Creative Financing with Refinancing

Atlanta, Georgia
Creative Real Estate Financing
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Creative Financing with Refinancing

Alfredo Alfaro
Member since 2021 · 43 posts · 11 votes

Hello, 

I was wondering if anyone has had any experience with creatively funding a deal with the seller refinancing their mortgage. 

If the seller is willing to refinance they would benefit from this by getting money back "capital gains tax free" because it is essentially a loan and not a sale. 

Say the owner has had the property for a couple years and hasn't lived in it for a while and has been renting it this whole time. The equity that has built up into the property he would refinance out and he could "act" as your private money lender in a sense. 

When you finish rehabbing the property you could now finance the property under your LLC or Personal and then quitclaim the property over and buy the property out.

Has anyone ever structured a deal this way or have some experience with something similar? 

Just thinking of creative ways of funding some projects if the opportunity is available. Any information is appreciated. Thank you in advance. 

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y

    @Alfredo Alfaro

    I don’t see why a seller would refinance a property to seller finance it? I do not see any incentive for them.

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  • Alfredo Alfaro
    OP
    Member since 2021 · 43 posts · 11 votes
    3y

    In some video's I've seen some people mention that they could do so and then subto the property. Just wondering if anyone has had experience at all before with it. 

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  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    3y

    @Alfredo Alfaro There certainly are a lot of things on the internet these days.  I'm not sure if what you have described is realistic.  I know, I know...I see the same videos too.  But the reality to a lot of these things is a little different than how they are described.  Here's what I mean:

    As investors, we buy properties at a deep discount. We do not pay full/high value. This usually means we aren't even looking at properties on the MLS because those are asking for maximum price. We are usually searching for "off market" properties. If a property were in a condition to refinance, then they wouldn't need to sell it to us.  They would then just sell it on the MLS for the maximum amount possible.  In the rare scenarios where we find a property that IS financeable but off market, those sellers are usually looking for the MAXIMUM purchase price for their home already.

    This is also important to understand because if someone COULD do a cash out refinance, that means that they lose $8,000-$10,000 because of closing costs.  So if the property is in good condition, good enough to finance, then it's good enough to sell openly and not lose money by refinancing.  

    If someone were able to do a cash out refinance, this would mean that they would have to be ok with taking less money on their house, losing $8k-$10k of profit, and then once they have all of that money from the cash out loan, giving that cash to us as a buyer.  Those things just aren't happening.  It's just not realistic to expect it.

    The things I would encourage you to do here (and I'm just asking you to think about it) if the deal is good, then financing will be available for you to use.  There are TONS of financing terms available.  There are also some good ways to take a property "sub to" and "seller financing" as well.  Those are a lot more rare than some people describe though.

    Anyway, I hope all of that makes sense.

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  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    3y
    Quote from @Alfredo Alfaro:

    Hello, 

    I was wondering if anyone has had any experience with creatively funding a deal with the seller refinancing their mortgage. 

    If the seller is willing to refinance they would benefit from this by getting money back "capital gains tax free" because it is essentially a loan and not a sale. 

    Say the owner has had the property for a couple years and hasn't lived in it for a while and has been renting it this whole time. The equity that has built up into the property he would refinance out and he could "act" as your private money lender in a sense. 

    When you finish rehabbing the property you could now finance the property under your LLC or Personal and then quitclaim the property over and buy the property out.

    Has anyone ever structured a deal this way or have some experience with something similar? 

    Just thinking of creative ways of funding some projects if the opportunity is available. Any information is appreciated. Thank you in advance. 


    The investors I work with have the seller finance most of the deal, maybe like 90-95% LTV interest only, Investor rehabs the property, title seasons for 6-12 months and we refinance based of the ARV with a DSCR loan.

    The seller is usually either an attorney, hard money lender themselves, or is in the lending business. 

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