What's your MOST Creative Finance Story?
Mindy JensenPro Member
BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votesWhat's your MOST Creative Finance Story?
Most Popular Reply
I bought a house for $30,000 in San Diego County using creative financing this summer (2017)
Quick Financials
Purchase - $286,000 ($30,000 cash to take over mortgage subject to)
Mortgage - VA Loan @ 4.25% on year 3 of 30
Mortgage Balance - $255,XXX
Repairs - $10,000
Total cash invested - $41,000
Current Value - $390,000 ($100k equity picked up)
Payment - $1752
Rented - $2250
Here’s the Story…
The lead hit via my website, the seller wanted out of his property, I hadn’t taken the lead seriously in February. I remember telling the seller to have an agent list the place as it sounded really nice. He called me back in May, telling me he was ready to accept the offer I’d given over the phone. This is what I call a "hot lead".
Personally, I had been having what I’d like to call a “growth year” and this particular day was a very emotional days for me personally. I chose to meet the seller regardless, I actually remember crying in my car during the drive and coaching myself. Looking back it’s a moment I’m very proud of, and I believe this deal is the fruits of my labors in working on myself and my relationships.
When I sat down with the seller, I realized he was ready. There was no need to pitch, he expected a contract and that’s it. Suddenly I had the desire to see if I could buy the house subject to. I knew he only had around $30k in equity, I could afford that. What if I just took over the loan? So I proposed it, he agreed within seconds. It was wild.
The home had a rodent infestation and was in poor shape for a rental. I took over the house with almost all its belongings (including two sweet bikes I took to burning man).
I then invested $10k into repairs to make the place rental ready, which involved keeping a garage that had been converted to a master bedroom. My goal being to collect a higher rent with more rooms. Which worked, I pushed my 2/1 which would collect $1800 a month into a budget 3/2 collecting $2250 a month.
The main reason I kept this deal was that the house was just the biggest turd on the nicest street. Its a 2/1 875 sq ft home with a huge lot. All the other homes in the area are 3/2's in the 1300 sq ft range. My plan being one day to do a master suite ad on to the house, then 1031 exchange the proceeds into multi units out of state. I should have around $150k liquid from this deal at that point, putting me in a great position for a down payment on a larger multi-unit.
This was the most amazing deal I've ever taken down, it was so easy. I was so humbled to realize that I was the only barrier in my way of making this deal happen. After coaching myself in the moment I took what was going to be a simple flip at best and turned it into my second rental property with a massive amount of equity.
And on a personal note, the issues that were causing me so much distress that day have been worked out in a wonderful way. I am really proud of my growth this year.
73 Replies
- 9yDave FosterBusiness MemberQualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
A set of baseball and football cards for a % of a fishing lodge in Red Lake Ontario. Sold my % 3 years later and bought a Denver Sloan lake duplex.
The 1031 Investor5140 Reviews - Real Estate Agent · Tulsa, OK · Member since 2016 · 408 posts · 242 votes9y
Nothing too spectacular.. I "bought" a house on a lease with and option contract. fixed it up, put renters in there technically subletting, then finally purchasing the house in the option period.
Only money out of pocket was the renovation that was the "option" and the rent was minimal, 500 bucks per month, and I have it rented out for 1000/mo. I have since bought the house and put a HELOC on it
- 9yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
I once negotiated an old piano into a deal that was on site. Previous tenant (deceased) left it behind. Seller didn't want to move it, It said I would...but I kept it (I play piano).
Got it home, cleaned it up and found it to be in great condition, found the name of the manufacturer in it, looked up the year it was manufactured online and in the condition it was in (excellent...the previous tenant was a piano teacher), I discovered it was/is worth $10,000. It was manufactured in 1925.
- Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes9y
Originally posted by @Chris S.:
My fiance and I pooled our money into a joint account. Then proceeded to use the same account to each buy rental properties me with VA, her with FHA. We will be using the same fund again to purchase another FHA for me, and conventional for her.
The pooled money gives the illusion that we have a lot more money than we would individually. We use separate banks to finance, and the lenders are none the wiser. If we were married this of course would not work, so we are trying to pick up as many properties as we can prior to marriage. Keeps us from having to gift eachother money too which is nice.
And of course we just bounce back and forth on whichever 4plex we are staying in that night. Works out well for us.
End of the day we spent 20k to buy 8 units worth 1 million that cash flow about 1k/month after expenses with us living there. Can't wait to move out and do it again!
You have stumbled on to something that is VERY smart, that many couples don't take advantage of. HOWEVER, you are also dancing on the line of loan fraud, so I would tread lightly there.
