Down payments are traditionally less for older income units – even when they’re well kept and full of smiling tenants! 10% cash down is normally what most investors expect to pay. Many young start outs with tons of energy to burn feel fortunate to come up with 10% cash. My problem is not really the low down payment, it’s the matter of protection I’m concerned about.
When it’s time to sellout, take a cruise or step back and smell the roses, owners of small income producing properties, like myself, will typically sell to the next generation of up and coming investors. The problem we face is the very same problem we once had starting out. It’s called, lack of cash. Funny how some things never change!
When I sell property for a small cash down payment, I generally insist on securing my mortgage or note with not only the real estate I’m selling – but also, another property the buyer owns or quite often, his relatives own! For example, a young man wishes to purchase my small apartment with 10% cash down. He doesn’t own any other property, but Daddy agrees to help his son get started. Daddy owns a $200,000 home with a $100,000 first mortgage. I will simply record a 2nd mortgage on Dad’s house for additional $10,000as added security for me. No payment is required from Dad – and I will generally reconvey release Dad’s house after 60 months faithful payments to me from Junior. Meanwhile if Junior goes bonkers – Dad’s house is on the hook for $10,000. Ain’t Dad great or what!!