Does "Subject to" = "Wraps" (for $Cash$)?
Hello,
This question is primarily for John $Cash$ Locke - the "Subject To" King! 
But, anyone who has any input, please feel free to give it freely. 
I went to an REI club meeting last night (in Dallas, TX) where a successful investor said that "Subject to" and "Wraps" or "Wraparounds" are one in the same. Is this true? I have been reading multiple REI sites today about "Subject To" including posts here and John $Cash$ Locke's "'Subject To' Investing for the Beginner" article, and I must say that they do sound very similar.
Does Subject to = Wraps = Contract for Deed?
If there is a difference, could John and/or someone else please explain the differences?
Thanks,
Wes
Wes,
At your next REI meeting tell this successful investor who gave you this information this is how it really works.
Subject To is a method of purchasing the property. A wrap around mortgage 'wrap' or All Inclusive Trust Deed (AITD) is a method to handle the 'financing' of the property.
In a Sub 2 purchase you are purchasing the house Subject To the 'exisiting financing' this existing financing can be one or more mortgages 'Trust Deeds' including any payment to the seller for his equity if the seller is carrying a note for his equity. All these mortgages 'are wrapped' into a single payment and disbursed accordingly.
Subject To deals with having the deed to the property transfered to your name with the existing financing in place.
Wrapping of the mortgages is strictly for financing purposes and has nothing to do with the transfering of the deed of the property.
Contract of Deed is the method you use to sell the property. Your buyer contracts with you to purchase the property, when he completes the terms of your agreement(CFD) he gets the deed.
Wes, does this help you understand the difference?
John $Cash$ Locke
Hi John,
Thank you for your detailed response. To answer your question, I guess I don't have enough of a RE basis to fully understand your detailed response. Sorry
The first thing that jumped out at me was your statement, "Wrapping of the mortgages is strictly for financing purposes and has nothing to do with the transfering of the deed of the property.". Does this mean that the original owner (seller) still owns the deed/title/property in a "Wrap"?
It looks like I need to research "Subject to", "Wraps", "Contract for Deed" and that "All Inclusive Trust Deed (AITD)" that you mentioned - which I am more than willing to do, continue my education.
I do very much appreciate your quick response, John - I apologize that I don't seem able to fully understand it right now.
Thanks!
Wes
P.S. - What does "CFD" stand for?
Wes,
I understand that all these terms can be a bit confusing.
If the seller has a loan on a property for $110K, and sells it to you for $170K you give him $10K down, he places a second note on the property for $50K these two notes are then 'wrapped' together in the sale.
An All Inclusive Trust Deed (AITD) secures a wrap-around loan, which loan incorporates an existing loan, with a new loan made by the Seller of a property.
In other words the seller sells you his property but does not give you the deed. He sells to you under (CFD) Contract for Deed, when you meet the terms of the CFD the the deed is transfered to you.
In Subject To investing you get the Deed from the git go, however the existing financing stays in place, so you can sell, lease, transfer the property, in essense your are the owner.
Wrap (AITD) = Seller wraps any loans together on the property which you pay.
If the seller gives you the deed then it becomes:
Subject To = You get the deed and are responsible 'morally' for paying any loans (even if there is more than one loan) on the property.
No apology required, but when you are listening to another investor, come back here and check, sometimes even successful investors need to learn from the new person.
Deed = Ownership
Trust Deed = Mortgage Loan.
Subject To = Ownership Now.
CFD = Ownership when contract fullfilled.
Wrap = Financing Only.
John $Cash$ Locke[ Edited by JohnLocke on Date 11/19/2002 ]
I would think there is one similarity...
in either situation, you will be paying the seller and they will be paying their loan.
John,
Thank you, that cleared it up much better for me, but I believe that I must still learn more in order to more fully understand the differences and advantages/disadvantages of both techniques. I plan to do just that!
