Re: 2nd mortgage - Posted by Phil (CO)
Posted by Phil (CO) on February 20, 2002 at 13:46:41:
Actually, if the seller “takes back a second mortgage” they don’t actually get the $20,000 you talk about. You are actually agreeing to make payments on that $20,000 loan to the seller. In this scenario the seller gets the $80,000 from your bank, plus a promise from you (secured by the second mortgage) to pay them the other $20,000 under agreed terms.
The way you described it, you would be getting a second mortgage from a third party (bank, private lender, etc) for the $20,000, and the seller would receive the full$100,000 at close.
The advantage of having the seller rather than a third party give you the morgage is that it’s probably a lot easier to get, and you can probably get better terms.
Now, why would you want to get a second mortgage instead of using cash? First answer is that Sheets and others are assuming you don’t have the $20k, in which case this may be your only option. Second, if the payments that you receive from your tenant can cover the “high interest” payment, you’re probably better off using your $20k to buy more properties.