a deal worth doing. Also, what happens if you can't refinance in 24 months? And you don't really have 24 months since you have to start the process at 18 months in order to close in 24 months.

You also haven't stated what you hope to make for your $950,000 down. Why invest if you aren't going to make some coin?

I can buy 5 or 6 rentals in AZ for that and have a much safer investment that actually cash flows.

If you are doing the deal for "ego" and going to live in the property, I worry about the balloon but I understand your motive.

On the other hand, if your goal is to improve you net worth, it isn't a "great" deal and is pretty risky. There are far better ways to invest $950,000. I can give you examples if that interests you.

Alex Shin · Answer

@John Farady

Hi John... I appreciate you participating but let me clear the confusion for you. The property will be used for land redevelopment into a 58 unit apartment complex. I’m representing the seller as his agent in this transaction and we’ve decided there’s value in providing seller carry of certain amount. That seller carry amount was negotiated to 2.85M over a course of weeks with the Buyer and Buyers agent. 24 months is plenty of time to get the construction financing in place as RTI permits get approved by City, probably Q2 2021.

Instead of touting your own “ego” on deploying a completely different investment strategy OOS, I’d appreciate if you can weigh in on the question at hand. How would you structure it? Late fees, prepayment penalties, note to balloon at 24 months or when RTI permits get approved? Any insight on dealing with banks for a wraparound loan... I think would be a more productive conversation.