Posted by phil fernandez on November 23, 2002 at 08:26:44:
There was a guy in the 80’s who was on TV pushing the idea of using zero coupon bonds to buy real estate with. His name was something like Powelson. When listening to him, I was jumping out of my skin seeing the possibilities.
Then reality struck. What seller is going to take a bond for his equity and wait 30 years to cash in that inflation ravaged bond. It ain’t going to happen. And if you do find someone who goes for it, you are dealing with someone not knowing what they are doing. Then comes the lawsuit saying you took advantage of the seller.
You might be able to use bonds as additional security for a mortgage, but you also better let the seller know that the $100,000 30 year bond you are going to give him might be worth $8,000 today. It certainly isn’t worth $100,000 today.
I put this message on the Fincancing forum a week ago and was surprised that I didn’t get any responses so I’d like to try it here.
Albert J. Lowry (who I didn’t even think was still around) wrote a book “Formulas for Wealth” (2001) in which he raved about ‘The Creative use of Bonds’ to do just about everything in financing real estate. He claimed that bonds can be used to help buy, sell, refinance, discount mortgages, cover negative cash flows, and many other things. Lowry suggests using primarily 30-year treasury bonds and zero coupon bonds.
He devoted an 80-page section of his book to this and titled it “Bonds: The greatest financing tool of all.”
Basically his idea is you pay only a portion of the total cost of the bond as part of your real estate transactions, and the returns from the bonds over the years provide added safety, plus additonal capital when the bond matures. How well this works must certainly depend on how the current bond market is doing.
Has anyone ever used bonds to creatively finance RE? Has anyone ever read this book? I did an archive search on this subject and got only about 5 posts discussing simply using treasury bonds as collateral for a down payment, which really doesn’t scratch the surface of all that Lowry was talking about.
Here’s the way it worked . . . - Posted by JoeKaiser
Posted by JoeKaiser on November 23, 2002 at 22:23:19:
You didn’t offer the seller the bonds for his equity on a dollar for dollar basis. No one is that stupid.
What you are supposed to do is offer the seller the bonds AS SECURITY FOR A NOTE. In otherwords, the seller agrees to carry the financing and secure his note with your bonds. So, you make monthly payments from day one, and should you default, the seller gets the bonds. And yes, some people ARE this stupid.
I can still see Richard C. Powelson on the infomercial explaining how this was such a great solution because, “if you don’t make the payments, the seller makes out okay because he gets the bonds.” I remember jumping out of my chair at the time, throwing my donuts at the tv screen and screaming “what about the monthly payments, you moron!?!”
I’m not a big Powelson fan, as you may have surmised.
Doing the bond things is dishonest. The urge to default on the loan and walk away will unbearable.
I am sorry to hear that Albert Lowery has advocated this. Lowery’d first book on obtaining financial independence with real estate was a very good book. Some of his later books, which he had written for him by other people–such as his foreclosure book–were not good. It sounds like he may have gotten Richard Powellson to write this book or at least that section.
My advice: forget it completely. This is an idea that has been around in the seminarland. I have never heard of anybody getting it to work in realland. Where do you live: Seminarland or realland?
I saw Lowery once in a free seminar to lure people into a high-priced weekend seminar. I was disgusted. I felt that he was dishonest with people to make real estate investing sound easier than it is and to lure the people into his seminar with lies. Now, if this book is as you present it, my opinion of him is even lower.
I now wonder who actually wrote that first book that had is name on it. Any oldtimers around who have heard any rumors. I know who wrote his foreclosure book, David Chodack in Berkeley, CA. I knew the guy some years back. How about this recent book? Who actually wrote it for Albert Lowery?
Good Investing And Good Avoiding Bad AdviceRon Starr**
Posted by David Krulac on November 23, 2002 at 13:28:13:
IMHO, this is one of the stupidest ideas around. The average person has no knowledge of the value of zero coupon bonds, but anybody with half a brain would check with an expert, of which there are many at your local stock brokerage house. Then they would find out that 30 year zeros trade for pennies on the dollar.
There are much better ways to make money in real estate.
P.S. this is not a new idea, I saw it first in the 70’s.