Post an example of your creative financing deal you've done

Creative Real Estate Financing
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Post an example of your creative financing deal you've done

Jay S.
Houston, TX · Member since 2014 · 84 posts · 13 votes

I would like to read an example of some of you guy's creative financing deal structuring you've put together with no &/or little of your own money down. 

I'm posting this forum to get a better understanding of how this is possible & ideas I can potentially use to structure my first & for learning purposes on future deals.

How many partners used?

Bank, private, or hard money or all 3?

What was your stake in the deal after using others money?

SFR or MFR?

Long term or for the short term?

Percentages divided?

Who was in 1st & who was in 2nd position?

Thanks in advance.

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Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y

Already posted about doing a development using a non-profit, having the Housing Authority kiss the seller financed note on 850K who also donated cash to the project to pay me getting a tax benefit and setting up the note through a charitable remainder trust on a partitioned note providing multiple beneficiaries of the estate with income and of course the payments didn't begin until after completion and sales/rents hit a level to sustain 6 months payments, so I won't go into that one again. But it was zero dollars from me.

Won't go into financing beyond the scope of this site, selling tax` credits, bond financing, participations or discounting bonds or annuities....... 

Another was selling to a card dealer, we had a bit of a gap in the price and offer, he had less in a late model Pathfinder on his lot, so I took the SUV, I got some cash and a free vehicle.

Used boats the same way.

Used notes to trade for equity.

Took livestock after I had a buyer and the buyer pick up the livestock, I never saw them.

Another "system" was guaranteeing seller financed paper and leases, any default I step in and pick up the note/lease and I'm then buying the property or as an equipment lease, flipping it to an equipment buyer/lessor.

With that said, folks, you can't start thinking outside the box until you know what's inside the box.

You are really asking how can I buy without any money, many options are available but understand that not just anyone can start in what is truly innovative or creative without knowing how to buy with money, where you get it is a different matter.

Creative financing isn't getting an installment contract at 100% or even more without skills.

Land, labor, capital and entrepreneurship are the functions of economics, any three of land, labor or capital can be substituted to build a transaction but entrepreneurship is always applied. Less capital, more labor, less land, more labor, more capital less land or labor, no capital means more labor, land and management.

How do you do that, with an education, knowledge is power, what most here think is that knowledge can come in some 12 step program.....NOT!

Before you can be creative in financing you must first know conventional financing, there are rules and laws, you can't just dump out a box of ideas or agreements and expect something to work, you build the financing transactions just like you prepare a meal, one ingredient at a time ensuring each is added at the right time, just enough to provide the intended results while keeping within a legal and ethical framework.

You're never going to paint a master piece with a paint by numbers set. :)   

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  • Mark Creason
    Real Estate Lender and Broker · Dallas, TX · Member since 2013 · 966 posts · 500 votes
    12y

    I closed a loan last year for 100% financing on a 22 million dollar property in California.  Was for a to be developed project.  Did a 20 year term/20 year am.

    Mark

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  • Joe Fairless
    Investor · Cincinnati, OH · Member since 2013 · 2k+ posts · 1k+ votes
    12y

    @jay 

    @Jay S. thanks and glad you got some good info from it 

    0Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    12y

    Apartment deal. 18 units

    $625,000.

    3 investors

    Bank & Owner financing.

    I wrote a blog about it Here

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  • Jay S.
    OP
    Houston, TX · Member since 2014 · 84 posts · 13 votes
    12y

    @Mark Creason  Thanks for stopping thru & posting. WOW, now that's big business lol what is the status on the project? How long did this take to get approved? How many others involved?

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  • Jay S.
    OP
    Houston, TX · Member since 2014 · 84 posts · 13 votes
    12y

    @James Wise  Thanks for posting. Yes, I do remember reading about this & you helped me understand amort. Thanks again

    1Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    12y
    Originally posted by @Jay S.:

    @James Wise  Thanks for posting. Yes, I do remember reading about this & you helped me understand amort. Thanks again

     aahh yes that is correct. Glad I could help.

    0Reply
  • Mark Creason
    Real Estate Lender and Broker · Dallas, TX · Member since 2013 · 966 posts · 500 votes
    12y
    Originally posted by @Jay S.:

    @Mark Creason  Thanks for stopping thru & posting. WOW, now that's big business lol what is the status on the project? How long did this take to get approved? How many others involved?

