Advice structuring a subject to exact wrap, seller financing
Real Estate Broker · United States · Member since 2012 · 4 posts · 0 votes
Hello,
I have a deal in place and I am looking for advice on the contract and what documents I need in South Carolina. This will be my first deal and I appreciate the help. I have a seller who doesn't have a lot of equity in the property. I want to structure a subject to where an exact wrap is created and seller financing is in place for 5 years. At the end of the 5 years the buyer can seek traditional financing, buy outright, or renegotiate with the seller. A title company will service the payments and send statements. If I can get some advice on the documents I need and if anyone has some thoughts I would appreciate them.
I have heard this strategy from Sean Terry for homes that do not have a lot of equity but the seller is motivated.
Regards,
Blake[b]
I once ran into a very successful real estate investor at a seminar we were both attending as students. At the first break, I was very excited to tell him about the deal I had just put under contract which was subject to an existing loan that was close to the retail value. I excitedly stated that I just got a property under contract and he said with a big smile, " Awesome! How much equity did you capture?"
I'm sure he saw the once brightly burning fire inside of me suddenly extinguish and dread appear on my face. After attempting to explain the deal, I walked away with my tail between my legs. Now, I only do deals where there is a reason for me to be involved and that reason is a big pay day now or monthly cash flow and a big pay day down the road.
It sounds like you have a lot of moving parts, will be making promises you are not sure you can keep, will be offer something to someone else who you will be getting a promise from you don't know if they will keep, and I'm trying very hard to figure out what is in it for you except collecting checks you will be immediately handing over to someone else for the next five years.
If you do pursue this, how do you get paid having your buyer renegotiate with your seller?
This sounds like something someone with lots of 'strategy experience,' but no real investing experience can stand in front of a room telling wonderful stories about, then make a profit by selling the course so everyone in the room can do it too.
Aaron,
Thanks for the thoughts. It really isn't that hard in my opinion. The title doesn't transfer and the existing loan stays in place. Title transfers at the end of the 5 years. There is not a lot of equity in place and a good loan; payments are favorable compared to market rent. The seller will pay me a certain amount down and be in the home for the allotted time. I am not collecting payments or rent; I am essentially done once the transaction is closed by collecting the payment from the buyer. The service company is making payments and sending statements. It isn't that bad I am just making sure I have the proper documents.
Sean Terry is a proven investor, I would encourage you to look him up or listen to his podcasts for more information. He currently runs a company in Phoenix.
Thanks for your thoughts,
Blake
I like Aaron's comments to you, as well. For most people, the investor's objective is to either acquire (or tie up) equity or cashflow at a discount.
If you're trying to control property to some extent now to receive benefits that probably won't occur until the future, the are other techniques. Using an option to either purchase the property or the equity later for terms you agree to today seems to fi your objectives.
The original question revolved around documentation. Here's a good habit (from the guy who had to learn to makes things simple after 30 years of making them complicated:
Just write down on a piece of paper the basic terms that apply:
The price
Components of the price
Down payment
Funds due upon at possession
Other Consideration
Existing loan to remain
Amount of Secondary financing (equity of carry back note, wrap, etc)
Other non-cash consideration (car, boat, ugly yellow motor home, etc.)
Addressing your original post, I believe, is that you keep the offer simple, can show the initial equity of the wrap 2nd either separate from the 1st, or since there really isn't ANY equity in your example, show the existing 1st as a component of the wrap 2nd your are creating.
Another matter that you will need to document is : who will receive the benefit of the equity created by the amortization of the underlying 1st mortgage? It will be different, depending on which side of the transaction you are on. If you are the buyer, you want to gain the benefit of the reduced unpaid principal of the underlying 1st.