WLCCI

Other No Money Down Techniques

Some sellers are in a position where they are not able to sell their properties unless they actually receive cash at the closing. If you are using one of the techniques that does not allow the seller to receive cash, you might not be able to buy the property unless you can show the seller how to convert the note you are offering to cash. Let us look at several ways that the seller might accomplish this.

Technique A

An active market of investors is eager to purchase notes at a discount. While this is probably the least desirable way to generate cash, selling a $10,000 note for $7,000 to $7,500 is not difficult, depending upon its interest rate and term. This process is known as discounting a note.

Technique B

The note could be taken to a bank, with whom the seller has a good banking relationship, and pledged as security for borrowing money. While the seller will probably be paying 3% to 4% more for the money than what is being received from you in interest. This way is still much less expensive to generate cash than selling the note at a discount.

Technique C

Let us say that you have purchased a property and have given a $10,000 promissory note to a seller secured by the real estate that you purchased. If the seller does not need the entire $10,000 or even as much as would be received if the note were sold at a discount of 30% to generate $1,400 in cash, another new note for $2,000 could be used by the seller as a down payment to buy real estate. The seller would still have the original note for $10,000. $6,000 of that note would be “free” and would generate income for the seller.

Technique D

Most people are aware that when they receive a note, they have an asset in the amount of the note. What most people do not realize is that they really have two assets: they have the note itself and also cash flow that is coming each month or each year from that note.

Assume that you gave the seller a $10,000 promissory note bearing interest at 9%, payable $900 per year. That $900 per year income that the seller is receiving could be sold at a discount, or for that matter, the seller could sell several years of income at a discount to generate cash. This technique would leave the primary asset, the $10,000 note itself, untouched.

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