It was 1989, I was 22 years old and still in college when I attended a real estate auction at the downtown courthouse steps in Fresno, California. I watched a guy named Jim Smith (Yes that’s his real name) bid on and buy a property. After the bid process was over I started up a conversation with him and began asking questions.
That was the beginning of our friendship and business relationship. We later purchased a house together in Fresno. (Here’s a picture of the actual house today and it still has the same paint job.) It was my first real estate deal. I was useful in the transaction because I was able to get the loan since Jim had too many other loans in his name. We purchased the property for $42,000. We borrowed from a hard money lender meaning that the interest rate was higher than normal and the loan term was a short five years, but the actual payment was amortized over 30 years. So at the end of the five years, the total still left to be paid would be due.
We used Jim’s crew to do a little fix ups like exterior paint and some flooring. (The house still has the paint job we gave it back in 1992.) We immediately began marketing it to sell. A month or so later we found a buyer for $62,500.
One catch, the buyers didn’t qualify for a loan. So we took $5,000 down and wrapped the mortgage. Wrapping the mortgage meant we kept paying the mortgage in my name. It was around $550 per month and the new owners paid $750 per month. Sounds like an easy $200 per month but it wasn’t. The new owners would almost never pay me on time. In fact, they ran a month in the rears. I didn’t have the money to pay the mortgage. The hard money lender was hard on me always calling me for the money. The worst part about it was the person in charge of my account from the load company was a personal friend! How embarrassing it that?
The one thing that made the whole deal work was the $750 per month owed was significantly higher than the loan payment would be if the new owner refinanced. Finally after about a year, the new owners got a new loan and paid Jim and I off for a nice little profit.
Looking back the best thing I did was go in with an experienced partner, without one that could have been a terrible deal.

It was 1989, I was 22 years old and still in college when I attended a real estate auction at the downtown courthouse steps in Fresno, California. I watched a guy named Jim Smith (Yes that’s his real name) bid on and buy a property. After the bid process was over I started up a conversation with him and began asking questions.
That was the beginning of our friendship and business relationship. We later purchased a house together in Fresno. (Here’s a picture of the actual house today and it still has the same paint job.) It was my first real estate deal. I was useful in the transaction because I was able to get the loan since Jim had too many other loans in his name. We purchased the property for $42,000. We borrowed from a hard money lender meaning that the interest rate was higher than normal and the loan term was a short five years, but the actual payment was amortized over 30 years. So at the end of the five years, the total still left to be paid would be due.
We used Jim’s crew to do a little fix ups like exterior paint and some flooring. (The house still has the paint job we gave it back in 1992.) We immediately began marketing it to sell. A month or so later we found a buyer for $62,500.
One catch, the buyers didn’t qualify for a loan. So we took $5,000 down and wrapped the mortgage. Wrapping the mortgage meant we kept paying the mortgage in my name. It was around $550 per month and the new owners paid $750 per month. Sounds like an easy $200 per month but it wasn’t. The new owners would almost never pay me on time. In fact, they ran a month in the rears. I didn’t have the money to pay the mortgage. The hard money lender was hard on me always calling me for the money. The worst part about it was the person in charge of my account from the load company was a personal friend! How embarrassing it that?
The one thing that made the whole deal work was the $750 per month owed was significantly higher than the loan payment would be if the new owner refinanced. Finally after about a year, the new owners got a new loan and paid Jim and I off for a nice little profit.
Looking back the best thing I did was go in with an experienced partner, without one that could have been a terrible deal.