Is the Assignment of Mortgage Payments System a Good Strategy?

Assignment of Mortgage Payments System

Looking to begin in real estate investing?  You have 2 ways of making money:  Passive income or transactional income.

The true definition of real estate investing is when you invest your money into property and make money off cash flow and appreciation.  Fix and flips, buy and holds, and purchasing real estate notes are traditional ways of real estate investing.  However, you must have money to invest in real estate using these strategies.

What if you're just starting out and don't have enough money to purchase notes or properties?  Then transactional real estate may be your best bet.  Here are some typical examples and descriptions of no money no credit real estate and how these strategies work with the Assignment of Mortgage Payments System.

The Truth About Assignment of Mortgage Payments System | What is Wholesaling?

The safest and simplest form of transactional real estate is wholesaling.  Wholesaling is simply getting a property under contract with the seller, finding a buyer, and assigning the contract to the buyer for an assignment fee.  This strategy involves none of of investors money or credit, has very little risk, and can be transacted quickly.  The downside to wholesaling is that you generally have to find a property at a discount of less than 60% market value in order to find an end buyer.  Finding these deeply discounted properties can be difficult.

The Truth About Assignment of Mortgage Payments System|What are Subject-To Financing & Wrap Around Mortgages?

Combining subject-to financing with wrap around mortgages are popular as well.  Subject-to means purchasing a property 'subject-to the existing financing remaining in place until new buyer finances'.  This allows the investor to purchase the deed or title of the property while leaving the mortgage in the sellers name.  The investor, now responsible for paying the mortgage on behalf of the seller, looks to find a buyer who can't qualify for traditional financing, and create a wrap around mortgage.  A wrap around mortgage is a new mortgage that is created on a property that "wraps around" an existing mortgage.  The investor gets a down payment for initial cash, charges a higher interest rate than the current mortgage for monthly cash flow, and charges a higher purchase price for cash in the future in the form of equity.  Since none of the investor's credit is being used, they can perform as many transactions as possible.

There are disadvantages to this strategy, however, as the investor is responsible for the monthly payments.  During a wrap, the investor should be able to positively cash flow the property, but if the new buyer defaults, the investor is responsible for the payments.  This can get costly, especially if you don't have much cash reserves or have multiple properties default.  Also, there is a sword constantly hanging over the investors' head known as the 'due on sale' clause.  This due on sale clause states that the lender may call the note due if a sale occurs.  So anytime during this wrap around mortgage agreement, the bank could call the note due in full, which could create a very difficult situation for the investor in question.

The Truth About Assignment of Mortgage Payments System| What is AMPS?

In my opinion, the best place for new investors to start is the Assignment of Mortgage Payments System (AMPS).  The Assignment of Mortgage Payments System combines the philosophy of the wrap around mortgage with the concept of wholesaling, taking out the ownership portion of the subject-to transaction.  Pretty clear, huh?  Let me specify further.

With AMPS, the investor is a wholesaler.  Rather than wholesaling distressed property contracts to fix and flippers, the Assignment of Mortgage Payments System investor wholesales owner financed contracts to end buyers who can't qualify for conventional bank financing.  When set up correctly with the proper paperwork, the AMPS investor finds a distressed seller (like he or she would in a subject-to transaction) and a motivated buyer (like he or she would in a wrap around mortgage) and assigns the owner financed contract between seller and investor to the new end buyer for an assignment fee (like he or she would in a wholesale transaction).

The Assignment of Mortgage Payments investor gives up the monthly cash flow and the equity on the back end that would be receive had he or she purchased subject-to with a wrap around mortgage, but in exchange, the AMPS Investor also gives up the liability associated with holding the note.  That responsibility remains with the seller, who is aware of the risks, as well as the new end buyer, who is also aware of the risks.  Any closing documents for the Assignment of Mortgage Payments System would absolutely have disclosures clearly explaining the risks of the transaction.

Assignment of Mortgage Payments System (AMPS) Summary

In summary, given the scarcity of traditional wholesaling and the risks of subject-to financing with the wrap around mortgage exit strategy, the Mortgage Assignments Program is definitely the way for new real estate investors to begin their careers.  The AMPS strategy offers the investor an ample supply of distressed homeowners as well as an abundant supply of home buyers who can't qualify for conventional financing, which provides the Assignment of Mortgage Payments investor with quick, transactional money.

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Title:  The Truth About the Assignment of Mortgage Payments System