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:

- 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