Walking a mortgage
I will never forget that day. I was on my way down to Atlanta to attend Gary Johnston’s Financial Freedom Principle’s seminar. As I was driving, I was listening to another course that featured speakers like Jack Miller, Peter Fortunato, Jimmy Napier and Clyde Wilson.
I pulled up to the Financial Freedom event, and I walked in and found Kim Cook, the wonderful lady I lovingly refer to as my “Rich Mom.” She started introducing me to people. We went to a few tables until we reached one where Kim said, “And this is Jimmy Napier.” I was floored because I had just been listening to him speak in the class I had been listening to on the way down. I told Jimmy that, and he said, “Well have you met my good friend, Clyde?”
Clyde Wilson sat down at the table and started talking to me about walking a mortgage.
You see, walking a mortgage is a real estate investing term. It is where you take a mortgage against one house, move it to another house and then sell the first house. The benefit to this process goes like this: You don’t pay off the mortgage at the closing table as you normally would, and by moving the loan to another house, the house for sale become free and clear, and you get to take more money home.
Clyde smiled and said in his playful way, “It’s almost like you could put that money right in your pocket.” And he is right. But to illustrate this further, let me tell you about a deal we just did where we walked the mortgage and why it was beneficial.
We bought a double-wide on 5 acres at the beginning of 2021. It was a nice four-bedroom, two-bath house that needed minimal rehab. Our intent was to do the small rehab and then rent it out. We brought in a long term private money lender to get the funds for the purchase and the rehab.
We bought that house in January. We got the roof repaired and did a few other small things, but then we let the house sit until we finished the other projects we had going. To make a long story short, the house sat for six months. By then, I realized the house was out of our normal working area and that if we kept it as a rental, I would not give it the attention that it needed. Because of that fact, we decided to sell it.
This decision required that we do a larger rehab. We gutted the kitchen and put new cabinets and counter tops in. And since it was a double-wide, we had to put a foundation under it so it would sell with FHA or VA mortgages. And then, of course, we painted, updated all the fixtures and got new flooring installed.
The house looked great when we got done. We put it on market and got an over-list-price contract quickly.
Now, remember, we had a private money lender on this property. After we got it under contract, I called her up and told her we had decided to sell the house. I asked her if she wanted to be paid off or if she would rather us continue to make her monthly payment. She said she would rather get monthly payments.
I said, “Great, then what we can do is walk your mortgage to another property we have.”
I explained to her that walking a mortgage meant we were going to change the collateral from the house she was currently on, to another one that we had. I told her we would get her a security deed against the new house but that we would need to get a cancellation of the security deed she had against the current house.
She agreed. And when we closed on the house we were selling, it was free and clear, and we got to pocket the entire amount that would have been the payoff for our private money lender’s mortgage.
And did I mention we don’t have to pay tax on that amount? That’s because that loan was part of our basis in the property we sold. So, those funds are not deemed as a gain and is thus not taxable at the time of sale. As far as the tax man is concerned, we basically engineered a cash out refi. But we did it without having to go to a bank or do any new loan paperwork. ON top of that, we kept our private money lender happy by not paying them off.
I guess now I understand why Clyde always smiled so big when he said, “It’s almost like you could put that money right in your pocket.”
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.