A Unique WEALTH ENHANCEMENT strategy

[Don Konipol]

Giving credit where credit’s due: John Beck (WAY before he “broke bad”) showed me (and Jimmy Napier) this technique first hand. 

There was a mobile home park for sale in Arizona that was directly “in the path of development” and had the land use approvals for its “highest and best” use, which was commercial/retail development.  The owner had it “informally” up for sale for $500,000.  He was “firm” on the price, having turned down 2 cash offers in the $400,000 range, and turned down a seller finance offer of $490,000.

John Beck used to attend tax auctions, sheriff sales, IRS foreclosures, etc in California, Arizona, and Nevada.  He would bid low (sometimes as low as $25) on lots and acreage nobody else wanted.  Often these properties were landlocked, and were  often in “paper” subdivisions where access existed only in the plans of a developer to build roads. 

John told Jimmy Napier and I that he was going to buy the subject mobile home park by “trading” or exchanging some of these lots to make up a significant portion of the purchase price.  John put together an offer which consisted of $250,000 cash; a second lien he owned with a balance of $60,000 that he had purchased for $30,000 (the interest rate was way below market rate), and 20 lots in a paper subdivision in MARICOPA, Arizona that he had purchased at a tax sale for about $100  per lot, although the developer was selling similar lots for $10,000 each, but the sale of which required the hard sale of free dinner and a gift and 2 high pressure salesman hammering on the “victim” (see Glengarry Glen Ross).

John valued the offer at $510,000, and amazingly the offer was accepted, as is.  John was able to borrow $300,000 against the property (requirements for borrower were a lot less restrictive than they are today).  So the property cost John $250,000 in cash, his cost of $30,000 when he purchased the note, and $2,000 for the lots purchased at tax sale.  $282,000 while everyone else offering $400,000 cash was turned down.  

I wish I could say I successfully used this strategy to purchase property, but I didn’t as it just wasn’t in my comfort zone.  ( I did utilize wrap mortgages, seller financing, mortgage substitution and subordination, and immediate closing no contingency cash offers as a large part of my “creative” strategies.  However, Jimmy Napier became pretty efficient and effective at this exchange technique, though nowhere near as successful as was was “working” notes.