Answering my own question … Comments Anyone? - Posted by Monique

Posted by Monique on October 22, 2000 at 16:08:08:

I’ve thought about this deal some more since last night and I’ve come up with the following structure. I would definitely appreciate anyone’s thoughts and comments on this.

Seller creates a $210k wraparound mortgage with a 6 yr balloon to sell for cash at closing:

N=72, I=10.25%, PV=210,000, PMT=1881.81, FV=201,289.97

Seller’s underlying mortgage is at 9% (not 8% mentioned in orig post) with $1300/month PITI. I will have to verify the age of the mortgage and the exact amount of taxes and insurance. Based on what I know about the area’s taxes and how long the Seller has been in the house, I’m assuming $1025/mo is P&I at that the loan is 60 months old. After 72 additional payments:

N=112, I=9%, PV=120,000, PMT=1025, FV=98,181.37

(I know it’s not quite scientific without exact numbers on the existing loan.)

Cashflows for the Note Buyer:

- $856.81/month for 72 months
- $103,108.60 lump sum in 72 months

At 15% yield, this wraparound mortgage is worth $82,676.

So, if the Investor purchasing the house makes a $18,000 down payment, the Seller gets $100,676 at closing to meet the Seller’s *NEEDS*. If the Investor agrees to pay the Seller $10,000 at some future date (presumably after the Investor sells the house), the Seller would get the $10k that he *WANTS*. The effective purchase price to the Investor is $238,000 (or, $18,000 + $10,000 + $210,000) for a $270,000 house.

Am I missing anything?

Thanks in advance,

Monique