Can someone explain this scenario for me? - Posted by EC

Real Estate Investing
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Posted by florence on July 18, 2003 at 02:02:49:

does this mean that anyone can just create a note and sell it at a discount? said, secure by the property you’re about to purchase? I’m not familiar with how ‘creating a note and sell it at a discount’ for a buyer, but i know how with the seller(receiving monthly payments and can cash out)… because I’ve read the course, and I’m not sure if I misunderstood, or something else… about creating a note, and sell it to an investor at a discount, depending on terms of the note, and it’s securities… Said, you’re a beginning investor, and have not owned a property yet, but you found a property for sale @ said 100k with 20%down… if i was able to get the seller take back a second mortgage for 80k, i then went and look for the down payment money… is it possible to just creat a note, said in the example for 20%(which is 20k) and sell it at a discount to an investor? Any advices would be greatly appreciated…Please correct me if I’m wrong…Thanks…
Florence Tauese
fololegi10@yahoo.com

2

Can someone explain this scenario for me? - Posted by EC

Posted by EC on July 09, 2003 at 13:15:46:

Hi all -
I’m completely new and trying to learn as much as I can. I ran across this scenario/solution and have a few questions I don’t understand. Any help in clarifying for me would be greatly appreciated… My questions are below the the quoted scenario.

** This is for a $160,000 asking price with say $30K down…

"…create two notes…First mortgage for $100,000, at 10%, amortized over 30 years, due in 10 years. The monthly payment is $877, and the balloon is $90,938.

Second mortgage for $60,000, at 10% amortized over 30 years, due in 15 years. The monthly payment is $526, and the balloon is $48,998.

Sell the first mortgage to an investor for $79,127 to yield 14%.

The results are: The seller got “his price” and the negotiated down payment amount. You get the property and can either put down a big down payment or a little down payment and pocket the difference. "

QUESTIONS:

  1. How does selling the first mortgage work or help me? Seems as if you still owe roughly 10K after selling right assuming you put all of that back into the 1st mortgage? What does the investor do with it?

2)How are you yielding 14%?

3)Can you give me an example of how you pocket the difference regarding your down payment? Does this mean after you receive the $79K from selling…you can put whatever of that into the $100K borrowed and pocket the rest, and pay off the remainder of the 1st and 2nd loan via rental income?

Thank you very much for your help.

-EC

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Well I’ll try … - Posted by Michael Morrongiello

Posted by Michael Morrongiello on July 12, 2003 at 19:51:15:

EC:
Lets look at what you are asking…

** This is for a $160,000 asking price with say $30K down…

"…create two notes…First mortgage for $100,000, at 10%, amortized over 30 years, due in 10 years. The monthly payment is $877, and the balloon is $90,938. OK GOT IT…

Second mortgage for $60,000, at 10% amortized over 30 years, due in 15 years. The monthly payment is $526, and the balloon is $48,998.
OK GOT THIS AS WELL…

Sell the first mortgage to an investor for $79,127 to yield 14%. - THIS IS CORRECT…

The results are: The seller got “his price” and the negotiated down payment amount.

THE SELLER DID NOT GET HIS PRICE IN CASH. He would collect $79,127.87 from the sale of the 1st lien Note and then have a $60,000.00 2nd lien Note that would provide income for him / her. This totals $139,127.87…

You get the property and can either put down a big down payment or a little down payment and pocket the difference.

I am not sure what you mean by this statement? - Yes you can acquire the property but you will owe a TOTAL of $160,000.00 in debt against this property (remember the 2 mortgage Notes above?)

QUESTIONS:

  1. How does selling the first mortgage work or help me? Seems as if you still owe roughly 10K after selling right assuming you put all of that back into the 1st mortgage? What does the investor do with it?

You are getting into this property with No money down or very little money down, YET the property seller is still getting a significant amount of cash at the time of closing ($79,127) resulting from the sale of the $100K 1st lien note…

2)How are you yielding 14%? - You invest $79,127.87 for the right to buy an income stream that pays $877.57 per month for 120 months and then a final payment of $90,938.02 and that calculates out to a YTM - yield to maturity of 14% on your $79,127.87 dollars invested.

3)Can you give me an example of how you pocket the difference regarding your down payment? Does this mean after you receive the $79K from selling…you can put whatever of that into the $100K borrowed and pocket the rest, and pay off the remainder of the 1st and 2nd loan via rental income?

You’ll need to think this question through because I am not sure what you are asking here…

To your success,
Michael Morrongiello

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Re: Can someone explain this scenario for me? - Posted by Chuck

Posted by Chuck on July 09, 2003 at 13:54:00:

My… aren’t you creative.