A case we heard of in Tucson recently is a good example of this alternative approach to the second mortgage crank. The seller agreed to obtain a $12,000 hard-money second to generate needed capital before the property was passed on to the buyer, who in turn gave the seller a third mortgage for the remaining equity.

Technique No. 34 Buy Low, Refinancing High

This is the old “buy low, sell high” strategy transferred from the stock market to creative real estate. The basic strategy is to locate a property discounted substantially below market levels and then refinance it with a new hard-money first in order to achieve higher leverage or generate funds to satisfy the needs of the seller (and buyer as well). This technique is particularly suited to tight-money times where negative cash flows can be a deterrent to investing.

A woman investor from California recently put herself in a position to make $1.5 million on 180 discounted town homes in Arizona by using the “buy low, refinance high technique.” A buyer in Pennsylvania was able to pick up $10,000 in instant equity by refinancing a discounted duplex acquired for nothing down. When he goes to sell the duplex, he can “sell high” and convert the equity to cash. Still another investor in Tulsa picked up three duplexes for $165,000. Since they were appraised at nearly $240,000 for all three, he was able to put on a new first mortgage at a high enough level to generate over $30,000 cash to buyer at closing. When he goes to sell he can convert the rest of his profit to cash. And so it goes with “buy low, refinance high” technique.

7. UNDERLYING MORTGAGES

The seventh area of flexibility in acquiring property for nothing down is the area of underlying mortgages. Three vital questions for the analysis phases are: What mortgages (trust deeds, lien) are there against the property? Who holds them? Would these holders of underlying mortgages be flexible with their assets? In most cases the mortgages are banks. For that reason conventional wisdom assumes that there will be no flexibility whatsoever. Hard-moneylenders, after all are “tightwads” who never yield on the terms of their loans. Conventional wisdom is usually correct in this, and yet even hard-money lenders can soften up if it is in their best interests to do so. The unprecedented rise in interest rates in the last few years has caused some agencies and institutions to develop flexibilities with their mortgage holdings that can benefit real estate investors.