MISSOURI STATE UNIVERSITY

COLLEGE of BUSINESS
FGB Department

FIN266 7 NODOWN st
REAL ESTATE PRINCIPLES
26L7NODOWNst Updated January 2014

Photos and material © Walt A. Nelson, PhD

$ 0
NO DOWN: OUTLINE
1. Help Others First
2. Strong Building
3. Harrison Street
4. Marlborough
5. Hickory Lane
6. Other Ideas
7. Negotiating the Details
8. Buy Out Your Landlord
9. Buy Out Your Banker
10. Buy at the Bottom
11. First, Settle for a Small Profit
12. Time Shares
13. Top Time Share Locations
14. The Trump Wrap15. Dodd-
Frank
ALMOST No Money Down
How I Did It and How You Can, Too!
 1. Help others first, then try it
for yourself.

• Find a seller who is land rich and cash poor

during a slow market.
• Get enough down from each buyer to cover real
estate commission and other sales expenses.
Starting at age
19 I sold • Campground
properties in • Lakefront tavern
central • Racetrack
Wisconsin, many • Vacation homes
with seller • Vacant land
financing.
 2. STRONG
BUILDING
• Negative cash flow
• Squeeze or defer expenses
• Sell out ASAP
 3. Harrison
Street
• Remodeled into a 2 flat
• Grandparents lived on first floor until
grandfather passed away
• Rented out both units after we all moved out
• Sold to real estate broker for $5,000 loss
 4.
Marlborough

• New job; Just finished grad school

• Fill-in-the-blank contract with a seller
finance ARM from Ralph Manley
• $0 down; RM held property 60 days
‘til we moved in
5. Hickory
Lane

• Broker found it for us

• Deal subject to 100% “seller” finance
• Double mortgage payments until we
could rent or sell the Marlborough home
• After 18 months we refinanced our way
out of the seller financing
6. Other ideas

• End of year
• Depressed markets
• White elephants
 7. Negotiating the
Details
• Trade higher down payment for a lower rate
• Trade off seller financing to get to the seller’s
cash price
• Keep seller financing in place < 5 years
• Mechanism to pay underlying mortgage
• Look for EZ remodel or rental
• Try to sell it before you close
• Use your commission as down payment
Nos. 8-
11
• Buy out your landlord
• Buy out your banker (REO)
• Buy at the bottom of the market
(local or national)
• Worst case scenario is to settle
for a small profit
 12. Time Shares
• Always BUY a time share, never have one sold
to you
• Buy resale time shares and save…
 13 Top Time Share
Locations
• World class water:
– Ocean front, lake front river front
– Water front, never water “view”
• In the mountains
• At a popular destination
 14. The Trump Wrap
• The Brick family wants to sell
their 400 unit apartment
complex for $20 million.
• Mr. Trump offers to buy the
property for $1 million down,
the balance via installment
loan.
• Should the Bricks accept?
 Trump Wrap

• $18,803,840 • $20 million price.

CMB. • $1 million down.
• 8.5%, 30 years. • Balance paid at
• $1,861,012 8.75%, 25 year
annual payment. amortization, 6
• 24 years year balloon.
remaining. • Annual payment
of $
If the Bricks require a 15%
ROE, should they accept
the Trump offer on these
terms?
• $196,160 = $19,000,000 - $18,803,840
• $ 34,265 = $1,895,277 - $1,861,012
• $407,402 = $17,259,748 - $16,852,346
If the Bricks require a 15% ROE,
should they accept the Trump
offer on these terms?

• $196,160 PV
• $34,265 +/- PMT
• $407,402 +/- FV
• 6 N
• CPT I/Y 26.6%
 What is the assumption
tied to ROE = 26.6%
This estimated return assumes that
the Bricks can reinvest at 26.6%
every payment they receive from
Trump. In this example the Brick
ROE = IRR = YTM = APR.
 How can the Bricks make
26.6% on a quarter-point
positive carry?

• How much did the Bricks “lend” Trump?

• $196K
• On what balance were the payments
from Trump calculated?
• $.........................
 15. Dodd-Frank – The End of
Creative Finance?
• Balloon payments are prohibited
• Seller must be certain buyer can make
payments.
• ARM terms circumscribed.
• Lease-option may be only method now
available.

http://homebuying.about.com/od/buyingahome/fl/Buying-a-Home-W
ith-Creative-Financing.htm
Only a fool waits for top dollar
Attributed to Joseph K
MISSOURI STATE UNIVERSITY
COLLEGE of BUSINESS
FGB Department

FIN266
REAL ESTATE PRINCIPLES
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