My next question relating to "Subject to" deals based on reading much of what you have posted is, would you recommend this technique/niche for a "newbie" who specifically has little money and bad credit, since I may be left with that mortgage payment for awhile before I can sell it?
You mentioned in your "'Subject To' Investing for the Beginner" article to "...let your Trust Account build up to a comfortable level..", this makes me think that it might be better for someone in my current economic situation to do some "Wholesalling", or something similar in order to build up that Trust Account before making my first "Subject to" or "Wrap" deal, would you agree?
Thanks again, John for your time and input!
Wes
Beacon & Wes,
Beacon, No do not ever pay the seller his mortgage payments after you have purchased the property.
Have a State Licensed & Bonded Loan Servicing Company collect payments from your buyer, then they will pay the lender. You always maintain control of your property, you have know way of being assured the seller will make the payments on the loan after you pay him.
Wes,
There is nothing wrong with learning the business as a 'birddog' or 'wholesaler'. You can build up your Trust Account, before or after your first deal. I started building my Trust Account after my first deal, then built it up from there. It is what you are comfortable with.
John $Cash$ Locke
John,
Again, I appreciate your advice/suggestions!
Wait a minute! I think a light went on above my head!!
So, basically "Subject To" is simply one of many methods of purchasing a property (such as L/O, or any other technique/niche), as you stated. And, a "Wrap" is a method of selling (specifically related to financing) where you would also use a CFD to transfer the Deed to your buyer once they have met the "Wrap" contract requirements.
Is that it (in a nutshell)?
So, you "purchase" property using "Subject To", do you have a "primary" selling technique/niche (L/O, Wrap, etc.)? Or do you just do what makes sense for each particular deal/buyer?
Thanks again, John!
Wes
[ Edited by Wes on Date 11/20/2002 ]
Wes,
1. Subject To, L/O, etc, are the methods of buying a property. I personally do not use the Lease Option method to purchase properties .
2. Wrap is in the financing part of the deal if there is more than one loan. If there is only one loan then this would not be a wrap deal.
3. Contract for Deed, Land Contract, Lease/Option, etc. what ever State specific paperwork you need is the method used for selling.
I buy houses Subject To the existing financing. This gives me the opportunity to sell the property using the sellers loan, so I do not have to get a new loan on the property and have the benefit of the loan being in place. We call this 'owner will carry', 'owner financing', meaning 'me' the owner since I control the property.
I sell the property to my buyer using Contract for Deed or Lease Option or other creative selling methods depending on the property.
John $Cash$ Locke
John,
Thank you, I appreciate you sharing your experience and knowledge!
Wes
wes,
I think John had another post similar anyway, when he said build up the trust account you need to take into account that you're getting a deposet of atleast $6,000-$12,000 down payment from your buyer, plus if you work the deal right you are going to have a monthly positive cash flow. Also, in a previous post John stated it only takes 2-3wks to turn the deal. John correct me if I am wrong.
-Tony-
Hi Eric,
Glad to meet another "newbie" specifically from my area!
You are correct, AIREO is having some problems right now. Hopefully they'll all be ironed out sooner rather than later.
I have been attending both the DFWREIN (http://www.dfwrein.com/) club meeting and their newly formed "Newbie/Beginner Inner Circle". The web site is getting better all the time!
I highly recommend attending the inner circle if you're a "newbie". From the first meeting we had, it looks like it'll be great for learning "practical" stuff, specifically for our local area.
By all means, come join us!
Wes
What does a typical bonding agency usually charge for dispersing payments?
Is there insurance that the money is paid correctly, or are there companies who handle those insurance issues seperately?
Quote: An All Inclusive Trust Deed (AITD) secures a wrap-around loan, which loan incorporates an existing loan, with a new loan made by the Seller of a property.
In other words the seller sells you his property but does not give you the deed. He sells to you under (CFD) Contract for Deed, when you meet the terms of the CFD the the deed is transfered to you.
Being new here I'd like to add something to this if I may and see if I can get a response.