First, the very smart part of your strategy.....buying separately. Married or not, this is a very wise way of purchasing properties because it doesn't tie up both of you in debt and credit. Most lenders will lend on the first 4 properties with no issues. Many lenders taper off from 5-10 properties and often times require a larger down payment (maybe from 20% to 25%). The pool of lenders gets pretty shallow after the 10th property. Equally, your credit score can fluctuate every time you make another purchase and secure another debt. So when married couples (or just couples in general) purchase properties together, they are, in essence, cutting their purchasing power in half. However, if both people have income to qualify for a purchase, and make their purchases separately, they can maximize their buying potential and purchase 20 properties between them without issues from the lender. Additionally, they can double up on resources like FHA, which can only be used one at a time, down payment assistance programs, and even discounted down payment programs (I'm thinking about HomePath that offered a 10% down for investors up to their first 4 properties).
Sharing a bank account would probably require an explanation letter to the lender that gives the other person permission to use all of the funds, but that is easy enough.
In order to have continuity as a team, you can create LLCs for each property, which you are both in as co-managers. Then you quit deed each property into its own LLC. That way, you both own it, without having you both hold debt for it. SMART!
Now, on to the danger of what you are doing.... Lenders require Borrowers to certify that they will occupy an owner occupied home within 60 days of COE, and continue occupying it for at least 12 months as their primary residence. What you do after that is up to you, but that initial commitment being kept is crucial as you sign an occupancy cert at COE. If the lender can prove that you are not living in the property, they can pursue you for loan fraud. You didn't specify the timing of doing these purchases, so hopefully, there is enough time going by to satisfy the requirement. However, when you talk about rotating through whatever 4 plex is available that night, it has me worried for you. Just make sure you are following through with any commitments you have made, especially in writing under penalty.
Best of luck to you!
- Investor · New Bern, NC · Member since 2013 · 96 posts · 29 votes9y
purchase my first rental with 401k loan and Lowes credit card. paid cash for the house with the 401k loan remodeled the house with the lowes credit card (did the work myself), rented the house after remodel then refinanced and paid off the credit card and 401k Loan
- Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes9y
Well it's got to be either this one: https://www.biggerpockets.com/renewsblog/2015/10/15/purchased-97-properties/ or this one: https://www.biggerpockets.com/renewsblog/purchased-portfolio-41-properties/.
- 9yCurtis BidwellPro MemberRental Property Investor · Olympia, WA · Member since 2014 · 781 posts · 744 votes
I told my two sons (both high school age 15, 17) that when they had enough $ for closing costs we'd find them a rental home. My 15 year old was first.
My computer repairman was selling his home but it needed work and he didn't know what to do. I asked him if he'd consider carrying the note. "Huh?"
I said, "you would be the bank".
He said, "I don't have any money to be a bank!"
I responded, "No. The house is the money, you just collect the money in payments, like a bank." So I took out a legal pad and mapped out a possible scenario. It looked like this:
Purchase price: $150k
Interest Rate: 5%
(Negative Am) Payment: $500/mo
Term: 3 years.
He didn't even have enough cash to pay the excise tax or escrow, so we paid that -and took a credit against the balance!
PART 2
In 3 years we were in the middle of the recession and couldn't refi or sell for what was owed. We renegotiated a 5 year extension by offering to increase the monthly payment by 50% to $750/mo. We had finished the daylight basement and were renting it as a separate unit bringing in a total of $1650/mo.
PART 3
One year into the extension they got divorced and wanted us to cash them out. Based on the value, we were able to get a loan for $120k. I told them that if they would apply all previous payments (aprox $30k) toward principle we would cash them out with $120k. They agreed.
My son was then 19 and old enough to get his own financing and so he arranged a 30 year note at 3.5% making his piti payment less than the $750 we were paying for just principle and interest.
We held that home for 7 years and sold it for $199k just after he got married.
How did a 15 year old buy a house? We went to the Secretary of State and opened an LLC. He was the majority owner, I was a minority owner and the registered agent.
- Investor · Great Neck, NY · Member since 2016 · 679 posts · 467 votes9y
I started buying real estate using my best friends; credit cards with low interest rates. Needless to say that was almost 10 years ago and since then my best friends have given me a lot more lines to play a bigger game!
- Orlando, FL · Member since 2017 · 4 posts · 5 votes9y
Hi Mindy!
I literally JUST put up my first home purchase story on the blog page last night!
Here is a link to our story about how my wife and I purchased our first home with no money, made $7,300 at Closing, and immediately added $120,000 of value by making an additional bedroom.
Best,
Andrew McKinley
- Residential Real Estate Agent · Cookeville, TN · Member since 2013 · 1k+ posts · 948 votes9y
@Mindy Jensen - Mortgage, pish. BUT, have you ever bought a house for 25,000 with a bank mortgage and walk away from the closing table with a check for $16,000 - from the BANK! (in all fairness, this happened before the crash).
