{"id":35702,"date":"2013-01-12T13:22:20","date_gmt":"2013-01-12T20:22:20","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=35702"},"modified":"2024-02-13T15:46:42","modified_gmt":"2024-02-13T22:46:42","slug":"2013-01-12-pop-quiz-challenge-creative-financing","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/2013-01-12-pop-quiz-challenge-creative-financing","title":{"rendered":"Pop Quiz: A Challenge in Creative Financing"},"content":{"rendered":"

I need money! You have money? Where\u2019s money? I need money. We all need money!<\/p>\n

Although we are long since out of school, today I want to give you a pop quiz – an “exercise” if you will. I want to know what you would do? I no longer qualify for a mortgage since I\u2019m self-employed. Sound familiar? Who even qualifies for a mortgage these days? Not a whole heck of a lot of people!<\/p>\n

It\u2019s easy to find a private lender for flips because the investor gets his money back in a relatively short amount of time. Assuming all goes well he may see his money plus a nice return in 3-6 months on average, earning probably 10-15% and up to 5 points or so. Not bad. Well what about rental properties? While rental properties (commercial or residential) are, in my opinion, the best long-term strategy due to the passivity of the income, the returns happen over a substantially longer period of time. This means that an investor who can help you finance a rental property is in it for the long haul which can severely limit your investor pool.<\/p>\n

Past Creative Financing Methods<\/h2>\n

Here is what I have offered in the past to investors and it has worked out nicely. The investor puts up the cash necessary to buy the property, usually a 20% down payment and closing costs for the mortgage, and I take out the mortgage in my name and manage the purchase and ownership. He contributes capital, I contribute risk and management. In return, we split the net 50\/50. The net includes profit or loss and a sale if we decide to sell. This has worked out great for me so far with the properties I currently own, especially since my ROI is technical infinite in this setup because I\u2019m zero cash in. That is hard to beat.<\/p>\n

However, this chapter of creative financing is officially over for me now. I left my corporate job four months ago meaning I won\u2019t qualify for a mortgage again for at least two more years after I can show proven income (if even then). Now I can\u2019t offer my half of the deal to an investor. I also don\u2019t have enough cash on hand to fund an all-cash buy or a high down payment for private financing.<\/p>\n

I have people email me all the time wondering new ways of creative financing. I can explain all day long the methods I know and that have worked for me, but what methods even I don\u2019t know about?<\/p>\n

Let\u2019s talk about the property so you can see why I want this thing.<\/p>\n

The Property<\/h2>\n

Property Details<\/b><\/p>\n

Duplex, Built in 1945, Fully Rehabbed, Tenants in Place.<\/p>\n

6 bedrooms total, 3 bathrooms total, 2246 square feet
\n\"Pic<\/a>
\nFinancials<\/b><\/p>\n

Purchase price: $155,000<\/p>\n

Market value: $180,000 (bonus!)<\/p>\n

Total monthly income: $2,200<\/p>\n

Total monthly expenses: $797<\/p>\n

(Includes property taxes, insurance property management fee, vacancy estimate of 7% and repairs estimate of 5%, does not include a mortgage payment)<\/p>\n

Estimated monthly cash flow: $1,403<\/b><\/p>\n

Cap rate: 10.86%<\/b><\/p>\n

The Challenge!<\/h2>\n

Are you as sold on this place as I am? What do you think? And how would you buy it, assuming you have no capital to put down on it and don\u2019t qualify for a mortgage.<\/p>\n

Experienced investors, where are you? Speak up! What creative financing options work in this scenario?<\/b>
\nPhoto: D Services<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

I need money! You have money? Where\u2019s money? I need money. We all need money! Although we are long since out of school, today I want to give you a […]<\/p>\n","protected":false},"author":782,"featured_media":35804,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7406],"tags":[],"class_list":["post-35702","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-creative-financing"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/35702","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/782"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=35702"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/35702\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/35804"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=35702"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=35702"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=35702"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}