We have even heard of pets such as rare monkeys or valuable cats being used as down payments. One buyer in San Diego acquired a luxurious new home by using gems – diamonds, rubies, and emeralds – as the down payment. For another investor we know of, five truckloads of topsoil did the trick. Anything goes if it satisfies the seller’s needs.

Technique No. 15 Creation of Paper

An investor in Sacramento, California, picked up a clean SFH for $56,000 as follows: assume existing $28,000 first mortgage, assume existing $7,700 second due in 7 months, have realtor carry back a third for $2,500, have seller carry back a note on another property owned by the investor in the amount of $11,600, put down $6,000 cash (borrowed from credit union). By having the balance of the seller’s equity carried back in the form of a note secured on the other property, the buyer was able to put his equity in the other property to use and leave himself in the position to be able to refinance the newly acquired property with a new hard-money second in order to retire the existing balloon second and pay off both the realtor and the credit union. In fact, he had a kitty of $6,800 left over to handle the negative cash flows for several years. The central strategy in this deal was creating paper against the other rental property already owned by the buyer.

Frequently a cashless buyer can solve down payment hurdles by applying the value of his other equities to the deal at hand. If the seller is amenable, it is a simple matter to prepare a note secured by the buyer’s equity in other properties and hand it to the seller as all or part of the down payment on the subject property. In effect, the buyer says, “I don’t have the cash to give you as a down payment, but I can give you this note in exchange for your equity. The note will generate payments to you on mutually acceptable terms. I will maintain the collateral property in excellent condition as security for the note.” Then the buyer has a trust deed prepared in favor of the seller to back up the trust deed note.

What the buyer has done is magic – he has created paper out of thin air. But his paper has value. It is solid consideration for the seller’s equity and is used in good faith in lieu of all or part of the cash down payment required. If the seller is dependent on such an exchange to consummate the deal but hungry for the cash just the same, he can always sell the note at a discount for cash. (Technique No. 40, explained later on).