The American Education Institute

TO BEGIN ADVANCED 100% FINANCING METHODS

Please reread the previous text dealing with creative financing, leverage, OPM, and ROI.  Note again that those creative sources for financing.  You’ll need to retain that knowledge as you study the new and different methods for 100% financing which are explained in the following text presentation.

Bear in mind that the methods’ numbering system described here or the order in which they are described, is merely a convenience device.  There is no “rule” that says, for example, you first have to use method number one before you can go on to method number two.  You may very well find yourself using a much more complicated method even while buying your very first property.  What these methods are really are individual plans for acquiring typical investment properties that always involve unique circumstances.  These are essential plans only, not blueprints that cover every aspect of every single purchase.  They are typified in order to aid your understanding of how each essential plan works.

In actual fact, you may never purchase a property by strictly following any one method.  You will most likely be buying every property using modified steps from a combination of plans.  Every situation is unique.  These various methods are designed to serve as guides only.  After awhile, you might even develop additional 100% financing methods that are uniquely your own.  If that happens, perhaps you’ll share them with those who taught you these original methods to begin with.

METHOD NUMBER 9

MAKE A NEW NOTE AND SELL IT FOR CASH.

Suppose you can find a property with an asking price of $50,000 which also carries a $40,000 assumable mortgage.  This means the seller has $10,000 in equity which he expects to receive in cash.  But this property has been on the market already for half a year or more, and this seller is getting anxious.

Offer to the seller a cash down payment of $6,000 instead, which is contingent on your being able to secure a new second mortgage. In effect, this amounts to offering to buy the property for $46,000 (the $40,000 assumable mortgage plus a $6,000 new mortgage).  This may not seem a bad deal to this particular seller in view of the fact that he’s been unable to sell the property for so long at his original asking price.  If this seller accepts your offer — with its contingency — you can then proceed to locate a lender that is willing to loan you $6,000 secured by a second mortgage.

Of course, you need to be aware that most banks and traditional lending institutions will hesitate to make a second mortgage in cases like this because there already exists a mortgage on the property for 80% of its FMV ($40,000 is 80% of $50,000)  This usually means you’ll have to scout out private parties or less traditional lenders in order to make this deal happen.

Always make a habit of reading the classifieds in your local daily or weekly newspaper.  Very often you will find ads from private lenders who state their willingness to pay cash for mortgages.  Buying and selling mortgages happens all the time, even among the most traditional lenders.  If you cannot find such a buyer at the time you need one, consult with a local mortgage broker who actually represents such private investors.

Next, contact one of these investors and say that you have an investment property which has been appraised at $50,000 (make sure this is true, of course)  and has an existing first mortgage of $40,000 but that you now need $6,000 in cash.  Then ask how big would a note and mortgage need to be with him, and for what term and interest rate, for him to lend the $6,000.  For illustrative purposes, suppose the lender responds by saying the note would have to be for $7,500 at 12% for a term of five years.

So now you must do a financial analysis to see if this deal is worth your while.  You do this by calculating the rents this property already earns less your operating expenses.  Now deduct what you’ll be paying on the assumed first mortgage.  Lastly, deduct what your payments will be under this proposed second mortgage.

If you now show a net profit, you should go ahead confidently and make the deal.  If you now show a net loss, forget this deal and continue scouting for another one.  By showing a profit and executing the deal, the seller will actually receive a cash down payment (not excessively less than he’s originally hoped for) and you will be able to buy a property using none of your own money and financing it 100 percent.  Please see a summary of this method in the following illustration.

METHOD NUMBER 9 IN BRIEF

What it is designed to do:

Make a new note, and sell it for cash.

What you need:

• Some credit
• Somewhat anxious seller

What you terms are:

1. Property asking price                                        $50,000
2. Current seller’s equity                                       $10,000

This property has long been on the market, it remains unsold, and the owner is not more anxious to sell it.

How you proceed:

1. Make this offer contingent upon your locating a 2nd mortgage               $6,000
2. Search out lender willing to loan                                                                            $6,000
3. Find local mortgage broker for this, or look for private lender
4. Do financial analysis.  Will N.O.I. support assumable mortgage and new second mortgage and satisfy seller’s terms?
5. If yes, buy property.  If no, continue to search

What you can expect:

• Seller realizes some (or most) actual cash for equity
• You have obtained 100% financing

Dr. Eric T. Martin / 100% Financing When Buying Real Estate / 1-10-10