- Redlands, CA · Member since 2010 · 36 posts · 8 votes9y
@Tim G. thanks for sharing your story. I'm currently learning different seller finance options. Your briefly stated "What if I just took over the loan? So I proposed it, he agreed within seconds". I've never acquired a property subject to. Is it simple as asking the seller will they finance the deal?
- karachi, pk · Member since 2017 · 5 posts · 3 votes9y
I bought my first house at 19 and this is how I did it.
I was 19-year-olds are stuck in their childhood bedrooms or squandering their student loan. But I just bought first home. Here I shares some secrets.
I started an apprenticeship as soon as I left school, and I’ve been working for four years. My boyfriend and I had both been thinking about buying a house.
In my area of Wales, you can get properties for around £70,000, but you can spend as much as £300,000. We found one for £90,000.
I didn’t want to be too ambitious. You don’t want to pay a mortgage for 15 years and then realise you can’t afford it anymore. Find a house you can really afford, buy that and pay off the mortgage.
We found our home in one day and decided to buy it. We bought it 50-50. We’ll each pay off 50%. It’s simple.
I didn’t find the mortgage process too stressful, because my credit rating is very high. I had lots of direct debits in my account and I never missed any payments. I can get credit even when people in their 20s and 30s can’t get it.
I am the only 19-year-old I know with a mortgage. I have mates who are 24 who live with their parents.
I am one of the youngest in my job as well. People ask me: Are you living at home? And I say: No, I’ve got a mortgage. Now It’s quite satisfying.
Originally posted by @Anton Taylor:
@Tim G. thanks for sharing your story. I'm currently learning different seller finance options. Your briefly stated "What if I just took over the loan? So I proposed it, he agreed within seconds". I've never acquired a property subject to. Is it simple as asking the seller will they finance the deal?
That's what I did. I remember asking myself, "what if I just try this and don't let a single bs excuse stop me?" he said yes, I asked escrow to figure it out. When I got out of my own way, things happen quick.
- Engineer · Magnolia, NJ · Member since 2016 · 133 posts · 135 votes9y
I have been working on this deal since January of this year and currently have a verbal agreement in place with the seller of an 8 unit mixed used property. I plan on closing by the end of the year. Here's how it started and progressed:
-I Saw the property come on the market but knew i didnt have the funds to come up with 20-25% down thru a bank for a commercial loan. I just so happened to be about half way thru reading @Brandon Turner book Investing in Real Estate with No and Low Money Down, crazy coincidence. I finished the book and decided to type up a personal letter and mail it directly to the home of the owner of the property. The letter gave a brief intro of myself and REI experience and mentioned to him that i was interested in the property if he was willing to do seller financing or a master lease option. Thinking my chances were slim, it was shocked to get a call from him about 2 weeks later.
-Unfortunately, he was not willing to do either. I had also recently read the short book by @Brandon Turner about how he acquired his 24 unit, which really got my wheels turning. At this point i decided to try and bring in a partner in the deal and who would come up with the down payment to secure the commercial loan thru the bank. In return i would pay them a % monthly and give them part ownership. After speaking with my lender, he said he would only be comfortable structuring it this way if it were a family member or if the current owner would lend back part of their equity to cover down payment. We then spoke about the specifics of the property and when i told him the address, he said that he knew the current owner because he was the lender for him when he purchased the property 16 years ago. Crazy coincidence. Now i knew i had a good chance of working something out with the seller.
-I then spoke to the seller who at this point i had become good friends with, (he was a very nice older guy in his early 70s) and asked him if he had enough equity in the property that he may be interested in lending back part of what he would be cashing out in the sale to cover part of the down payment and take second position on the mortgage.
-He was open to doing so and after 10 months of negotiation and working on this deal, i have a verbal agreement in place with the seller as follows:
*For the purposes of this article i won't go into analyzing the specifics of the deal (Cash flow, property condition, etc) only the purchase details. *
Purchase price: $400,000
Commercial loan down payment 20%: $80,000
Seller financed portion of down payment: $50,000
Buyer (me) down payment out of pocket (before closing costs, etc): $30,000
Cap rate at current condition and occupancy: 11
I hope to get this property under contract within the next week or so and close by the end of the year!
Good luck out there!
Justin
- 9yAnthony PolcynPro MemberInvestor · Jackson, OH · Member since 2014 · 42 posts · 20 votes
I used my free and clear vehicle as collateral to purchase a newer mobile home with no money down. While closing on the deal, I explained to an attorney what I was doing, and I ended up purchasing 8 units from him with no money down on land contracts.
