Wraparound Financing–Question - Posted by Shaun
Posted by Shaun on March 27, 2006 at 14:26:27:
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.
Thanks to all!