in cash over a period of time, how would it be if I took out an insurance policy in the amount of the note and made you the beneficiary? That way you will feel secure that the note will be paid off no matter what.”

This technique is not usually necessary. Still it is an inexpensive way to build trust if the seller cannot quite see it your way and needs just a bit more persuasion.

Technique No. 4 Contract or Wraparound Mortgage

An Albuquerque investor recently bought a triplex for $69,300 by putting down $1,000 and having the seller accept a contract for the remaining $68,300, 10.75% interest for 35 years, and payout after 12 years. The contract wrapped around a small underlying first mortgage. Similarly an investor in Springfield, Massachusetts acquired an $80,000 free and clear single-family house by putting a small sum down and having the seller carry back the rest in the form of a contract. These are variations of the technique referred under various names such as “contract, wrap-around, or owner carry back”.

This technique is one of the most frequently used creative finance tools. It is the foundation of seller financing rather than refinancing the property or formally assuming the existing mortgage. The buyer uses a contract as the purchase instrument. Technically he does not get title to the property until he has performed according to the provisions of the agreement. In effect, he says to the seller, “I’ll pay your equity off in installments over time. And as soon as I have paid everything off, you will give me the deed for the property, and it will be mine. In the meantime, I will act as the owner by taking over the management and getting all the tax benefits and the appreciated equity above what the property is worth at the time of purchase. Of course, all the expenses in the meantime are mine as well.”

If the property is free and clear at the time of purchase, the seller pockets all the installment payments on the contract if there are existing encumbrances on the property. Then the contract is referred to as a wrap-around contract or wrap-around mortgage. It “wraps around” the existing first and subsequent mortgages or trust deed. When the seller receives the installment payments, he has to first make payments on the existing notes before he can pocket the rest. The advantage to him is that the interest rate on the total wraparound contract will be higher than on the underlying loans. Therefore, he will be making an interest spread on the underlying part of the note – not a bad deal for a seller-turned-lender. In addition, he