When you say the seller doesn't give you the deed in an AITD I'm not sure that is the case ALL of the time. If he doesn't then you buy CFD but you COULD arrange it where you DID get the deed. The seller then is simply the "bank" and holds the note for his 2nd and it is wrapped with the underlying 1st. In this case a Wrap is VERY similar to to SUB2. Especially since the deed changed hands the underlying 1st could call the loan due. Actually, if you bought it from the seller on a Contract the 1st could call it due also since a CFD is considered a sale to most banks. Although, I believe VA (or is it FHA?...can't remember which) loans do not...
Any thoughts?
gbtjom
gbtjom,
Glad to meet you.
All though uncommon the seller could give you the deed, but highly unlikely, since in these type of situations the seller would not be willing to part with the deed, just as when I sell with a Contract for Deed I hold the deed until my buyer meets the terms of our agreement.
VA loans done properly are not subject to the Due on Sale Clause.
The DOS clause has been debated many times, this again can be done to take precautions that give you the best protection from this to likely happen.
John $Cash$ Locke
Thanks!
I still don't quite understand. In a typical owner carry situation doesn't the seller get security with the Wrap mortgage (or AITD) and you get the deed? So how is the situation you speak of different? I guess I'm a bit slow this holiday weekend.
jom
John,
I was curious. I are the terms of your contract for deeds usually. 2-3 years I have seen you say before, but what about the monthly payment you receive. Do you allow a percentage of the rent to go toward their purchase price or do you keep 100% of it. And how much over the asking price(if any) do your contracts tend to get. Example: if I'm asking 70,000, would I be able to get 77,900 on a contract for deed. People have told me folks with poor credit who may be doing a contract, will pay more just to have their own place. Thanks for any input.
TJ & JOM
Glad to meet you.
I do not Lease Option the property when I sell, I sell under a Contract for Deed, I find that you can recieve a greater down payment this way. I have also stated I do not look good with a toilet plunger in my hand. Meaning when I sell my buyer is responsible for maintainance of the property. No landlord duties for me.
If your sellers loan is at 7% you charge your buyer 9%-!0% this gives you a monthly cash flow.
You add 2 years appreciation on to the back end of the loan, so your house for $70K figuring 10% per year would sell for $84K, yes, people with little or no credit will pay this amount without question.
However I do help my buyer re-finance by working with a Loan Servicing Company and Mortage Broker, this is a real win/win situation for everyone.
JOM,
The reason for holding onto the deed it is less difficult to foreclose should the need arise, using a few techniques I have learned and teach.
John $Cash$ Locke
Quote: The reason for holding onto the deed it is less difficult to foreclose should the need arise, using a few techniques I have learned and teach.
It seems we are talking two different things here. You are talking about when the Investor sells the property but I was referring to the buy. But that is off-topic...
A question about CFD: It seems to me if you are selling a property then doing it with an owner-carry Trust Deed seems simpler that a CFD, especially in states that have non-judicial foreclosure. With a CFD if the buyer defaults you have to sue and go to court, with a Trust Deed you just have your Trustee sell the property. Even though you give the deed to the buyer I like the TD method better since it avoids the lawyers.
Just wondering what you thought...
Thanks.
jom
Hello all,
I no from talking with my Attorney about D.O.S. Clause. He states as long as lender approves you to the Sub-To clause, and he hasnt heard of a lender calling a loan.
How ever My ? is would it not be better to try for seller to place RE Prop. in a land trust for his/my protection and within the trust have a term that allows for a new buyer to come in and receive pass through ownership rights. Which would result seller 10% 1st beneficiary and me co-beneficiary at 15% new buyer at 75%plus equity interest split at 4% a year for 2 years or less seller and me. And would it be advisable to have the attorney as trustee or Loan collection pmt processing center as trustee who collects and send pmt's to lender.
With a new buyer as the terms stated in the trust agreement. What do u think.
Coolage
[ Edited by Coolage on Date 06/22/2003 ]