     Jay,

    I just arranged the financing.  Project is being built.  Should be completed in the next 6 months.

    Mark

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  • Jay S.
    OP
    Houston, TX · Member since 2014 · 84 posts · 13 votes
    12y

    @Bill Gulley Thanks a lot for the information. I will be checking out the recommend individuals & information you referred. I agree the more you know the better off you'll be.

    0Reply
  • Jay S.
    OP
    Houston, TX · Member since 2014 · 84 posts · 13 votes
    12y

    @Mark Creason  Oh okay... CONGRATS on your project that's huge!

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    Seller financing is a great tool to prolong interim financing for projects, and the larger projects are often carried in lieu of partnership arrangements. The bigger they are the more attorneys there will be involved, I assure you. Buyer, seller, title, insurance, if other financing is involved lender's attorney will look at it and it may have others involved depending on the project. Congrats on surviving Mark, I've been in large deals and you don't whip them out in a month, some take more than a year. Were you on the buyer side, seller side or a broker type? That's could be a good one!!! Congrats. :)

    BTW, if you can't do a double closing, buy with 100% financing (or whatever %) and close, the sell and receive the cash and payoff your note. Done.    

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  • Account Closed
    Real Estate Investor · Cincinnati, OH · Member since 2014 · 55 posts · 26 votes
    12y

    My creative financing deal is sweet and simple. The best kind there is. 

    I did drive for dollars in my farm area. I cold called all the landlords of registered rentals on my spreadsheet. After lots of hang ups I had one very motivated seller that threw out a great price ($75,000). His friend currently held the mortgage. I sat down with the sellers friend he agreed to let me assume the mortgage. I ended up I having to bring $5,500 to closing to buy a 5 family that has monthly gross rents of $2500.00. 

    Im not sure how "creative" this deal was but the point is just asking the right questions I found a motivated seller, and a lender. 

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y
    Originally posted by @Leon Y.:

    I've done a seller financing deal in which I bought 3 properties from the seller with less than 10% down and the rest carried on an average of 6.25% 20-year amortization. Negotiated the deal so I'm cash flow neutral but I'm paying down the loan very fast with the 20-year amortization. The one mistake I made was having the loan in my name instead of my LLC, which shows up as a financed property against conventional loans. So now I'm in talks with the seller to roll those 3 loans into a free and clear home I have.

    Not sure what you're achieving by doing that......the loan on another property will still be a liability and apply to your ability to pay on any future note. After a couple years, if you have an obligation on a sold property you can show the sale contract, HUD/settlement and the payments received and they may adjust qualifying ratios.

    Otherwise, many simply off set the obligation with the income as is done with rents.

    Good deal, I've done many of deals simply to build the equity rather than trying to drag cash out, that's still a win. :)

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  • Ben Leybovich
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    12y

    This is the latest one:

    http://www.biggerpockets.com/renewsblog/2013/05/07...

    T9 is sitting at $17,800. I'm thinking it'll hit $20,000+ CF T12 - $200/door/month with 100% financing. Not bad; what do you think guys @Brandon Turner , @Brian Burke , @Serge S. , @J Scott ?

    Oh, yeah, almost forgot - I'm also really good looking :)

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  • Kevin Romines
    Lender · Winlock, WA · Member since 2013 · 1k+ posts · 1k+ votes
    12y

    @ Bill Gulley

    I seemed to have set you off quite a bit with my post. Not sure if I should have explained it a bit different, but I dont think your public trashing of me was warranted.

    1st of all, there is nothing wrong with buying a property via subject 2 that was distressed (They were leaving the state and didnt want the headache and or payment) and so I negotiated a below market deal. When I said it was close to market value, I meant that I didnt pick it up at wholesale type numbers, but as you can see, there was some profit in it. It was worth every penny of 148k which is what I sold it for. Why, I know it has to appraise at any time within the 3 year lease and option that I gave them. As far as a declining balance, nope there wasnt a declining balance facilitating a disguised financing arrangement. The payments made up front were the non-refundable option fee. The 12K still owed to me is the difference from the price I sold it at. 148K, minus 2000, minus 5000, minus 12k still owed equals 129K that I bought it for.

    You mentioned anything over 3 years is will give them an equitible interest. I know that the option fee, even though non refundable gives them this same equitible interest. My comment was about not writing in rent credits, rather you give the same amount that you would have given as rent credits, but do this a closing cost credits.  As far as the contract for deed. They are still done in Washington state and its the state it self that has no problem with them. I dont like them as there are better ways to solve that problem such as subject 2, its safer, but it was how this property was bought.

