Zero Coupon Bonds.....
Does anybody have any experience buying investment property using a bond as payment? I think this would work when dealing with foreclosed property. I think it would work like this....
I find a house for $50,000 and I get approved for a mortgage for the entire 50. I buy a bond with a face value of 50,000 due to mature on the last day of the mortgage (30 years later). This bond costs me, lets say $10,000 to be paid at the closing. The mortgage company gives me the $50,000, I give the broker $10,000 for the bond, give the bank the bond for the cost of the house and I walk out with the deed to the house and $40,000 in my pocket.
Dose this make sense to anyone?!?!? Or have I just lost my mind.
nope. sorry..
you are borrowing $50,000 at todays dollars. this means that added to that amount is interest, added per year, of a given percent (lets say 7%)
so if you wanted no payment until the end of year 30 you would need a $200,000 bond if not more!!
You have forgot that the bank is as smart as you are and know all about "zero coupon" bonds and how worthless they are.
This would work as a security for say a owner carry etc. where they needed to be propped up a little.
Never assume your smarter than everyone else
OK
I know a guy who says he did this to buy his house.
What if I made interest only payments to supplement the bond? I guess what I am wondering is if I can walk out of the closing with a lump of cash by using a bond to pay off the principal. The bank does not want to own the property, and besides, a bond is guaranteed by the gov't so the bank is promised what it is owed.
And trust me....I dont think I am smarter, just curious!
zero coupon bonds are generally not guaranteed byt he US government and fall under the category of "municipal" bonds. Their ratings vary from junk to A+ depending on the municipality.
The problem I see for a bank is that with a note you get amortized interest over 30 years doubling and at times tripling the amount actually offered for the house. With zero couplon bonds there is not amortization.
However; having said that I think anything is possible and if you have charisma maybe you cold pass something off like that on a local bank or credit union? (I hate to b e a skeptic). Why not go into a local bank or lender and see what they say to you? In fact talk to a couple. You might check out your friends deal as well, look at the recorders office and see if it really did come off as you say.
Randall