CREATING A BOOMERANG MORTGAGE

The property is ugly as sin and I’m the only buyer willing to make an offer! I propose to purchase this run-down property for $100,000 and pay and pay $10,000 down payment. That leaves $90,000 left to pay and the seller agrees to carry the financing! Typically sellers will ask for 01 % per month of the loan balance as the monthly mortgage payment. That equals $900 and it's way too much because the property income is only $1,200 per month.

I do not wish my debt service to exceed 50% of the total monthly income, therefore I propose payments of $600 per month, including 07% interest, amortized over 30 years. I can tell you right now, my 61-year-old seller don't like it, but he'll probably accept the deal anyway! Why you ask? Because his property is rundown and filled with deadbeat tenants and I'm the only buyer to make an offer! Naturally a mortgage note at 07% interest for 30 years secured by a ugly rundown property is only possible with seller financing. Any respectable banker would have thrown me out of his office if I asked for a long term mortgage on a junker property like this.

The reason the seller accepts the deal is because his property is in scumbag condition and I'm the only offer he has. There is absolutely no question in my mind that he'll be looking for his money much quicker than 30 years. My plan is to buy the mortgage back in the next several years for an amount far less than the note balance. Just how that is possible, you may be wondering!

First, it’s a quite likely my seller will take his $90,000 mortgage note to a licensed mortgage buyer hoping to sell it for cash. When he finds out what the note is really worth or what the mortgage buyer will pay, chances are he'll stomp out his office so mad at the price he's quoted, he'll never talk to the guy again. He’ll be told with just a 10% down payment, there's not enough margin of security in case the mortgage defaults. Another thing he'll be told...Who ever drew this mortgage up didn't include a due-on-sale provision or acceleration clause! There's not even a late payment fee either! That makes for a very weak mortgage when you try to sell it. At the price he's offered, there's hardly any danger he'll sell to the mortgage buyer.

After checking with several other mortgage buyers and hearing the same old story, his next stop will be my house to offer me the opportunity to buy the note. Imagine that, I'm the guy who drew the mortgage up to begin with all those weak terms they're talking about, and now I'll get a chance to buy it back. What a stroke of luck, wouldn't you say? I ’ll bet ya' 10 to 1, that my offer of $40 - $50,000 for the note will easily swing the deal.

Good Luck.

Jay DeCima