Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
3w
My two cents on creative finance. Make sure all parties fully understand the terms conditions and ramifications. Do not overcomplicate things. 0% down and no reserves is not creative finance it's a recipe for disaster in the future.
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
3w
My two cents on creative finance. Make sure all parties fully understand the terms conditions and ramifications. Do not overcomplicate things. 0% down and no reserves is not creative finance it's a recipe for disaster in the future.
I think the biggest thing is making sure the financing actually matches the deal. Creative financing can work really well, but if the terms are too aggressive or the exit depends on everything going perfectly, it can get ugly pretty quick.
Creative financing can work really well when the deal is structured around cash flow, reserves, and a clear exit strategy, not just getting into the property with the least amount of money possible. I also like looking at the full capital stack. Sometimes pairing creative terms with business lines of credit, 0% APR business credit, or other business funding can give an investor the liquidity needed for repairs, reserves, or unexpected costs without putting the entire deal at risk. The biggest mistake I see is focusing only on getting the deal closed instead of planning how the financing will be managed after closing.
Real Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes
3w
The best creative finance tool most people overlook right now is the assumable mortgage. Every FHA and VA loan is assumable by law, and there are millions sitting at 2.75-3.5% across Colorado Springs and the Front Range.
Typical deal I close: $450k home, $280k remaining at 3.1%. Payment on the assumed balance: $1,197/mo. New loan at 6.8% on the same home: $2,926/mo. The equity gap (purchase price minus remaining loan) still has to be covered with cash, a second, or seller financing, but even with a 9% second you're looking at a blended rate around 4.5%.
OP is right that everyone needs to understand the terms. Assumptions take 45-90 days and cost about $750/side. Servicers can be slow and some agents have no idea how to manage the timeline. That's where deals fall apart, not the numbers.
The 0% down and no reserves warning applies to every creative strategy. Sub-to, seller finance, wraps, assumptions. The structure can be brilliant and the deal still blows up if the buyer hits a vacancy month or a repair with nothing in reserve.
Assumable is the strategy I focus on specifically because the lender is fully in the loop. No due-on-sale risk. Clean and bank-approved.
What have peoples experiences been with creative financing?
What has worked well?
What has not worked well?
What advice do you have to someone considering creative financing?
I don’t think what passes as “creative” financing is actually very creative. Before 1981 MOST real estate transactions closed by buyer assuming existing mortgage note, purchasing subject to existing mortgage note, seller wrap, and or seller carry back second to “close the gap”. This was the USUAL, not creative. Qualifying for assumption of an existing 3.5% mortgage (with full personal liability) is good business, but I’m not sure I’d classify it as creative.
Creative financing is really a component of a “creative” deal structure. If you want to really dwell into creating value by the way a purchase or sale is structured, become familiar with mortgage subordination, substitution of collateral, 0% interest seller financing, real estate exchanging, wrap around mortgages, and hybrid debt/equity structures.
Here’s a list of books I’ve found to have particularly good material concerning creative deal structures, creative financing, and wealth building strategies
Swapping Real Estate for Fun and Profit, Paul B Kelley
Invest in Debt, Jimmy Napier
A Fortune at Your Feet: How You Can Get Rich, Stay Rich, and Enjoy Being Rich With Creative Real Estate, A D Kessler
Creative Seller Financing
Creative Down Payments
Advanced Creative Real Estate Financing, Chuck Sutherland
How to Finance Any Real Estate, Any Place, Any Time: Strategies That Work, James A Misko
100 Equity Marketing Formulas, Virgil Opfer, Dan Harrison
101 Recipes for Riches in Real Estate, Wayne Palmer
(Please be aware Wayne Palmer was convicted of operating a Ponzi scheme prior to writing his book. In the final chapter he discusses his version of events and provides a somewhat dubious defense of his actions. More likely was that he was “honest” until the mortgage market blew up in 2008 and then in an effort to save his investors capital, save his reputation, business and lifestyle, and in the belief he could eventually “fix” his transgressions, went down a slippery slope that COULD (or could not) be determined to be a “Ponzi Scheme”. And he’s correct in stating that when Big Government decides to target you they can bleed you dry until you’re willing to take a “plea” just to survive. However, the bottom line isn’t that he was one of many (and the one who got caught) or that it wasn’t a Ponzi Scheme (merely illegal transfer of assets), etc. He was a man with excellent ideas who got overextended, didn’t keep adequate reserves, and went down the slippery slope to criminal fraud.
The Assumable Guy544 Reviews