Save On Your Down Payment

You do not always have to use MONEY!

The lemonade down payment. I assume everyone knows the basic ingredients for making lemonade! Here’s a little hint: Lemons and Sugar. Forget the water right now so we can move on! The big question you may have: What in heaven’s name has lemonade got to do with real estate? The answer is plenty, but allow me to explain. To make this easy to understand, let’s agree that sugar equals money (cash) and lemons equal anything else except money. Now keep these ingredients in mind and allow me to talk about making an offer to purchase my kind of property (rundown multiple units).

Let me remind you, my cash savings techniques, like lemonade down payments are designed to be used for buying my kind of property – the rundown type. It’s possible to use my various techniques to purchase regular houses and even well-kept properties, but they’re not nearly as effective, I’ve found! They’re not so attractive to sellers who own nice-looking properties and have no need to fiddle with sugar-coated watered-down offers. I call my lemonade offers cash stretchers because that’s exactly what they’re designed to do. 

Below is a typical lemonade offer:

        I PROPOSE TO PURCHASE A FOUR (4) UNIT RUNDOWN PROPERTY

                 Full purchase price shall be $250,000

                 Down payments shall be --- $ 50,000 ( as follows)

$22,000      Cash

$13,000      Trade value 1995 Chevy pickup, 136,000 miles.

                     Top condition, w/camper.

$ 6,700       Trade value 19 ft. travel trailer superior model.

$ 8,300       Trade value 1980 X-ray ski boat, skies included.

$50,000      TOTAL DOWN PAYMENT

Seller agrees to finance (carry back) a note and deed of trust in the amount of $200,000. Payments shall be $1250 per month, including 5 ½% interest, until paid in full.

My offer includes $22,000 cash, which represents the sugar, plus $28,000 worth of trade value items (personal property), which represents the lemons. You might be wondering just who would accept this kind of a down payment. The answer, my friends, is a motivated seller who likes my offer more than the property he owns. Obviously, the cash part of my offer is my estimate (after discussing with the seller) as to the amount he needs or what I believe he will settle for. As you can probably guess, the higher the motivation level, the less cash it will take.

As I’ve told you already, lemonade offers work extremely well with sellers who have difficulty finding buyers. Most buyers are turned off when the property looks troublesome or unsightly. Even when investors are brave enough to write an offer; it’s generally a “low-ball” offer, which will likely upset the seller. 

My lemonade offer above is fairly close to the seller’s asking price so it likely won’t insult him. Besides, like I told you, I’ve already sat down with the seller and we’ve discussed his financial situation. I feel very strongly about this sit-down approach before I ever write my offer; so I’ll have a pretty good idea what the seller will take and what he won’t!

Creativity has no boundaries when it comes to lemonade offers. Instead of having a garage sale – why not assign some dollar values to your old exercise machine and those dumbbell weights taking up garage space. Remember the last time you went snow skiing? The kids were young and still at home! Now they’re stored forever hangin’ from the rafters in your garage. The old tractor, that bedroom set and furniture you no longer need. These are all lemons for your next lemonade offer.

Two ideal trading lemons are vacant lots and time shares. When you purchased the lot, you were thinking about building, but there’s still no sewer lines to the lot. You’d need a porta-potty to live there. Why not trade it for the full price value when you purchase your next income property? That hard to unload TIME SHARE you purchased while groggy at a free wine and rubber chicken presentation! It’s been used only once, but they’re extremely hard to sell. Even if you’re lucky, half price with long-term, stretched out installment payments would be about the only way you could rid yourself. You won’t find a better dumping ground than adding them to your lemonade offer – plus, you needn’t lose a dime! Plug ‘em in at full price and maybe add a thousand bucks or two for your creative thinkin’. Can ya dig it?

With lemonade offers, I like to make my down payment as high as possible; adding in as much personal stuff as I can get away with. In my example above, my down payment is 20%. I seldom offer more than 10% cash down with any of my regular offers. With lemonade offers, however; I like to trade as much personal property (junk) as I can for top market values. If I’m successful, I’ve greatly reduced the amount of my debt (mortgage balance), which results in higher starting-out equity and lower mortgage payments. The more trades you can ram through, the less money you’ll still owe and the higher your cash flow will be.

Real estate is a people business! I cannot over emphasize the importance of sitting down with the seller (one-on-one) and learning just how bad he wants to sell (motivation level) and how much money he really needs (not wants) to make a deal work. Let’s say his bottom line turns out to be $25,000 cash, and you can provide that for him! You can pretty much throw in the kitchen sink with your lemonade down payment and he’ll probably accept it. 

Think with me for a moment; if you’ve ever needed $25,000 really really bad, and you’ve finally found the person who will get it for you, just ask yourself, how far would you go to make the deal work?