I am just beginning to make offers on properties and still learning more about real estate through reiclub and others.
I have heard of the possibility of using zero coupon bonds to buy properties. Have you heard of this and how realistic is it to buy HUD/foreclosed properties using zero coupon bonds?
I contacting hard money lenders but haven’t found one yet, and most require reserves I don’t have yet – so I am looking for alternatives – feedback in obtaining funding for deals is appreciated
Do you understand the concept behind a zero coupon bond? Bonds are nothing more than promissory notes typically issued by corporations with stipulated periodic interest payments, a coupon interest rate and a maturity date. The periodic interest payments are also referred to as coupon payments. A zero coupon bond does not pay periodic interest or coupon payments hence the term zero. Instead all principal and accrued interest are due and payable at maturity.
I have never heard the use of zero coupon bonds as a form of down payment for real estate. Sounds like something a guru has dreamed-up. I suspect the process they suggest is to offer a promissory note to the seller representing your down payment on the property. If the promissory note requires no interim payments and everything is due at maturity then it is similar to a zero coupon bond.
Sounds like a complicated way of getting the seller to carry a purchase money mortgage. You are still borrowing the funds for your down payment. Convincing HUD or a Bank to take your zero coupon bond as a downpayment seems unrealistic.