Here Is What Creative Financing Is About -Maybe You Should Try It -No Bank Qualifying

[Ken M.]

This one I did a while back. So, if you are new:

I was approached by an Investor who wanted to get into the game by learning Subject To. That is best done by doing a Joint Venture on the first couple of properties. Here is how I recently did one with that new Investor. He put in the capital and I put in the expertise and the work. We split the profits 50/50 (all by written agreement of course) Here are the Spreadsheet numbers

The property is a 4 bed 2 bath with pool in Mesa AZ that I found "off market" and negotiated the Purchase & Sale Agreement for $180,000. ARV on it is about $225,000. We put down $15k and the seller took back a 2nd with an underlying loan of $145,000 that we took over. The roof needed to be replaced. Within a week I found a Tenant Buyer who put down $20,000 (which the investor and I split, that made the investor happy ;-) and the Tenant Buyer replaced the roof at his cost, not ours. Our payment on the underlying loan is $995 a month PITI and we have it out to the tenant Buyer for $1650 a month. So, monthly cash flow is about $655 - not a home run, but decent.

Currently:
Nice numbers. And, I'm still finding lots of opportunities in Phoenix and Glendale. If you do these, we should have lunch sometime and compare notes. I do the occasional one in California but the returns are better in the Phoenix area.

The carry back is interest free to be paid when my Tenant Buyer refinances. (Sometime in the future.)

The Tenant Buyer is on a 3 year Lease Option unless he wants some other period of time. I don't particularly care about the length of time because:

a. I get the cash flow for as long as he is in the Lease Option

b. I get the principal paydown

c. I get the tax write offs

d. Potentially I get the appreciation (look at Item (h.) below)

e. A yearly rent increase is written into the Lease Option, so the amount I get increases each year

f. The Tenant Buyer takes care of all Rehab, Maintenance & Repairs.

g. If the Tenant Buyer refinances, I get the "Back End Equity"

h. If the Tenant Buyer walks away from the deal I get to keep his Option payment, since it is non-refundable and I sell to another Tenant Buyer and get another Option Payment usually about $20k to $25k.

I encourage buyers to get qualified for financing, give them a mortgage broker contact and to plan their lifestyle to be able to get a loan to exercise the Option. Some do, some don't put the time & effort in to qualify. 

I offer to help them through the process but few take me up on it. As I tell then, "I will help you but I'm not your daddy". I have the information and I will work with them, but if they choose to "do it on their own", that's fine. (It just never gets done that way.)