Let The Down Payment Come From The Property

As surprising as it sounds, you will sometimes stumble across a property that is capable of making its own down payment. Keep your eye out for these opportunities. The following is just one example of how this can work.

Let's say you find a house on 10 acres of land. The asking price is $180,000, which is fair market value. In a typical purchase your down payment would likely be around $18,000-$36,000.

You notice from a thorough inspection that there is close to five acres of prime hardwood trees and roughly three acres of large, straight pines. Have a local sawmill owner check it out and give you a quote for the timber, assuming he will cut it and haul it off. With the going price of lumber these days, he will be offering you thousands of dollars. Now have a cordwood dealer quote a price for the stumpage rights, which earns you another couple of thousand dollars. Together, you can net about $20,000 from the timber on the land. Draw up an agreement with these two operators, based on you closing the purchase. They will place the money into your escrow. If you do not close, the money is returned to them. Otherwise, upon closing they receive the contracts for the timber and stumpage, and you get the cash to use as your down payment. You now own a $180,000 property, and have $20,000 to use as a down payment which has not cost you a cent.

But don't stop there! Since the land is now cleared, subdivide off a couple of 2 acre buildable lots and sell them to a homebuilder. Depending on the value of such unimproved lots in your area you could easily pocket an extra $10,000-$20,000 cash, and you still own the house and six acres. Of course, at least 80% of the sale price of the lots must go to paying off your mortgage, to protect the lender's position. The property is now worth somewhat less because of the sale. The banker will likely insist that you reduce your mortgage accordingly. But you have increased your profits substantially.

Perhaps the house you want has $3,000 worth of shrubbery and other valuable plantings. Perhaps the local nursery would be interested in buying these from you. Or that old barn - the price of old beams and barnboard is very high these days, and they are much in demand. Arrange to sell it to a local salvage operator.

Do not limit yourself to the ideas suggested here as there are nearly endless methods of getting the down payment from the property. For example, perhaps your agreement states that the seller will leave lawn tractor, the furnishings and who knows what else. Arrange to sell these at closing to an interested party such as a secondhand store owner. He places a certified check into escrow along with your agreement to sell him these items at closing. When closing takes place, that check goes to you, and can be applied to your down payment.

Maybe the owner of a landlocked property (no deeded access) wants to purchase a right-of-way from you, so he has access to the land he owns. Or maybe apartment dwellers want to lease garden space from you so they can grow their own vegetables.

If you will be renting the property out to a tenant, find one to arrange his move in date with your closing date. His first and last months rent can be applied toward your down payment.

Use your imagination as well as your eyes, and you, too can find wonderful, profitable opportunities like these. And if you can include one or more of the buying strategies included in this book, the profits could be out of this world!

"The Simple Man's Guide to Real Estate

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