In order for me to have cash flow after paying only 10% down, I need weak mortgage terms. WEAK MEANS GOOD TERMS FOR ME! For example, let’s say I propose to purchase a rundown property for $100,000 and pay$10,000 cash down payment. That leaves $90,000 left to pay and the seller agrees to carry the financing! Typically sellers will ask for 01% per month of the loan balance as the monthly mortgage payment. That equals $900 and it’s way too much because the property income is only $1,200 per month.

I do not wish my debt service to exceed 50% of the total monthly income; therefore I propose payments of $598.78 per month, including 07% interest, amortized over 30 years. I can tell you right now, my 61-year-old seller don’t like it, but he’ll probably accept the deal anyway! Why you ask? Because his property is rundown and filled with deadbeat tenants and I’m the only buyer to make an offer! Naturally a straight mortgage note at 07% interest for 30 years — Secured by a rundown property is only possible with seller financing. Any self-respecting banker would have thrown me out of his office if I made such a request.

SELLER FINANCING SETS STAGE FOR SUPER PROFITS

This is the part about seller financing you’re gonna love once you get the hang of how it works — And believe me, it works very well indeed! To begin with, you need to understand that most sellers want more cash when they sell! Sellers with “top of the line” properties can generally get more cash because their properties are in demand. Many buyers are interested, which of course means they all must compete with each other — The seller is in control!

Just the opposite is true for sellers with rundown, problem properties. That’s why my weak offer was acceptable in the example above. No 61-year-old seller would accept a 30 year mortgage with weak payments ($598.78 per month) and a low interest rate if he didn’t have to! The reason he accepts the deal is because his property is in scumbag condition and I’m the only offer he has. There is absolutely no question in my mind that he’ll be looking for his money much quicker than 30 years worth of payments. My plan is to buy the mortgage back in the next several years for an amount far less than the note balance. Just how is that possible, you may be wondering!

PRESENT VALUE OF A LONG-TERM DEBT IS MUCH LESS

it’s quite likely my seller will take his $90,000 mortgage note to a licensed mortgage buyer hoping to sell it for cash. When he finds out what the note is really worth or what the mortgage buyer will pay, chances are he’ll stomp out his office so mad at the price he’s quoted, he’ll never talk to the guy again.

Naturally the mortgage buyer will explain the reasons, but the seller probably won’t hang around long enough to listen! If he does, the conversation will go something like this –It’s that long 30-year term with low monthly payments at only 07% interest, he’ll be told! Also, with just a 10% down payment, there’s not enough margin of security in case the mortgage defaults and the property is taken back! Another thing he’ll be told — Who ever drew this mortgage up didn’t include a due-on-sale provision or acceleration clause! There’s not even a late payment fee either! That makes for a very weak mortgage when you try to sell it.

At the price he’s offered, there’s hardly any danger he’ll sell. After checking with several other mortgage buyers and hearing the same old story, his next stop will be my house to offer me the opportunity! Imagine that, I’m the guy who drew the mortgage up to begin with – with all those weak terms they’re talking about — And now I’ll get a chance to buy it back. What a stroke of luck, wouldn’t you say?