You have a lot of equity and not much cash and want a new car!

Smith had acquired a $75,000 duplex a few years ago, now owing $35,000. Payments are $600 a month, income $850. Smith found a sports car at the local garage for $22,000. He offered the dealer a created 2nd on the duplex for $25,000 - dealer wouldn’t take it - he offered a $30,000 2nd at $300 a month, 10% and the dealer wouldn’t take it. Smith then found a buyer for the note at $22,000 that the dealer would take! He exchanged the note, which the dealer promptly sold and drove the car out free and clear!

Dealer has his money. Smith could have borrowed against the duplex but this way was faster and now he had a 10% loan against the property instead of a 13%. This can be done even it you don’t qualify for a loan.

A person wants to establish a value on the property that
they are exchanging to another individual or where they
want the option to repurchase that property.

Smith has a four-plex that he feels is well worth the money.
The rents however are not at their peak and therefore most
people look at the property with the idea that it is not worth
what he is asking.

Smith exchanges the four-plex at a value of $120,000. He
then agrees to buy back the property at that figure within 1
year’s time. That time may be extended to as long as 5
years where he would have the option to repurchase the
property at a price of $130,000.

If Smith buys the property back he then has established that
the property value would be correct. Also he is establishing
a new basis when he does buy the property back. If he just
has an option to buy the property back within 5 years, Smith
might find that the property values increased considerably
and he could buy the property at a "bargain price."