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Wrap Around Mortgage (simply explained)

Wrap Around Mortgage (simply explained)


You’re wondering what a wrap around mortgage
is? Great, I’m going to explaining it to you in
really simple terms and then I’m going to give you some ideas of how it can help you
beat your competition and close more deals. And if you’re really serious about your real
estate investing by the way, click the subscribe button, and ring that notification bell so
you never miss an episode. I post cool stuff like this weekly, all righty. Let’s do it. This is Theriault Media. Hi, I’m Matt Theriault, CEO of Epic Real Estate,
and if you’re wondering what a wrap around mortgage is, I’m going to explain it to you
in very simple terms. And then once you know what it is, I’m going
to show you some really creative ways you can use it so you can beat your competition
and close more deals, just like my Epic students have been doing for more than a decade now. And then after, should you want some more
help, I’ll go ahead and show you how to get it. Sound good? Okay, simple put, a wrap around mortgage,
more frequently referred to as a wrap, is a type of secondary financing you can use
to purchase real estate. The seller, they’ll extend to the buyer an
installment note which wraps around any existing notes that have already been secured by the
seller. For example, if we have this house right here
valued at $110,000, the balance on the seller’s mortgage, let’s say it’s $50,000 at an interest
rate of 5%, when the seller wants to sell, they could do so by offering seller financing
and carrying back a new mortgage of $100,000 for a buyer at 6%, and they could wrap it
around the existing mortgage. So, from there, the buyer will then make their
payments to the seller and the seller will make their payments to the pre-existing mortgage,
and the seller gets to keep the difference. So the $100,000 mortgage is a wrap around
mortgage, as it’s wrapped around the pre-existing mortgage of $50,000, and this is how it’s
most commonly used as well. So, if you’re a little bit more clear now
about what a wrap around mortgage is, give this video a like. But if you have a question about it, put it
in the comments below and I’ll be happy to answer it. I read them all and I love to give you the
answers. So, now you know what it is, but do you know
why it’s important, knowing how to use a wrap around mortgage can be really important to
your business? Well, I’ll give you a couple of reasons. One, it’s going to give you a leg up on the
competition, specifically when you’re seeing a lot more newbie investors working the market. They don’t know how to do this. All they know to do is write low ball, all
cash offers, and if the seller doesn’t agree, then they’re off to the next deal. But in the event that your low ball, all cash
offer doesn’t get accepted, you’ve got options. You can offer alternative solutions with something
like a wrap around mortgage. From my experience, the more competition,
when you know how to do this, the more competition the better. Because with so many newbie, one trick pony
investors offering the same thing, when you show up, the seller sees you as a breath of
fresh air. Number two, the second reason, when the market
shifts and there are going to be more properties than there are buyers, you’re going to be
able to create some really great opportunities for yourself with really deep equity positions
using really little to no cash of your own. So it’s going to work really good in a buyer’s
market and a seller’s market, so you want to have this in your toolbox. That’s why it’s important. All righty? So, the likely scenario as to when you can
take advantage of a wrap around mortgage, enabling you to close more deals, three come
to mind. One, when a seller wants more money than anyone
is willing to pay all cash for. What you can do is you can create terms using
a wrap around mortgage. Two, when a seller’s house won’t qualify for
conventional financing due to it condition or maybe there’s something about it that’s
obsolete. Or three, as a seller, you can use a wrap
around mortgage to generate bigger spreads for yourself by reaching out to a bigger buyer
pool. Here, I’ll show you a couple of these scenarios. One as, when you’re the buyer, and I’ll show
you a second one when you’re the seller. Let’s start with our previous example. Let’s say the seller actually owes $70,000
on this $100,000 house, and due to the $10,000 repairs that are needed, a retail buyer can’t
get a conventional loan that qualifies until the seller makes the repairs. And the seller, they don’t want to make the
repairs. So the seller now is left with the only option
to sell to an all cash investor buyer, but none of your investor competition is willing
to pay more than $60,000 for it. Meaning, the seller would have to bring in
$10,000 anyway just to close in order to clear the entire mortgage. So, when you walk in to meet with the seller,
and because you now have the wrap around mortgage in your toolbox, you can offer the seller,
say, $75,000, so they pay off the underlying mortgage by wrapping a $75,000 mortgage around
the existing one, leaving the seller with an extra five grand just to help them get
to their next destination. And then what you can do is you can make the
repairs and still have $15,000 of equity, and the house could be a really great addition
to your portfolio. And it cost you nothing to get into it except
the repairs. Now, if you were the seller of this property,
where it’s worth $100,000 and you owe $70,000 on it, where you’re paying 6%, you could sell
it to a retail buyer for $110,000. Typically, you can charge a premium when seller
financing is involved, as the buyer pool get a lot bigger really quickly when no bank qualifying
is involved. So you ask for 20% down, you carry back a
wrap around mortgage of $88,000 at 7%, which would give you $22,000 in your pocket, and
a monthly payment from the buyer of $585, of which you would then make your $479 monthly
payment to your pre-existing mortgage, and that would leave you with a monthly cash flow
of $106 or so. And once the underlying mortgage was paid
off, that $585 a month would be yours to keep until the buyer paid it off, sold it, or re-financed
it. And this last example I just showed you, this
is exactly how I sold this house right here in Memphis, Tennessee. And Tony, an REI Ace client of mine, is doing
these same types of deals regularly in Dallas, Texas. So, if you’d like to know how to find these
types of deals, in the video that I released last week, and I’ll put it up here in just
a second, I’m going to show you how we’re finding deals like this for less than a dollar
a day. Or, if you already know that you just want
to go deeper with your real estate investing and you’d like some extra help with wrap around
mortgages and other creative real estate investing strategies, then I’ll put a link down below
for you to do that, where we can hop on the phone, we can talk about it, see if it’s a
good fit or not, and we’ll just discuss. All righty? In the meantime, please share with me in the
comments below what you found most useful. If you’d like to see how we’re finding properties
for a dollar a day like this, I pulled this video up right here for you. Enjoy it. Thanks for watching. And don’t forget to subscribe to the channel,
and feel free to share with someone that you think also might find this useful. Take care.

11 thoughts on “Wrap Around Mortgage (simply explained)

  1. Hello, Matt. I'm trying to understand the difference between a wraparound mortgage and a Subject-to. You explain how to do a Subject-to in the Academy, but a wraparound is new to me. They sound very similar to each other. It sounds like in both strategies you take over the existing financing.

  2. Great real estate vocab. Valuable info, also for real estate professionals learning English!

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