David M. Harrison, Ph.D. Real Estate Finance Texas Tech University Creative Financing Structures Common Forms of Creative Financing Assumable Loans Advantages: Disadvantages: Wraparound Loans Advantages: Disadvantages: Buydowns Advantages: Disadvantages:

David M. Harrison, Ph.D. Real Estate Finance Texas Tech University Assumable Loan Example Determine the Cash-Equivalent Value of the Following Assumable Loan: Original Balance = $67,000 Contract rate = 8% Market rate = 12% Remaining term = 18 years Original term = 30 years

David M. Harrison, Ph.D. Real Estate Finance Texas Tech University Buydown Loan Example A developer is offering a buydown in order to sell a property. With a market rate of 12 percent, she is willing to buy the rate down for the first 2 years to 8 and 10 percent, respectively. If $80,000 is borrowed on a 30-year term with monthly payments, what is the buydown fee?

David M. Harrison, Ph.D. Real Estate Finance Texas Tech University Wraparound Loan Example Smith wants to buy a property for $120,000 but he has no money to make a down payment. Jones, the seller, is willing to do a wrap for the purchase price with an existing monthly payment mortgage having a fixed rate of 8 percent. This existing loan had an original balance of $100,000 and has 20 years remaining on its original 30-year term. The current market rate is 12 percent on 20-year mortgages. Jones is willing to write the wrap loan at a 10 percent interest rate. What is the effective equity yield for Jones if the wrap is written for the remaining term of the existing mortgage and both are held to maturity?