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in this video we're going to break down rap notes wrap around mortgages so you'll know 100 of the information after you've watched this video there's going to be no more questions about wrap notes you're going to know how to deploy them and further i'm going to get on my friend and attorney bill brunchick he's been an attorney since the 1990s doing these transactions he's going to break it down for you and hopefully i'm going to convince him to share with us some of his documents to give you for free okay so make sure you watch to the end let's do this greetings class this is chris haskins with therealestateroundup.com my mission and ministry is to raise your financial literacy through real estate investing in entrepreneurship you know there's a lot of buzz in our industry about rap notes right aka wrap around mortgages see the the legislatures don't like the fact that we can take over these we can buy these houses and take over the mortgages subject to so that's another video if you want to know how to buy a house without even paying off the mortgage did you know we can do that just watch this video right here to take you right to it it's a two-part video you got to know exactly how to do these subject-to transactions because i live in a house that i bought subject to no bank qualifying no tax returns no credit report none of that stuff and subject to is a powerful tool to buy houses but uh there's a thing that in the industry now that rap notes are uh a future of subjects too right so how and when do we use these wraparound mortgages so let's understand what a wraparound mortgage is first wrap around a wrap around wrap around no rap note right and later in this video you're gonna meet i'm gonna introduce you to my friend bill brunchik he's an attorney right so he has a he has these documents i don't want you to take my word for it take it from the attorney bill's been doing this forever right 30 years so he's going to show you when to deploy them how to do it how to talk to the seller the documents that you need to do this stuff so stay around it's going to be a good one so a rap note is commonly used in our industry right a rap note real estate investing what is a wrap note get your bearings out round up get your bearings you got to have one all right a wraparound mortgage is a mortgage that includes in its balance and underlying mortgage right it includes another mortgage rather than having distinct and separate first and second mortgages which we're going to go over a wraparound mortgage includes both for example suppose that there is an existing first mortgage of a hundred thousand dollars a six percent first mortgage a second mortgage can be arranged for fifty thousand dollars second mortgage instead of getting that second mortgage the borrower arranges a wraparound for 150 and it encompasses all of the mortgages the first mortgage a hundred thousand stays intact the borrower pays the wraparound lender one payment of the 150 wrap around and the wraparound lender remits the payment on the first mortgage to the first mortgage lender okay so what does all that mean i know this a lot so much stuff to go over get your bearings if you don't have your barrens real estate dictionary just head on over to chrishaskins.com and my suggested reading i'm working on a full suggested reading for you i love books i'll tell you all the answers are in books cut that tv off you right now cut that tv off i'm going to come for you all right so how what is it a wrap note right what is a rap note i remember when my mentor great pineal explain this to me this man broke it down he's been doing this thing since the 80s right i feel like i'm just a conduit passing information on from the ogs to young guys right as i'm in my 40s so this is going to represent your first deed of trust your first mortgage right your first mortgage on the property dot that's why i put dot here let's say this first mortgage is a hundred thousand dollars right we've got a hundred thousand dollars this is going to be a gift gift that you're going to give somebody for the birthday christmas whatever holiday you got coming up this is your first mortgage on the property okay now generally speaking if we go borrow more money they're gonna put a second mortgage against the property which will be in second position a second deed of trust right so you can have first second third fourth and so on and so forth they can go on forever right so first mortgage this is going to be your first mortgage how it was explained to me and i'm going to pass it on to you a rap note or wrap-around mortgage nothing more when you sell a piece of property right you are taking this existing first mortgage that you have so eloquently me and little bubba wrapped this thing together you take your new piece of wrapping paper she's got i don't know this is mean girls or something crazy you take a new piece of wrapping paper and all you do is wrap the existing i will be getting this you're wrapping the existing first mortgage or it could be first second third fourth in another note so we're going to wrap it up in another piece of wrapping paper so now we have under the wrap under the wrap we have the first mortgage inside first mortgage right and we could have second third or fourth all this stuff is going to be wrapped inside of your new wrapping paper okay so the only thing a wrap note does is it wraps around all the existing or the underlining deeds of trusts so now you understand no problems we've given you an analogy so you know how these things are put together so your rap note wraps the existing loans on a property okay so why is that important because with the wrap note when you when one of your sellers sells you the property right they keep the loan in place when they wrap all this stuff up here the buyer the buyer that you're selling to may not even know that you're paying a first mortgage right they may not even even care right so if you have a hundred thousand dollars and then you sell the property for 150 on a new rap you don't even see the hundred thousand dollars under there you're making a payment on the 150 right let's say your first mortgage is 100 you wrap it up you sell the property for 150 so this this the wrap here is going to be 450 your buyer doesn't even see the first 100 000 loan because they are paying on the full 150 all right so that's just a simple analogy i want you to get that i hope that the kind of well for me it was a great and a great visual to understand how these rap notes work because i'm like how does it work you wrap it up and it's not like r.a.p like i'm doing hip-hop or nothing like that rap mortgages can be powerful because all this stuff is under there you have no idea who the seller is paying when you're buying a property if they