Would a novel idea for commercial real estate financing work for residential real estate?

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vancouver washington business condo developer
High-flying commercial real estate tycoon Robert Meurer has plenty of common sense.

Do you remember when people used to “save-up” for things that they wanted to buy? OK, so maybe you aren’t that old. Did your parents ever tell you to save up for things you wanted, rather than borrowing the money? Well, maybe you aren’t that old either. Perhaps I am dating myself. I remember my mother saying, “Neither a borrower nor a lender be.” I think that was from the Bible, but I can’t seem to find it anywhere. Maybe she made it up.

That was then. This is NOW. Today, everyone has to borrow money at one time or another. The cost of living is so high, and wages have not gone up accordingly. Who can save anything? Even two-income households are struggling these days. For many of us, the cost of health care and insurance makes savings prohibitive.

A couple of years ago, we saw a home-buyer feeding frenzy, with plenty of young folks coming in with zero-down/seller pays closing costs, which basically means starting out with zero or negative equity, borrowing the cash-to-close requirement and financing it over 30 years. In other words, home buyers were not saving up for the cash needed to bring to closing. Plenty of homes sold this way. For many marginally-qualified buyers, this may not have been such a great idea. The recent economic downturn has simply exacerbated the situation. Many of these young homeowners are now defaulting on their home loans.

Bob Meurer is a Vancouver Washington business condo developer who has come up with a novel way for his customers to come up with down payment. It’s called the “Early Bird Plan,” and it allows his buyers to reserve a Vancouver business condo about a year before completion. In the meantime, the buyer deposits money into title company escrow account every month that is applied toward closing costs. When the year is up, the escrow account contains enough money to cover the down payment.

This unique financing tool allows the buyer to start out with positive equity, and avoids the shock of a large initial cash requirement. It is sort of a “lay-away” plan for the down payment.

Can this sort of thinking be applied to residential real estate? Of course, the residential real estate industry would have to embrace a huge paradigm shift to see anything like this happen. Consumers would need to revisit the virtue of delayed gratification. What do you think? Is anyone coming up with any creative, truly constructive financing schemes like this for home buyers?

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