Your written promise to provide a lender with something of value (money, property, goods, or serviced) is the basic leverage tool you use for acquiring property without cash. When you give such a promise, an IOU, as non technical people call it, you are creating paper, as financial people say. The paper they are referring to is a promissory note.

Your note may be either secured or unsecured. If it is secured by real estate, the security instrument will be either a mortgage or a trust deed. But there are many other ways of securing a note, and you ought to be aware of them, because they can work financial miracles for you.

Your only limitation is what the other party (the lender or beneficiary who accepts your note) will agree to. If the security is tangible collateral, you put it where the lender can take it, wholly or in part, to cover any of the loan balance you do not pay. But if the lender has more confidence in you, the security can be intangible, such as a pledge of cash flow generated by the property you are purchasing, or possibly a promise to paint the owner’s house or give him Spanish lessons of whatever.

A big advantage of creating your own paper is that you can tailor and embroider the terms and conditions to suit yourself, subject only to the other party’s approval. If you convince him that the terms will benefit him too, you can get one or several of the following:

The above is only a partial list. You can extend it indefinitely, limited only by your own inventiveness and what a seller will accept.

Here’s an example. Suppose you want to buy Mrs. Vanderbuck’s house, but all your cash is invested elsewhere. Here asking price is $100,000, which you know is reasonable. But she wants $20,000 down, which you don’t have.

Her equity in the house is $40,000, since she owes $60,000 on a loan. You ask her to accept your note, secured by a mortgage on the property, for her entire equity of $40,000. she admits that she does not need cash, but nevertheless she refuses your offer. If you do not put up any money, you might be tempted to default on your note and turn the house back to me in worse condition than you got it. She points out.

So you figure out a new offer: “I will create a $20,000 note secured by a mortgage on my own home. Along with it I will give you another r$20,000 note secured by a second mortgage on your house.” Mrs. Vanderbucks examines your home and the existing first mortgage on it. She decides you are offering adequate protection, so she sells on these terms.

Refinancing can conjure up cash for a down payment without any out of pocket cost to you. For example, suppose you see a house advertised for sale at $110,000, and you want it. You persuade Mr. MacSure, the owner, to sell for $100,000. But he asks you to pay $20,000 down, and also to assume one of those variable rate mortgages, which is on the verge of increasing by another half a percent. He owes $60,000 on it.

Here is how you get $20,000 cash for him, and still acquire his property without putting up your own money: you pay off his $60,000 mortgage by negotiating a new loan of $80,000, from which you hand over the surplus $20,000 to MacSure. You also give him a $20,000 note for the rest of the purchase price. This note is secured by a second mortgage or trust deed on the property. So everyone is happy.

Another strategy could be to buy two properties from MacSure, refinance one, and use the resulting cash for a down payment on the other.

A cosigner’s credit may be better than yours, and may be impressive enough to persuade an owner to sell for no cash down. Young Mr. And Mrs. Workman wanted to buy their first property – a duplex in a good part of town – and occupy one of the units themselves. Their combined income (including the rental income from one of the two units) would be more than enough to cover mortgage payments, pay taxes and make payments on a note for the down payment. They provided proof of all this. But the owner still would not accept their note for the down payment.

Mrs. Workman solved the problem in half an hour, by getting her father, an established businessman, to cosign their note.

Unless you are lucky enough to have an accommodating, well heeled friend or relative, you may have to offer inducements to a cosigner, because he realize that you can default and leave him stuck with your debt. Maybe he will accept your written promise (which of course is a legal commitment, enforceable in court) to pay him a certain amount monthly for a specified term. Or maybe you can offer adequate security such as the pink slip (ownership certificate) for your car.

An investor may back you by putting up cash for your purchase of property. This is the elephant and mouse concept described at the Lowry Real Estate Investors Seminar. An elephant is someone with ample money for investment, but no expertise in real esate and no time for studying it. He maybe a busy executive or professional person. If he is smart, he knows that real estate is about the best investment to be found, and he is receptive to overtures from a mouse.

A mouse is knowledgeable in real estate and good at home repairs, has time and energy to expend, but little or no capital. It makes sense for a mouse and elephant to form a partnership and buy a property, which need fixing up and prettying up. They agree that the elephant will provide the necessary cash, in return for half the profits when they sell the property. The elephant’s attorney and tax adviser can draw up the partnership agreement and other documents in such a way that the elephant will get the lion’s hare for the tax benefits from the arrangement.

If their venture works out well, they may embark on larger projects by forming a limited partnership or syndicate.

Buying a building but not the land is a fairly new concept that is spreading across the continent form Hawaii, where it first became widely accepted. Some innovative developers in California and other areas are selling even single family, owner occupied homes on this basis.

Here is an example of how you might use the idea. Mr. And Mrs. Joe Bleau own a thirty year old apartment building free and clear. They are tired of the burdens of ownership, so they are eager to sell out and move to the desert. They advertise the property for sale at $325,000.

Alex just moved to the mainland from Hawaii, offers $300,000. The Bleaus accept – on condition that he pays $75,000 down, which he cannot do.

But he finds that the assessors have valued the land at 20 percent of the property’s total value, which would make it worth $60,000 of the agreed on price of $300,000. So he proposes that if they will take his note for $240,000 and he will buy only the improvements (the building, swimming pool, driveways and so on) for that amount. He said, “You keep title to the land. I will lease the land from you on a long-term lease, so you will be getting payments on it every monthly for a long time to come, and your taxes will be much lower. You will still own a $60,000 piece of land, as well as a note for $240,000 instead of the $225,000 you asked.”

The Bleaus have never heard of such an arrangement. But they check it with their business adviser, who assures them that it is perfectly legal, and probably advantageous to everyone concerned. In view of their estate plans and their desire to move away, they realize that Alex’s offer is good for them and their heirs.