wrap it all up in the wrap note so let's go ahead and go talk to my friend bill bill's going to go further expand on this and share when to use this stuff how do we deploy it and why would we even use this stuff right so if you're enjoying what you're seeing right now make sure you just take a second hit that subscribe button right hit the subscribe button and uh like this content y'all share with any other investors that you think could benefit from understanding how this wraparound mortgage stuff works right all right so let's go talk to my friend and attorney bill brunchick okay roundup so you have heard my version of how this rap note thing is all put together right so but i want to move forward and dig a little deeper dive deeper in and to get an attorney's point of view and attorney's perspective on how this thing is actually broke down bill bronzing how you doing bro i'm doing awesome thank you good to see you my friend my pleasure so round up we have some goodies for you today uh if you stay on here to the end we're going to tell you where they are bill has agreed to let us go ahead give us for free his documents on his rap notes and he was talking to me before we got on here we don't buy like we sell so he's buying one way and selling another way and bill what just give us a background on your your perspective on the wrap notes well i've been doing them for about 25 years i own an escrow company i don't know if you know that and we specialize in wraps so i have closed probably i lost count after about 1200. [Laughter] we've got i've done more raps in my state than any other attorney any other good gracious so you know what you're talking about you know a variable every possibility every possible thing that can go wrong and uh and uh you know that's what makes good forms you know problems you know every time you have a problem you go oh i guess we need to update that form judge said he didn't like it or not it's clear so we need to clarify nice experience makes good forms that's right that's right so yeah just give us you want to give us a short version of the wrap and then we're going to share with them your documents and just give them an overview of how to how to put that together for them so a wrap which is short for wrap around is when you have an existing loan on a property and you sell it with owner financing and wrap a new note around that existing obligation instead of a free and clear house where it's a seller carry where the seller deeds you the house free and clear and then takes back a note and mortgage no no indeed a trust okay the the seller's going to deed you the property subject to the existing mortgage and you're going to create a wraparound note and the wraparound is what we call all-inclusive and let me explain what i mean by that so let's say you had a 100 dollar house you know sale price okay and uh the seller uh had an 80 000 loan and he agreed to let you take that ownership subject to the 80 000 loan and you gave them a twenty thousand dollar second note and second mortgage or second deal trust on the house okay a wrap is different a wrap would be for a hundred thousand and it includes the eighty thousand underneath so one wraps around the other so technically you got 180 thousand dollars worth of liens but not really because the second lien is inclusive of the first lane so you're the buyer is paying to the seller on the hundred thousand dollar note and then continuing to pay his underlying eighty thousand dollar note now why the difference is because you can catch a spread not only on the equity but on the underlying loan so if the underlying one is four percent and you took a second at six percent you're only making six percent on the second if you did a wrap all inclusive for a hundred grand at six percent you're making six percent on the 20 000 equity and another two percent the difference on the first 80. wow that that's the key to the wrap the wrap preserves the underlying loan at a low interest rate that you can wrap one around the other and catch a spread not only on the price equity but on the existing financing wow nice nice so when are people doing this i know ron legrand is i've been talking to him over the years he's getting squeamish on doing when do we want to deploy these rap notes bill yeah so when you buy uh i like to buy subject to the existing loan you know just get over the deed but if the seller you know the seller is without recourse if you default if you don't make us payments he's without recourse so if we do an all-inclusive um wrap-around mortgage or an adidas truck called an all-inclusive trusteed um then the seller has a lien against the property and he can foreclose and get the property back if you don't make your payments good on to him or in his loan now when you buy um if there's no equity we're just going to mirror we're just going to mirror the wrap note with the underlying loan so if the underlying loan has 26 years left at four percent and the payment is uh 1200 a month then the note to the seller is exactly that and then we give them a little cash on top of that at closing so the no the wrap note will mirror the underlying look we want to create an equity wrap where we raise the price and we raise the interest rate and catch the spread that's sharp i didn't know that i never even thought about raising wrapping all that up and then you're catching something on the spread even on the first ride even on the first you're catching the spread so you buy on it you want to buy on if you can if there's little or no equity you buy on a mirror wrap around and you sell on an equity wraparound so you're going to mark up the price mark up the interest rate so just using simple math 100 000 sale 80 000 first at 4 okay you could sell it at 105 you know because it's owner financing you can get a little premium price so there's a 25 000 spread there and you and you charge maybe six and a quarter percent interest so you're catching six and a quarter on the 25 equity and you're catching two and a quarter on the rest of it that's deep bill i had never heard it put like that yeah and and the more expensive house you do the bigger the spread and this works particularly well with high-end homes low-end homes you're probably better off buying on a wrap and then just rent it because you'll get more rent you know but on a four five six seven eight hundred million dollar house spending on your live that may or may not be expensive but on a higher end home you can't rent it for enough to catch the payment and so you sell it on an owner carry wrap and you you put the obligation for taxes and insurance on the buyer so the buyers paying p-i-t-i and you're paying on the underlying loan just p and i nice and that would be that could be a serious serious cash cow if you know what you're doing you have a big one