financing secrets of a millionaire real estate investor.pdf

9 / Owner Financing 127
one willing to pay $20,000 for these $96,000 worth of payments (a
yield of almost 16 percent). Thus, at closing the seller gets $20,000
plus the remaining 240 payments on the mortgage, the balance of
which will be $88,000 in ten years.
Your sales pitch is that the seller will receive $108,000 for the purchase
price, when in fact he or she is asking only $100,000! In reality,
the present value of the remaining 240 payments on the note is much
less. However, the seller may get just what he or she needs—a chunk of
cash now and an income stream for his or her retirement years.
Wraparound Financing
We are in a unique time in history in that real estate prices are
rising, yet interest rates are dropping. At the same time, there is fierce
competition for subprime loans, that is, loans to people with less than
perfect credit and income. Virtually anyone can obtain a home loan,
but interest rates and points charged for these loans are astronomical.
This means that those who can borrow at low interest rates and loan
at higher interest rates are making a bundle! Combine the interest
rate spread and a hot housing market and your ability to make a profit
grows exponentially.
The Basics of Wraparound Financing
In its most basic form, a “wraparound” mortgage, or “wrap,” is
an arrangement wherein you sell a property encumbered with existing
financing by accepting payments in monthly installments rather
than all cash.
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Example: Susie Seller buys a $90,000 house at a 10% discount
($81,000). She borrows $81,000 from First Federal
Financial on a favorable 8% 30-year loan. Her principal and
interest payments are roughly $594 per month. She sells the