Subject-To Wrap Calculator

Seller

The Seller is the original property owner who has an existing mortgage (the underlying loan) on the property. In a wrap transaction, the investor takes the property "subject-to" this existing loan, meaning the investor takes over the payments but the loan remains in the seller's name.

Investor

The Investor is the person who purchases the property subject-to the existing loan. The investor then creates a wrap loan (owner financing) with the end buyer (OFB). The investor makes payments on the underlying loan to the seller's lender and receives larger payments from the OFB, keeping the difference as profit.

OFB (Owner Finance Buyer)

The OFB (Owner Finance Buyer) is the end buyer who purchases the property from the investor using owner financing (a wrap loan). The OFB makes monthly payments to the investor on the wrap loan, which is typically at a higher interest rate than the underlying loan. The investor uses part of these payments to cover the underlying loan and keeps the difference as profit.

Interest Rate Spread

The Interest Rate Spread is the difference between the wrap loan interest rate and the underlying loan interest rate. This spread represents your monthly profit margin.

Guideline: Jeff Watson recommends maintaining at least a 3% spread to ensure a safe and profitable wrap transaction. A higher spread provides more profit and better protection against market fluctuations.

Balance Buffer

The Balance Buffer is the difference between the wrap loan principal amount and the underlying loan balance. This buffer represents the equity cushion in the deal.

Guideline: Jeff Watson recommends maintaining at least a $20,000 buffer to ensure safety. This buffer protects you if property values decline and provides a safety margin for the transaction.

During Underlying Loan

The During Underlying Loan profit represents the total profit you'll earn while the underlying loan is still active. This is calculated by multiplying your monthly spread (the difference between wrap payment and underlying payment) by the number of months remaining on the underlying loan.

During this period, you receive the wrap payment from the OFB, pay the underlying payment to the seller's lender, and keep the difference as profit each month.

After Underlying Paid Off

The After Underlying Paid Off profit represents the total profit you'll earn after the underlying loan has been fully paid off. Once the underlying loan is paid, you no longer need to make those payments, so you keep the entire wrap payment from the OFB as profit.

This profit is calculated by multiplying the full wrap payment amount by the number of remaining months on the wrap loan after the underlying loan is paid off.