because taxes and insurance you're talking about several thousand dollars a year yeah yeah because that's the challenge with you know a high-end home if you bought it on a wrap or watermelon subject to and you had a twenty four hundred dollar a month all inclusive payment and you can only rent it for twenty five hundred it's not even more than risk yeah ain't gonna make it right but if you can if you can push the taxes and insurance onto a buyer or sell it on a wrap and raise the interest rate you can catch a spread of four to six hundred dollars a month and no landlording responsibility got you bill well i got you here would you mind coming back on and doing like a live for me for i know i'm putting you on the spot president today i know it's coming up sure i'd be happy to do that i know my roundup is going to have a million questions to ask about this so all right we'll put that together yeah thank you real quick okay so we got these docs here bill uh would you just kind of give us a brief overview i've got them this is from your docs here roundup if you go to the the link in the video description go ahead bill's been generous enough to give us these documents just put your information in and download them right now and you can deploy them wrap around addendum bill i'm gonna bring this up here i'm gonna let you go and do your thing when you do a preliminary agreement with a seller or a buyer um you take your standard contract whichever one you use you know usually we're talking about the realtor contract right or your standard contract you use and you add this as an addendum and it spells out that this is a wrap around sale nice or wrap around purchase depending on which side of the equation you're on okay so this you know there's actually a uh a choice in there is this a mirror wrap or an equity wrap actually laid right out in the addendum so you're attaching this to this we just use a two or three page contract bill right there's your addendum gotcha all right so you've got that then the rap promissory note right so that's your all-inclusive wraparound promissory note that you're going to either pay to the seller or collect from your buyer if you're selling okay so this is the note yeah so the now you see how it mentions underlying mortgage so it's all-inclusive it's not like i said earlier 80 plus 100 to 180 thousand dollars worth of debt it's a hundred thousand dollars worth of debt inclusive of the underlying 80. gotcha gotcha this is cool so we can fill this is the note so we don't record notes we keep this this is the file that recognizes the debt and the terms yes that's the debt between the buyer and seller yes it's a roundup don't be trying to record a note you don't know we've seen people notarize notes and record them no those that don't mean anything you need a security instrument a mortgage or d to trust there you go all right the wrap around writer to deed of trust right so if you are in a deed of trust state you would take your standard deed of trust and add this as a writer to make it into an all-inclusive trust deed or aitd or sometimes called an all-inclusive um deed of trust or all-inclusive trustee usually aitd okay um so you would attach that to like your standard whatever data trust you use in that state and uh record it with the dda trust and now now it gives notice to the world that this is a wraparound not just a second so this is going to go along with our our initial this i just called everything standard our standard deed of trust that goes along with that when we go record it nice so round up you're getting that one that's a good one there yeah and wrap around right at your mortgage bill right if you're in a mortgage state you use this same thing as the previous one yep oh okay that's something like just that you know if you use you're in a mortgage state you use that one all right so this is generally speaking i know you were talking about we don't buy like we sell you said if we're going to be selling to sell on a land contract yeah except in texas that's the exception i'll explain in a moment okay we buy on on a on a deed so we're gonna get the deed subject to the existing loan this is everywhere hold on i just want to hold them down it's everywhere okay and then you sell on an unrecorded installment land contract you keep okay until the buyer pays off except in texas in texas you can't use this you have to buy on a wrap around d the trust sell on a wraparound data trust y'all hear that that's just because they don't recognize uh not they don't recognize this is there so many rules and restrictions around installment land contracts in texas that you just can't use don't want these okay so we're buying with our wrap slash mirror wrap or equity wrap selling equity installment land contract wrap so this is the dock bill why is it that one might not want to buy like we sell well on a wrap a true wraparound mortgage or wraparound all inclusive trustee you're getting title to the property you're getting it we're the owners you're the owners whereas on a land contract it's sort of like a car you don't get the title till you pay it off now i'm not saying never buy that way i'm just saying it has risks because the seller could um get liens against the property he can get divorced he can file bankruptcy you know it has all kinds of pitfalls if you're the buyer so i prefer if you can get the deed get the d if he won't give you the deed can you buy on a land contract selling a land contract sure i've done that plenty of times it's just that it comes with risks it's like lease options you know that you know when you buy a lease option you don't have the deed so uh something could happen between the time you had the option and you signed it same thing with a land contract you could sign a land contract and something could happen to the title or the seller or you know some kind of lien or problem the higher wrestling you know you never know whereas when you get the deed up front then that's it the seller's off title and none of his problems affect you so when we're selling on the land contract we remain owner on ti or or our trust remains on our own title correct thank you so much anything you want to leave for my rounduppers for uh mirror i'm sorry for rap notes bill any more um any i'm sorry say again anything else you would like to leave from a roundup family regarding wraps knowledge is power the more you learn the more you earn well that's true okay that's all i got for you bill thank you so much my friend pleasure yep all right round up make sure you subscribe to the channel like the content share with any other investors that are doing this crazy creative real estate stuff and i will see you soon talk to you later make sure monday i'll see you with bill is going to come back and talk more about this rap stuff okay everybody bye