Creative Down Payments: How to Use Almost Anything as a Down Payment to Buy Real Estate (Creative Real Estate Series Book 2) by Chuck Sutherland

Author:Chuck Sutherland [Sutherland, Chuck]
Language: eng
Format: epub
Publisher: Creative Real Estate Network
Published: 2015-04-20T04:00:00+00:00

APPLY THE DOWN PAYMENT TO THE MONTHLY DEBT SERVICE

Strategy

Beginning with the idea that everything is negotiable, even the use of the down payment can be considered negotiable. One way to apply that principal is to negotiate having part of the down payment be applied to future monthly note payments.

That down payment could be applied to reduce both principal payments or interest payments or both. In one transaction where I was the Seller, I gave the Buyer twelve payment vouchers for the first year’s monthly payments. We were using an escrow account with a title company, so it made it easy for the title company to track the payments. In this case, I wanted to have regular monthly payments coming from some source to make the seller-financed note more saleable in the open market.

In practical terms, the Buyer could hold those vouchers until a month when they did not have the money to make a payment, or the Buyer could give those payment vouchers all at once at the beginning so there was no question as to the payment being made on time.

Another way to manage this could be to simply state in the promissory note that certain payments were to come out of the down payment delivered to Seller.

Whichever way it is handled, it is a way to deal with the gap between the Seller wanting payments and the Buyer not wanting to make payments. Again, there are times when the form of the transaction is sometimes more important than the substance of the transaction. Changing the form can be used to satisfy the goals of all parties to the transaction.

Both the Buyer and the Seller in such a transaction would want the application of the vouchers to be clearly set forth in the closing documents.

Residential Example

A remodeling contractor was considering buying a vacant house in Dallas to remodel and resell. The property required substantial remodeling and several months to do the work and resell the house. The Seller was a relocation company that wanted a quick sale. Someone in the company had made a big mistake in accepting an appraisal that showed a market value much higher than it should have been.

The relocation company had already paid off the original owner. The delay in sorting out their mistake cost them both a substantial amount of money and the wasted time when the property was listed at a much higher price.

Fortunately, the relocation company quickly became realistic about the condition of the property and what would be required for a resale. The original owner was a corporate client that was a big customer, so they were prepared to absorb their mistake. They also had become realistic about the real market value of the house. They were prepared to discount substantially to get the house sold quickly. Said another way, the relocation company was highly flexible and wanted this property off their inventory.

The purchase price was $115,000. The property had no existing loan. The relocation company wanted all cash.

Solution

The contractor offered to buy the house at the full asking price of $115,000 and give a $15,000 cash down payment.

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