Getting a loan on your owner financed loan

[Lewis McKnight]

It has come to by attention that a loan can be loaned on. I want to put this out there and see if anyone has done this. What are the issues of doing this? What % of the owner financed loan can you get from another lender? 

Basics of how I think it works. You have a home that is worth 200k. 

Appraisal 200k
Down payment from buyer 10% or 20k
Your owner financed loan is 180k.

You can then get another loan for 65% 70% or 75%??? of your originally 180k loan from a 3rd partner lender and get your money back.

Yes you can do this with a land contract, and wrapped an original loan, but the vast majority of lenders will not allow you to change title and wrap the loan. They will have a due in full clause if you do this. If you get a loan off your own loan. You do not have to worry about any due in full clause. Plus look at this way.

Purchase home 130k
Rehab 20k
Total in home 150k
Appraisal/sale is 200k
Down payment from buyer 20k or 10%
Loan 180k for 9.9%
Second loan off your owner fiance loan at 75% for 130,000ish at 6%

Money left in the home. 0
You make the split of 130,000 at 9.9%-6%  = 3.9% or 422.50/mo
50,000 * 9.9% = 412.5

You know have 835/mo of income no money invested, no maintenance to do on a rental, and the profit from your flip is invested at 9.9% without paying any income tax on it.

Let me know where I am wrong and how to best go about doing this.

[Rick Pozos]

You can borrow against your owner financed loan, but as with most theories, it is just not that simple. 

You have to have a great "deal" that you will only need to put a small amount of work into the property (in your case 20k on a 200k property) and then get that amount as a down payment. Finding that 200k property for 130 is tough. But there will be variations of how much money is left in the deal. It will probably free up some of your money, but most likely not all.

Most banks will collateralize your mortgages into a line of credit. And yes they will give about 60% of the loan balance(depending on your bank), but they will want an appraisal on each property that you get to pay for. They will want one every year or two to make sure that they are still at 60% or whatever they are lending to you. They will also shrink your line of credit if the economy turns or if they feel that they are not as secure as they once were. OR if they want less exposure.

You are going to have to do a full credit profile of your borrowers also. If the bank sees people have 600 credit score, they will figure that they will not keep paying the mortgage or end up lending you 30% instead of 60%. And if they have great credit score, why would they pay 9.9% interest. Kind of a catch 22.

But yes, it does happen just not that easy.