Are any of these "creative financing" options useable when flipping residential RE?

Question

The types of creative financing options I was looking into were a lease option/lease-purchase agreement, loan assumption, wrap-around mortgage, and subject to financing.

I guess my question is... Are any of these options a good idea to use when looking to flip properties? If so how will they benefit me more then let's say a hard money lender or PML?

Joshua Christensen · Answer

I love your question Peyton.  I've worked with most of these options.

Hard Money.  It's...well...hard...lol  Look, there is a place for hard money loans so long as the numbers work.  Who cares what you pay, so long as you are profitable at the end right?  I look at hard money as the LAAAAAST option, and the numbers always have to work.  There are usually higher points upfront or on the back.  There may be monthly interest only payments due?  It all depends on the lender and their terms.  Typically, these deals require some sort of down payments as well, not negotiable.  He who has the gold makes the rules.

CREATIVE DEALS:  They are all structured differently AND the only thing that needs to happen is morally, legally, and ethical agreement between both parties by contract.  Never verbal.  Always have your deals sealed in a non-binding contract.  The only limitations are your creative juices and the law.  So long as both parties agree, they can be structured in a plethora of ways.

Low money down?  Done.  Shared Equity?  Done.  No Money down?  Sure.  Sub2?  No problem.  Wrap, only the gifts after closing...lol.  No points.  No banks.  No problem.

When your seller will work with you, the timing and cost are in your favor.  The key is making sure what you're proposing works to help the seller get what they need while working out for you too.  Put the seller first, and you're sure to hit a home run.

Ultimate, they are all tools in the tool box.  When the numbers work, it's a beautiful journey.

My first REI deal was a sandwich lease option.  My best deal was a private money loan (5% for 30 year am) that I rehabbed and sold to an end investor Sub2 my private loan for a nice spread of monthly payments and equity.  Everyone won in that deal.  It was nice.  I had zero out of pocket money (not even the rehab).

My current home was acquired on a lease option with a $500 applicable down payment that I refinanced 4 years later in my name.  It has provided multiple 6 figures in equity since.  Lovely.  We love these deals.

Peyton LaBarbera · Answer

@Andrew Postell That's what I was thinking too and was also confused about because of course to make money with a short-term flip I would need to use forced appreciation aka renovations. Of course this would be great for close to turn key properties maybe carpet and paint type renovations, to get the units ready for renting out. But... the whole point is to use as little capital as possible which is why I didn't think this would be good for flipping since I can't get a loan for my renovations. I would instead have to pay all of those costs out of pocket.

Now the only time I can see this working is if I have lots of extra capital to pay for all of the renovations out of pocket and then I could benefit and save on the holding costs since my loans interest rate would be much lower. Again there are benefits to this such as a higher profit margin on each deal I do this way but in turn a lower cash on cash return, such as life.

I will definitely continue to research these creative financing options for my rental property investing but I think like you said and I summed up it's best to stick with loans that provide money for the necessary renovations.

Thank you for all of your insight on this topic I very much appreciate it,

Peyton LaBarbera

Andrew Postell · Answer

@Peyton LaBarbera I mean, you CAN use any of those strategies to acquire a property.  Usually when we are doing this we have to rehab the property.  So, if you can acquire a property with those strategies...it is likely you would need money to rehab a property.  Meaning, if you acquire a property "Subject To" you are acquiring the property with the existing mortgage in place...but you aren't getting any other money to rehab the property.  I consistantly use Hard Money to purchase properties because it allows me to repair the properties I am purchasing.  Can you make money acquiring properties using multiple strategies?  Of course!  Continue to study each of these methods.  We can spend hours on each but they each have their uses.

Peyton LaBarbera · Answer

So @Joshua Christensen have you used any creative financing when flipping a house within 6 months to a year so pretty much nothing long term

Are any of these "creative financing" options useable when flipping residential RE?

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