I have discussed the technique of buying notes secured by trust deeds at a discount then using them at face value as a down payment on real estate, this technique can be improved even further by using an over delivery formula.  Quite literally it means delivering more in equity and cash from new loan proceeds than is required to complete the purchase.  When this occurs a check for the excess equity comes attached to the buyers closing statement.

Carried to a classic conclusion, this concept can be applied to a personal property conversion with the end result of a legal and ethical nothing down deal.  Imagine that personal property such as a car, boat, truck or RV could be purchased at fifty cents on the dollar as verified by the Kelly blue book as is often done by auto dealers.  At $10,000 value this vehicle is purchased with $5,000 borrowed money, the vehicle is then priced at its retail value and used as a down payment in the amount of $10,000 to purchase a starter home valued at $125,000.  If this purchase were an FHA insured transaction the new loan amount would be $121,250.  This amount plus the $10,000 equity means $131,250 total has been delivered to escrow.  The escrow officer deducts the sales price and buyers closing costs from the total deposited and then refunds the excess, approximately $5,000 which repays the original loan.  Be aware that the loan will probably have to be repaid in escrow as a condition of funding the loan.

Many parents would like to help their children buy a home but are unwilling to actually make the down payment.  One way to assist without creating dependence or obligation on behalf of the offspring is to use this kind of formula making the adult child responsible for finding the vehicle to be used, buying it with a parental loan and repaying that loan at close of escrow.

Another way in which this technique comes in handy is to create favorable financing on a difficult to finance property.  Suppose you owned a forty acre parcel worth $50,000.  The maximum loan you could place would be 50% loan to value or $25,000.  Alternatively; the $50,000 equity could be used as a down payment on the $125,000 house with a new loan of $112,500.  This means $162,500 has been delivered to escrow less the purchase price of $125,000 leaves an over delivery refund of $37,500.  After close of escrow the house buyer could buy back the lot with $12,500 down and the new lot owner carrying back a $37,500 first note secured by the lot.  Both the lender and the escrow officers will require 2 separate escrows with simultaneous closings and each property will need to be appraised to verify down payment funds.

End result; the original lot owner will end up with $12,500 equity in a rental house, $25,000 cash, and a $37,500 loan on his $50,000 lot.  The home seller ends up with $75,000 cash from the sale of his home less costs, $12,500 cash down payment on the lot and a $37,500 note and trust deed on the land paying a monthly income.  Interesting?!