What is a real estate Wrap?
A real estate wrap, also known as a contract for deed or all-inclusive trust deed, is a type of owner financing arrangement in which the seller of a property acts as the lender for the buyer.
In a wrap, the buyer makes payments to the seller, who in turn makes payments on any underlying mortgages or liens on the property. The buyer does not obtain title to the property until the final payment is made, at which point the seller transfers title to the buyer.
This type of financing can be beneficial for both buyers and sellers. For buyers, it may be easier to obtain financing through a wrap than through traditional lending institutions, especially if they have a poor credit history. For sellers, a wrap can provide a source of income and potentially higher sales price, as well as the ability to sell a property that may be difficult to sell through conventional methods.
However, there are also potential risks associated with real estate wraps. If the seller defaults on the underlying mortgage or lien, the buyer could lose their investment and any equity they have built up in the property. Additionally, there may be legal and tax implications to consider, so it is important to consult with a knowledgeable real estate attorney before entering into a wrap agreement.