    As for the due on sale clause, well we disclose it to the lender in a letter. We also send along a check explaining if they cash that check, or do not get back to us objecting to the transaction as a subject 2 with a reasonable time period (typically 30-45 days), this constitues acceptance on their part. This has not been a problem and has not been objected to as of yet. I personally dont want to end up in court against a large lender on the due on sale clause, so this solves this issue. As far as complying with the Dodd Frank laws, this deal was done before they became effective with the new changes put in place by the CFPB in January of this year. Besides, this is purely a lease and option of 3 years or less......This constitues landlord tenant law on the lease, and the option is just that, and option they can choose to exercise.

    I'm not saying I know everything in the book, but I certainly do not ever do anything that comes anywhere close to not complying with the laws on the books. There is no need for that when a profit can be made legitimately.

    Again, I feel either my explanantion was in need of better details, but I feel your characterization of me and my business is totally wrong and served to paint me in a bad light.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    @Kevin Romines 

      what happens when the people you sold the house to default ? how do you handle that

    I have seen this scheme many times and many times its  a train wreck because the end buyer defaults along the way and the middle seller ( which would be you just walks away because they have gotten their money)  leaving the original seller in a bind

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    @Kevin Romines 

      I highly doubt your check sent to the lender with the endorsement if you don't object to the sub 2 then you agree to it an waive your alienation clause in the mort or TD...

    for me its not the structure so much its the fact that when  you sell the property the default rate for low down no down borrowers with bad credit is so high.. 50% or better within 5 years and who is there to protect the true seller who is beleiveing all this but is not sophisticated to know the difference or the reality of the default rate in these type of transactions.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    Here is one I like...

    Many do not know this but Timber  IE TREE's  can be 1031 exchanged.. AS they are real property up until they are harvested and taken to the mill.

    So I had clients in Oregon that were sitting on major timber holdings 7 figures ... but were afraid to cut the timber because they did not want to pay tax... I am sure people run into that objection all the time.  What I did was set up a method for us to Buy the timber Deed for cash put that cash in a 1031 exchange then I brought them a nice multi family deal that they could pay cash for or put a little debt on so they did not have boot.

    So they still own their land... I replanted their timber for their next generations to enjoy they cut their trees in their farm.. that were just sitting there growing. and they 1031 into a nice performing asset they either owned free and clear or had little debt.. so trade trees standing there for 10 to 20k net positive cash flow still own your acreage and have it all replanted... Plus we made 20 to 200k a deal doing this... De[pending on the size of the timber stand.. and with ( I know your going to love this ) no money out of pocket because we would pre sell to the Mill who would front all the dough for delivered logs..

    I loved the timber industry still do .. not as good as it was but we made some nice money in the day 

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    Kevin, never mentioned you, I was referring to methods, you didn't give enough detail in the first post to pass judgment, so I didn't as to you.

    Disguised sale is a tax term, not a financing term as to a financing arrangement. Not the same thing really.

    Jay, that is a good business, my ex was the controller for Boise in Louisiana. Used timber commitments as the down after buying seller financed on a short term. Those were longleaf lines, here the $$$ is in walnut. Same game. :) 

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  • Kevin Romines
    Lender · Winlock, WA · Member since 2013 · 1k+ posts · 1k+ votes
    12y

    @Jay Hinrichs 

    What happens if my end buyer defaults. If they do, no matter what I have to make the payments per my contract with the seller. I dont want to lose an asset, and I havent lost one. If the end buyer defaults on the lease, I do everything in my power to understand what is causing the problem and work to solve it. Why, becasue if they default on the lease, it doesnt mean they have defaulted on the option. They could leave the property and still excersize their rights to complete the purchase down the road. With that scenario, that means, I must rent the place not resell it until their option period is past, or I can buy them out of the option, which then allows me to then resell the home on a lease and option again.

    What happens when my contract period is up, I pay off the seller. If for some reason that wasnt feasible, I might negotiate an extension on my contract, typically, it costs money. but can be done. I prefer to take them out.

