Real Estate Blog

Although the Austin economy has proven itself to be almost recession proof, there are still investors who face problems going to the bank and getting approved for a loan. There can be a lot of reasons for that:

- You're coming out of a bankruptcy.

- You have cash and good income, but bad credit scores.

- Your portfolio of investment properties is too full.

In the 1980s investors could avail themselves of assumable loans until the banks figured out they were losing money because they weren't reaping all the fees associated with new loans. When that source of alternate funding dried up, Austin lawyer Wally Tingley came up with a new solution now known as the "Wally Wrap."

 Here's how it works:

- The seller provides the buyer financing for a minimum of five years, the "balloon" period.

- The buyer makes a cash down payment.

- Within the five-year period the buyers pays off both the agreed upon financing and the seller's existing mortgage by either refinancing or selling the property.

- The seller realizes the deferred equity (if any) at payoff.

- The buyer has used the wrap as interim financing to own the property and sell or refinance into a mortgage loan.

I believe in the next five years we're going to see a lot of deals worked out this way for the simple reason that the rough economy will keep far too many people from qualifying for traditional financing.

My primary concern is that you be aware the Wally Wrap exists and that you understand you don't have to be priced out of the investment game. There are, of course, pitfalls.

First, the whole arrangement is risky for the seller. If the bank finds out what you've done, they can call the note due and payable. However, let's just talk brass tacks. It costs banks a lot of money to process a foreclosure. Nobody makes money in that scenario but the lawyers.

As long as a bank is getting its money, they rarely investigate. And -- be very clear about this -- a Wally Wrap is not illegal. Remember, Wally Tingley is a lawyer and he's still the "go to" guy for this kind of financing arrangement.

If you are interested in seeking financing through a Wally Wrap, first visit wallytingley.com. It's a great website, chocked full of useful information about the whole process. Then, visit Wally with your real estate agent in tow. If you're going to investigate doing a deal by this avenue, you absolutely have to have expert advice at every turn.