As a real estate agent, you can increase your commissions by learning how to structure wraparound transactions. You will undoubtedly come across dozens of listed properties with high loan balances and little chance of selling by conventional means. Your knowledge of wraparounds will be your ticket to increased commissions in a competitive market.
Once you understand the transaction and have all the pieces of the puzzle in place, you will have more deals than you can handle. Follow this formula:
- Learn the Business. Learn and understand wraparounds well so that you can explain the process to even the most unsophisticated person. Essentially, a wraparound is done by selling a property on an installment basis using a land contract or contract-for-deed. The buyer makes payments of principal and interest on the purchase price. The seller collects these payments and makes payments on his underlying loan. The seller holds title as security until the balance is paid, at which time a deed is delivered to the buyer. A neutral, third party (such as an escrow or title company) is often used to hold the deed in escrow and service the payments.
- Line Up the Players. Find a good attorney, escrow company, insurance agent and mortgage broker. Discuss these issues and make certain they understand the business of wraps. If agents prepare contracts in your state, have an attorney prepare a “standard” addendum that can be added to the Real Estate Commission-approved contract.
- Find the Investors. Having the “wrap” tool in your arsenal is effective, but it works best when you make it happen. Locate “investors” who are willing to “buy, finance and wrap.” This involves an investor buying properties a little below market price, financing with a low-interest-rate loan then reselling on a wraparound at a higher price and higher interest rate. Show them the benefits of the wrap and the incredible monthly cash flow that is possible (do not forget to disclose the risks!). Introduce them to mortgage brokers and bankers who can pre-qualify them for financing.
- Find the Land Contract Buyers. Advertise in the paper “No Credit Required,” “Owner Carry Homes,” and similar teasers. Make a list of buyers with a chunk of cash who are not able to qualify for conventional financing (we call them “no-credit” buyers). Show them houses that are listed for sale. Have them pick out a few they like.
- Contact the Investor. Once the investor has financing and a buyer lined up, he can make offers (through you) on the list of properties that the no-credit buyer picked out. When one is accepted, he (the investor) signs a contract to sell the property on a land contract to the no-credit buyer, contingent upon the investor closing on the property himself. Once everything is lined up, the property can be purchased and re-sold almost simultaneously. The agent gets a sales commission on the purchase of the property.
All you need as an agent are a dozen or so clients who regularly engage in wrap transactions in this fashion. Rather than chase down new clients, you can have “repeat” business. Every agent knows how to do things the “conventional” way. Set yourself apart, create a niche and before long your reputation will precede you.
Excerpt from William Bronchick’s
Creative Real Estate Financing Course