    As far as the Due on Sale Clause, the lender requires written notice from the seller and all is done prior to any transactions. The lender is then required to acknowledge that notice within a reasonable period of time with either their objection to the seller,  selling via subject 2, or an acceptance. the court would decide what a reasonable period of time would be (typically 30-60) days. The fact that you sending them written notice via a return receipt letter, and that there is a check attached to that letter that specifically is used for that transaction, yes, it can and will hold up in the court of law.  I personally like to disclose rather than not, and take my chances. If the lender ever objects, then I wont be buying that property via a subject 2, I would get traditional or private financing if I still wanted to go forward.

    My interest is in soley seeing that buyer completes the contract. This puts everbiody in the best possible position. I have zero interest in having someone default. I have been known to be fairly creative in solving problems.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    @Kevin Romines 

      Kevin this probably works for you as your well capitalized.. however you have many newbie types that read these things and run out and do this and have no real capital to support a deal if it fails. I ran into just this type of investor here in PDX they had done 30 of these.. and when the tenants ( lease buyers) started defaulting one after another.. these folks did not have the means to keep making the payments and the cost involved to evict and rehab a semi trashed house.. I picked up about 10 of these from the ashes'.  The risk to the seller is usually one of credit getting hurt as they can and or will miss a few payments while they are trying to figure this out... Don't get me wrong I bought many probably close to 100 Sub two's in the day.. But we were a well financed and capable mature RE company with the ability to cut a check at any time to pay off a loan... I kept them for my rental portfolio.. Lease option to buy is just very hard to do, the only times I have really seen that work is in higher end stuff were your selling to professionals that usually have to sell a home or some other thing.. doing it on the lower end with credit challenged folks those never work out.

    on the Alienation clause where in the Deed of Trust does it say one simply has to notify a lender that your taking title sub 2 and if the lender does not respond that's deemed acceptance.. being a HML for many years and dealing in TD like I have I have never seen that.. I could be wrong though.. But again Heck banks and servicing companies can still start a foreclosure while your arguing who is right and who loses the seller who sold you this property sub 2 as there credit gets trashed and you the middle man are not impacted at all. That's my point you may be correct on the aurguing the Law but that takes a year at least and the bank just moves forward with the foreclosure trashing your sellers credit.. that is the risk.. Unless one can cut a check that day to pay off a sub 2 its a risky move for the seller.. It just is.. I am not saying it can't be great for all but the sellers need to understand what could happen.

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  • Timothy Riley
    Investor · Chicago, IL · Member since 2013 · 451 posts · 96 votes
    12y

    Not sure if this is what your asking for, but my last purchase was a quit claim that I had to pay $2400 for the back taxes which was deducted from the sale price on a SFH the total price of the sale was $14.5K It's was a quit claim that i'm obligated to pay $500 a month at no interest.

    I'm working on a deal now for a SFH (condo) as a deed for contract. The only thing I have to bring to the table is my attorney fee. I will take over the payments which are less than $500 including the HOA fees. This place is valued at $89K i'm purchasing it for $60k its turnkey but there is some personal cosmetics id like to add for about $2500 either I'll rent this out for $1200 a month or move in and rent my house out for $1000 a month (this home is in a better neighborhood than mine).

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  • Tapan Trivedi
    Real Estate Investor · Sacramento, CA · Member since 2014 · 78 posts · 41 votes
    12y

     Bought House for 80k carried by owner @8% in Sacramento,Ca . 

    Put 18k in fixup. Sold 4 months later for 180k. 18k in Fixup from Hard Money.

     Quite a few more obviously but the first good one stays with you ! 

    Done quite a few owner financed deals . We usually pitch a 20% profit share and a 8% carry on a flip. Better than hard money and much better deal for them and us.

    Tapan Trivedi

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    @Bill Gulley 

      I should have known Bill would know what a Timber deed was and how to use them in commerce I thought I had one on the community :)

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  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    12y

    Well, being creative when buying or controlling entails knowing what is possible and customary in your state.

    And if you do a creative deal, have some capital if the deal has problems (sub2, sandwich lease options, wraps, etc).

    One of my most creative deals ever was to sell on Lease Purchase when the market was slow.

    Here is the link to the article.

    http://www.biggerpockets.com/articles/2048-how-to-...

    And the deal was in Auckland New Zealand.

    Who says US strategies don't work overseas!

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  • Craig Teeter
    Tyler, TX · Member since 2014 · 66 posts · 8 votes
    12y

    @Mark Creason 

    I would love to hear the whole story about the 100% financing ! 

    I'm a builder/developer in Tyler

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