Anyone doing Wraps? - Posted by Mark Vidales

Posted by Mike Oldfield on April 12, 1999 at 07:59:28:

Honestly, I am a little fuzzy on wraps, may be some of my brethren can help you better, I specialize mostly in buy and hold multi-family.

Here goes an attempt to answer. I think the due on sale clause is your obstacle. The way I get around them is with land contracts. Technically if you buy/sell with a land contract, no transfer (read sale) has taken place. I suppose it is feasible to buy and land contract to aovid trigerring the due on sale clause, and then sell on land contract for a larger amount and/or higher interest. I don’t much like selling I like the long-term cash flow and equity buildup I enjoy by holding on to sound investments. Any way, each to his own

Good luck, Write Anytime

Mike Oldfield

Anyone doing Wraps? - Posted by Mark Vidales

Posted by Mark Vidales on April 11, 1999 at 20:16:49:

I’ve done some reading on how wraps are an effective way to generate cashflow. Is anyone doing wraps? In California specifically. I have 2 houses that the owners want to let me just assume the mortgage and it’s mine. They have only been owned for about 6 months. So basically there is no equity to speak of (they are F.H.A. assumables) now I read in Paper into Gold where Terry said just by raising the interest erate a couple of % can give you a great positive cashflow.

It sounds too easy, just wanted to know what experience some of you have had that are working this technique if you are having any luck and what obstacles have you run into?

Thanks everyone!

Mark V.

Re: Anyone doing Wraps? - Posted by John(NH)

Posted by John(NH) on April 12, 1999 at 12:12:02:

Another thing to look into is to take the property subject to the existing mortgage. Have the seller put the property into a land trust and assign his beneficial interest to you. You now control the property, make the payments to the lender, and you are not personally responsible for the loan. One drawback is if the seller wants to buy another home, this loan will still be on his credit report…

Re: Anyone doing Wraps? - Posted by JPiper

Posted by JPiper on April 12, 1999 at 08:50:14:

One thing I learned a long time ago is that if something appears “easy”, you just haven’t looked hard enough.

Here’s the basic scenario. You take over the property that you mentioned at essentially full market value?.let’s say $100K. The property has a 7% loan, payments of $665 PI. Now you resell the property at let’s say $115K. Maybe you get $5K down, and finance $110K at 10 ½%. Payment is $1006 PI. So this puts $5K in your pocket (pretax) and gives you cashflow of $341 per month.

Here’s a few problems. First, you have DOS clause issues. I’m not going to go into those here. We’ve had numerous posts regarding this issue, to include some recent ones below this on the newsgroup. There are a variety of techniques for dealing with the issue, the best of which is probably a land trust. Suffice it to say though, that risk does present itself arising out of this issue.

Next, you have bought a property at market value. Clearly there is a risk to this. Granted, you have a cash flow?.but you have no protection from the standpoint of equity. The problem that this presents arises from a possible decline in real estate values. While I’m not saying this WILL happen, I am saying it’s possible?.I’ve seen it happen. It happened not too long ago in California?.which unraveled a variety of “wrap” type situations.

Depending on what type of transaction you do with your end buyer, there is a risk associated with default. As an example, in some states land contracts require a judicial foreclosure (a time consuming and costly process).

I don’t bring up these particular problems with the idea to discourage you?.but rather with the intent of alerting you to the fact that while the transaction may appear “easy”, it does require knowledge. This knowledge is something you should obtain BEFORE doing a transaction of this type. Bronchick as a course called “Cash Cows?” which I understand goes into this type of transaction. While I haven’t read the course, I have the utmost confidence that Bronchick confronts these issues and others in his course. Bill Gatten has a book concerning his PACTrust, which also deals with methods for handling transactions such as these.

Now to give you my personal preference. In the above type of transaction, my preference is to assign the deal. In other words, I put the deal together and then assign it to an end buyer. This takes me out of the loop (assuming I have a release of liability and other CYA documents). Why? I don’t like holding properties with no equity?.but then again I have a strong conservative streak.


Re: Anyone doing Wraps? - Posted by Mike Oldfield

Posted by Mike Oldfield on April 12, 1999 at 03:25:19:

Your biggest problem may be the fine print. Assumable to qualified buyer is probably what you have there. Freely assumable mortgages have not been originated since the late 80’s. Unless your area is depresseed bigtime there should be a great deal of equity. Check the fine print on assumability and you could save yourself a whole lot of wasted time. (Note: Only trying to help Please take no offense.)

Beyond that. I think your deal is really thin. I mean that there is little possibility that everything that needs to go right for you will. You might want to pass on this one especially after checking out assumability more.

Good luck either way

Mike Oldfield

Re: Anyone doing Wraps? - Posted by rob

Posted by rob on April 12, 1999 at 20:43:58:

Mr JPiper,
Just wondered how the sellers respond to this scenario versus a lease option? My guess would be that they can understand a lease option much better than the wrap-assign deals? Any thougts?

Re: Anyone doing Wraps? - Posted by Rik Foote

Posted by Rik Foote on April 12, 1999 at 06:55:12:

Can Wraps still be done without assumable mortgages?