All -Inclusive Trust Deed ( AITD)

All-Inclusive Trust Deed (AITD)

For demonstration purposes lets assume that Steve has an existing "assumable" loan balance of $110,000 and Billy Buyer can afford a down payment of $40,000. The property is being sold for $200,000, leaving Steve Seller with $50,000 in equity.

One option is to have Billy assume the old loan and have Steve create a second Trust Deed for his $50,000 equity. A safer option for Steve maybe to create an AITD or "wrap" mortgage around the existing $110,000 old loan in the amount of $160,000. For the example: $160,000 "wrap" note at 10% interest fully amortized over 30 years, but due and payable in 5 years from closing.

* An AITD allows Steve to hold a note in 1st position instead of 2nd position. However, with an AITD Steve will be responsible for the collection of the payments from the buyer as well as making the payments on the old loan.

**The Note Structure**
Selling price	$200,000
Cash Down Payment	$40,000
All-Inclusive Trust Deed at 10% Interest	$160,000
(old loan of $110,000 at 8% IR, 20 years left)	$110,000
(Seller's equity of $50,000)	$50,000
*Balloon payment due and payable in 5 years

**Positive Cash Flow**
Payors make new monthy payment of	$1,404.11
Sellers (note holder) keep making the payment on original loan of $110,000 of	- $920.08
Sellers Monthly Positive Cash Flow	$483.03

**5 Years Later**
Payors make balloon payment of	$154,519.26
The seller (note holder) will pay off the balance of the old loan.	$96,278.14
Seller is entitled to keep the difference.	$58,241.12
Down Payment.	$40,000
Monthly cash flow profit (60mo X $484.03).	$29,041.80

TOTAL MONEY EARNED ON
SALE OF PROPERTY	$87,282.92

ANNUAL PROFIT OF $7,456 / $50,000 EQUITY = 15% ANNUAL RETURN ON EQUITY

Even gets better…!!!

A "Wrap" allows Steve Seller to spread the capital gains tax on his $50,000 equity (additional profit excluding down payment) over a period of time (the term of the note), that would otherwise be considered taxable in the year of the sale.