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DISCOUNTED SALE-OPTION TO BUY BACK
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When
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If you need money badly and are unable to borrow against the property or sell at market value.
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Situation
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Jones finds himself in the need of $20,000. He has nice little commercial piece of land at the edge of town with an appraisal of $50,000. He can’t borrow against the property.
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How
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Jones offers the property for sale for $25,000 all cash provided that he has the option to buy the property back within one year for $30,000 all cash.
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Results
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Jones generates the cash almost immediately. It will cost Jones $5,000 for his interest, however, he will be able to buy the property back within one year for $5,000 more than he received. Smith, the buyer, will receive $5,000 for the use of his money for one year. In the event Jones does not buy back the property, Smith has a tremendous bargain.
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PERFORMANCE MORTGAGE
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When
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When you’re acquiring a property that is supposed to have a certain income which the seller has told you the property will make.
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Situation
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Jones is interested in acquiring a commercial rental that Smith owns. Smith tells him that he has a lease on the property for $1,000 per month. He has never had a vacancy and the property can be depended upon to bring in that amount of cash.
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How
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Jones makes an offer on the property for $20,000 cash down with Smith to carry back an $80,000 mortgage which pays at $850 per month including interest at 10%. Jones writes into the mortgage that in the event the income
on the commercial property falls below $1,000 per month, the payment will drop to $500 per month. Should the building become completely vacant, there is to be no payment and no interest to accrue. Smith takes the offer!
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Results
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As long as the building performs, Smith will receive his payments. Should the building not perform as Smith indicates, Jones will not have to make the payments.
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NO DOWN PAYMENT ACQUISITION
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When
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Jones wants to acquire more real estate but doesn’t have the cash.
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Situation
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Jones want to acquire a single family home for more tax shelter and growth but doesn’t have the cash for down payment.
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How
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Jones finds a motivated seller who really wants out. He has a $60,000 home with a $30,000 equity. Jones offers a $30,000 note payable interest only at 10%, due in 10 years for the equity. Proposal is accepted!
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Variation
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Jones offers to get a new loan for $45,000 cash, gives seller $5,000 cash and puts $10,000 in his pocket. He then gives seller a $25,000 2nd back on the property.
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Warning
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Author highly recommends against this kind of transaction. They usually end up in lawsuits and everyone loses!
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Variation
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Jones gives seller a blanket note for $30,000 covering property being acquired and other property Jones already owns with a reasonable equity. Note calls for a release clause when $15,000 in principal has been paid.
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