is obtained in order to generate enough money to satisfy the seller’s needs. The remainder of the seller’s equity is carried back on terms that are mutually agreeable. None of the cash comes out of the buyer’s pocket. Naturally, the hard-money lender’s policies and requirements will have to be satisfied. It may be that the carry back will have to be secured by another property in the buyer’s portfolio in order that the subject property will have no secondary financing (anathema to most hard-money lenders who are asked for refinance funds for this type).

Because of the importance of this technique, let us give you several examples from our files of how it has been used successfully by investors in the past year or two. A buyer in Chico, California, acquired four SFH’s for $159,000 by taking the property subject to an existing first mortgage of $64,000, then putting on a new hard-money second for $55,000 (out of which the down payment was generated), the balance of the obligation to the seller being carried back in the form of paper against another investment property. In another situation, an investor in Oklahoma bought two SFH’s by putting on a new first mortgage (proceeds to the seller) and having the seller carry back the rest in the form of paper secured by the property. In both cases, the down payment was “cranked” out of new had-money encumbrances against the property, rather than out of the buyer’s pocket. There are countless other illustrations for this technique, which becomes all the more important in periods of lowering interest rates and easier access to bank funds.

Technique No. 33 Variation of the Crank: Seller Refinance

In some instances it might be difficult to persuade conservative lending institutions to refinance a property or provide secondary financing as part of a “crank” purchase. They may regard the substitution of collateral on the owner carry back as too complicated. To them, it might seem as though the owner carry back still looks suspiciously like an encumbrance against the subject property (even though the mortgage has been moved to another property).

One variation of the second mortgage crank technique calls for the seller to refinance his own property and then pass the new loan on to the buyer. No one at the bank is going to object to his refinancing his own property or putting on a new second mortgage. In this way the seller’s need for cash can be taken care of, the balance of the equity being carried back in the form of a second or third mortgage.