Wraparound Mortgages (HELP!)

[David Kilgore]

Hello I am thinking about different strategies for passive income this year and came across a low cost hands-off way to generate income while reading Rich Dad Poor Dad. In the book Kiyosaki explains a deal he made at an auction, where he bought a home for half of its price with only a low down payment. He then listed the house for sale at its fair value and financed the deal himself by writing the buyer a 15 year promissory note at 8%. Kiyosaki collected the cash-flow between the two mortgages and never had to worry about any maintenance or repairs to the units. This is very appealing to me because it sounds like a fantastic way to create hands off month to month cash-flow. 

However as I have been researching the nuts and bolts of this type of deal, I am beginning to come across different sources that say this can be extremely risky and even illegal. I'd like to know if anyone within the BP community has ever used this tactic? What are the risk involved? (legally&financially) Lastly, just walk me through the steps of the deal. 

Thanks

[Account Closed]

@David Kilgore I think you are missing something. If he bought the house at Auction, he paid whatever the bidding price was. There would be no "for half of its price with only a low down payment" involved. 

However, if he bought Prior to the Auction, & brought the loan current, that may have occurred. I've done those for twenty years. Things have changed substantially since that book was written. New laws are in effect in various states so you have to update your information based on the state you are buying in. Wraps are done all the time. Be sure to use a real estate attorney and closing agent with a title company before doing one though. It is a complex but effective technique. However, there are many pitfalls and I'd recommend teaming up with someone who really knows what he is doing (not just says that it should work "in theory") before doing these on your own.