Posted by GL on June 19, 2000 at 21:36:27:
It’s been a while since I read anything of Robt. Allen’s however… I believe the point of using bonds as a down payment was this:
The book was written when interest rates were very high. That means old bonds were selling cheap. After all why should a buyer buy your old 7% bonds when they could get brand new ones paying 14%? Well the reason is, the owners of the old 7% bonds had to sell them cheap. So you could buy them for half price. Now you take $5000 and buy $10000 face value of bonds, and give them to the seller of the property as a down payment. Why would they take that? BECAUSE THEY ARE MOTIVATED LOL. And that is like getting $5000 extra discount off the price.
Also when the bank says " How much is the down payment" you can honestly say, “$10000”. And if they will settle for a 10% down payment that means they will loan $90000 on the first mortgage. They wouldn’t do that if you said $5000.
That was OK back then but I doubt you can buy bonds at such a discount as to make it worth while, though if interest rates keep going up those old tricks may come back in style, like bell bottom trousers and flower power LOL.