Once you own real estate and have built up some equity in the property or properties, you also open the door to your own mint. You get the power to print money.

How does this work? Simple. You take out a second mortgage on the property to tap into your built-up equity. This is no more complicated than going down to your local office-supply store, picking up a blank mortgage form or deed-of-trust form, depending on your state, and filling in the blanks to specify a value for the property that you think you can justify- Obviously, this stated value has to exceed the amount of the existing mortgage on the property and the amount of your proposed second mortgage.

After creating the mortgage, you run an ad in the newspaper and sell the mortgage on your property to an investor, either at face value, or perhaps at a discount off face value in order to entice the investor to make the loan. Such a discount may be necessary because your mortgage is new. It isn't a "seasoned loan"—in other words, a loan with a payment history. Depending on how long you have had your property and how much equity has built up, the lender may feel that there is not enough equity in the property in the event that you default and the lender has to foreclose on the property . If that becomes an issue, you can create additional security for the investor by signing a promissory note with your personal guarantee to repay. As a rule, though, your goal should be to give a "mortgage without recourse," meaning that the lender can look only to the property itself, and not to your other assets, to collect from in the event of a default by you.

Why would a lender agree to a mortgage without recourse? Because the lender believes in you and believes that you will make every effort to avoid a default. He knows that you are trying to either build or protect your reputation as an investor and that a good credit history is almost as important to you as cash. And finally, the investor believes that the money is there to be gotten back out of the property, or he wouldn't have gone in on the deal in the first place.

Many first-time real estate buyers who hear us talk about creating their own mortgages on their property think this scheme sounds too good to be true. It's not. Seasoned real estate investors do this all the time, and there is a big market for discount mortgages, because they offer good returns and are backed by real estate. Your biggest challenge will be to show that there is equity in the property. Maybe this is because you put down a substantial down payment. Maybe it's because properties like this, in this neighborhood, have appreciated. Or 
maybe it's just because you got a good deal in the first place. The truth is, non-conventional lenders don't care where the equity comes from; they simply want to know that there is equity there, and they need to be convinced that you intend to pay back your loan.

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