Creative Paper Techniques
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Editor’s Note: This article first appeared in the June 1973 issue of the Real Estate News Observer.
My banker recently said that money is getting tight again. If he is right (and he usually is), you may need to do some creative paperwork to solve real estate financing problems.
There are a lot of 1969, nine percent financed properties around that have amortized for four years and the depreciation has run down. Many owners of these properties will want to change that financing and they will find that money is not available to do so.
Money dries up first on commercial properties, then apartments, then homes. For financing problems under $100,000, you may use this idea, which has been successful for me several times.
Let’s say you have a client who needs to refinance a fast amortizing, high-interest note loan because it is taking too much of the property’s income to satisfy the loan. Moreover, there are no loans available for his commercial building or apartments.
You look for a free and clear house, preferably owned by elderly people who would benefit from holding paper, but don’t need cash. Then, you offer to create “first paper” on your client’s property for the value of the house.
Your offer of created “first paper” on your client’s property should be for longer amortization, lower interest, and smaller payments than the existing first loan.
Get a loan commitment on the house, and as soon as the transaction is firm on both sides, put the house up for sale. Try to get an owner-occupant for the house and let him take out the loan on the house.
An owner-occupant can get a longer loan and, if he takes out the loan, your client is relieved of the liability on that loan.
The loan money from the house goes into the closing of the exchange transaction and is used to pay off the old first loan on your client’s property.
With the newly created first loan on the property, the cash flow should increase and your client should be happy he knew you-you creative Realtor you.
I have used this technique on small farms, raw land, a trailer on five acres, and country homes where the lenders generally do not make good “ratio loans.” Try it-you’ll like it.
