With private mortgage holders, the opportunities for creative finance techniques are even greater. The mortgages may be sellers who have accepted paper back for part of their equity when they sold the property. Now they are receiving payments over times, sometimes at interest rates far below the current market. Often such private mortgage holders realize that their assets are not well invested in relation to current investment opportunities and yields, so they become open to suggestions from creative buyers who present more beneficial solutions to the problem.

This section outlines five techniques from this area of flexibility.

Technique No. 35 Use Discounts from Holders of Mortgages

The basic approach to the private holders of underlying financing is this: Mr. Mortgage, you are receiving monthly payments on this note at a moderate rate of interest, and you must wait patiently until the note is paid off. Would you not rather have this mortgage redeemed for cash right away? If the holder of the mortgage is willing to discount his note for cash, the buyer can look for new financing to put on the property in order to pay off the existing private mortgage. The strategy is to have enough refinance funds to pay off the private mortgage and still have sufficient funds to take care of part or all of the down payment needed to acquire the property in the first place. It might turn out that the private mortgage holder will be willing to discount only a part in cash (at a discount) and the rest in new secondary financing above the refinance mortgage, possibly with an improvement in his interest rate or other terms.

There are many variations to this technique, but the basic idea is to redeem the underlying mortgage at a discount for cash (using borrowed funds), with the balance being applied to the down payment. For example, a buyer of a rental home in Los Angeles has induced a seller to take back a single payment second of $11,000 for three years. After the closing, the buyer approached the seller and offered to buy back the second for $7,000 cash. When the seller agreed, the buyer borrowed $10,000, paid off the note, and had $3,000 to offset the small cash down payment he had made to get into the property.

Technique No. 36 Moving the Mortgage

A mortgage consists of two basic documents: one is a note setting forth the terms for paying back the funds that are borrowed, the other