Posted by Chris in FL on May 24, 2006 at 16:04:59:
Ed,
My assumption about a wrap-around mortgage was that it could be done around any mortgage. I planned on eventually owner-financing some of my good lease-option people, with a spread on the price and interest rate, if they couldn’t get financed but had a good track record with me over two years. Somewhere along the line recently I heard that a wrap-around could only be done with an assumable mortgage, or if approved by the initial lender. Which is correct, and thank you for all the help you give us investors?!
I have been buying/fixing/selling homes for the last few years and have made a nice income from the work, but make no mistake I found out very quickly rehabbing was work so I am now exploring other options to create more cash flow and hopefully in the long run less ?hammer to nail? type work for myself. An option that I have read about, and extensively researched on this board is that of a wraparound mortgage, and creating cash flow with the wrap. My question is this?up until now I would only have 1-2 loans open with lenders while I was doing my rehabs, and I?ve never had a problem getting the loans. My credit is good, and my cash on hand usually enough to get a second loan or even a 3rd on occasion without the lenders becoming too concerned. If I start buying and then selling using wraps, how will this affect my ability to obtain new loans? For example (and I am making these numbers up) lets say I have a loan on a property with a lender for $100,000 @ 7% so my payment is roughly $665. I rehab and remarket the property for $130,000 with 5% down at 8.5% for a payment of $950 coming in. So I am cash flow positive $285?and lets say I get 3 loans and do this 3 times in the first year?now I have debt with the lenders of $300,000 yet $855/month cash flow. Would lenders look favorably at my position, or would I stop being able to get loans because my ratios would start looking a bit high? Are my wraps considered an asset in the lenders eyes, do they look at the additional income, do they see only the debt and discount the rest, or is it a combination of the three?
Hope this makes sense; I look forward to hearing your thoughts. I would really like to hear from those who do multiple wrap type financing and any struggles they had in the beginning.
Re: Wraparound Financing–Question - Posted by Ed Garcia
Posted by Ed Garcia on March 27, 2006 at 17:54:12:
Shaun,
There is no question that it will have an adverse effect on your credit.
Therefore it?s not recommended to do Wraps as an on going course of business. If I were considering selling on a wrap, I would most likely first consider selling on a lease/option.
Sorry I’m a little short on time today, otherwise I would give more detail,