Epic Real Estate Investing - The Wrap Around Mortgage | 993

Episode Date: April 19, 2020

This Sunday, Matt shares the audio from a popular Epic’s YouTube video about wrap-around mortgages. Tune in and learn what wrap-around mortgage is and when you can take advantage of it in order to beat the competition and close more deals! In case you want to check the video version go to https://www.youtube.com/watch?v=3GghCJvYz2o Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey, Rockstars, Matt here. I got a great show for you today. What I did is I went to a very popular YouTube video very recently, and I just extracted the audio from it around Rapparound mortgages. A lot of questions came in. I put together a video to answer it. There's going to be some visuals involved. But I'll play the audio for you here. And if you want to see what I was talking about, feel free to go to epic r-ei.tv and then just search Rapparound mortgage, and it should be right there, boom, just like that. that. All right, enjoy. This is Terrio Media. Success in real estate has nothing to do with shiny objects. It has everything to do with mastering the basics. The three pillars of real estate investing. Attract, convert, exit. Matt Terrio has been helping real estate investors do just that for more than a decade now.

If you want to make money in real estate, keep listening. If you want it faster, visit rei-aise.com. Here's Matt. You're wondering what a wraparound mortgage is? Great. I'm going to explain 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. Okay, simply put, a wrap-round mortgage, more frequently referred to as a rap,

is a type of secondary financing that 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 $100,000, 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 can 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 wraparound 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 now you know what it is, but you know why it's important. Why, knowing how to use a wrap-round mortgage should be really important to your business. Well, I'll give you a couple reasons. One, it's going to give you a leg up on the competition. Specifically, you know, when you're seeing a lot more newbie investors working in your market, you see, 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 wraparound mortgage. I mean, 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,

you know, 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 over your own. So it's going to work really good at 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 is 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 it. What you can do is you can create terms using a wraparound mortgage. Two, when a seller's house won't qualify for conventional financing due to its condition or maybe there's something about it that's obsolete. Or three, as a seller, you can use a wraparound 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 can pay off the underlying mortgage

by wrapping a $75,000 mortgage around the existing one, leaving the seller with an extra $5 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, accept 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 gets a lot bigger really quickly when no bank qualifying is involved. So you ask for 20% down. You carry back a wrap-round 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 $4.79 monthly payment to your pre-existing mortgage, and that will 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 refinanced 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 RIA's client of mine, is doing these same types of deals regularly in Dallas, Texas. So 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. Take care. Yeah, yeah, we got the cash flow. Yeah, yeah, we got the cash flow. Yeah, yeah, we got the cash flow. You didn't know home for the world. We got the cash flow. This podcast is a part of the C-suite radio network. For more top business podcasts, visit www.sweetradio.com