- 9yYoudo ThirakulPro MemberAnchorage, AK · Member since 2017 · 96 posts · 26 votes
In 2010 My brother and I (both broke) moved back into our mom's, I started watching HGTV n love the idea of house hacking. I showed my brother the house hacking number and he fell in love with it too, so we decided to go our bank and see what we needed to do to get a triplex or whatever (we were going in there just to talk, didn't expect anything because we didn't know anything). Mortgage lady told us since my brother was in the military he can use his VA with NO money down, our jaw dropped, and right after I post on FB I need to buy a house and if anyone knew a realtor. One of my friend was a realtor (I didn't know) so I called her and she showed us a Triplex, townhouse style, 2 beds, 1.5 bath, we bought it with 1 month.
Numbers. 350k purchase price, no money down VA loan, payment was 2,300 a month, we Lived in unit 1, rent unit 2 for 1300, rent unit 3 for 1300. Renters paid own gas, electric, trash. Landlord paid flat rate water/waste for 230/month. We pocket $70 each month and now the property is worth 450k
My lonely story hardly compares to some posts, but I'm working on my 1st investment but 3rd property. I have a mortgage on the 2nd property and an interest only HELOC on the 1st. Both rates are under 4%. 18 mo 0% card standing by for finishes.
An unexpected mold issue may eat all my profits but I remain hopeful for even a small return and knowledge gained will qualify as a win.
- Rental Property Investor · NV · Member since 2014 · 241 posts · 85 votes9y
Without a lot of deals under my belt I'd have the say - THE NEXT ONE - All the deals we have done have been fairly creative so far however. If we were not creative we would have never gotten started in the first place. Now, we are up to 5 total "doors" owned over 3 properties. All have been creative financing but we are looking at an up and coming flip property that would be the most creative yet. I figure that if you want it bad enough and the numbers work. There is always a way. -
- Investor · Troy, MI · Member since 2017 · 57 posts · 42 votes9yI sold a home in 2006 for 130k. In 2012 same Home is in the market as a foreclosure $28k I paid cash for it, rented it, and refinanced it with a $55 k loan. No money out of pocket, 27k IN pocket after I put back the original $28. And it rents for $1850 per month. it’s worth $150k now. Jeff
My mix for the past few years of flips or rental rehabs:
Unsecured Lines of Credit (have $50k available).
Various Credit Cards (especially those with no interest for 18 months or big percentage back).
Had a baby just before starting current rehab, called the hospital and asked if I could pay the bill on a payment plan, $10k "loan" interest free paying off at $350/month. I'm part of a healthcare sharing program instead of normal insurance, so I get reimbursed the $10k within a couple months.
Some bills, including some property taxes, assign a fee if not paid on time, that amounts to a few percent for paying later. I think it's a bit of a scam by them, but it is basically a loan then from them for sometimes cheap.
Sold vehicles I had paid off and got a vehicle with 100% financing (could also refinance vehicles you own I think, but needed a bigger van anyway, so worked out).
More credit cards and lines of credit from parent are available.
Refinance on personal home.
I think the most important part of financing is getting a great price on the home(s), and a great price on the labor and materials to rehab it. You don't need that much to buy and rehab a home really. If you don't have that much, start with something small and work your way up.
- 9yDorothy ButalaPro MemberRental Property Investor · Erie, PA · Member since 2016 · 169 posts · 124 votes
Found a FSBO 6-unit in 2014. Owner owed 32K and was selling for 67K. Asked him what he was going to do with the proceeds, buy a boat? take a vacation? He said put the money in the bank, he didn't have it earmarked for anything. I asked him what his interest rate was at the bank, and I believe it was around 1or 2%, so I educated him on "holding papers" and told him I would pay off the 32k if he would hold the balance for 5 years at 6%, he agreed. A year later I wanted to buy the duplex next door using a different private lender, however she wanted more collateral against the duplex, and I offered up the 6-unit. She agreed to do an umbrella loan over both properties, which meant paying off the original owner. She loaned my 90k at 11% with a 15 year amortization and a 3 year balloon. I just finished the refinance a month ago and increased the value of the 6-unit in 4 years from 67K to 150k (83k increase) and increased the value of the duplex by 7k in 2 and a half years.
Here are two pictures, but to see them all go here Before and After Unit 1
- Tyler, TX · Member since 2013 · 1 post · 3 votes9yIn 2013 my wife and I bought 72 acres in east Texas with a mix of owner finance and the banks money. The owner was asking 235k for the property. We had built a few fourplexes elsewhere and figured we could build one on a corner of this property to help pay for it and there was a 1940s era home there also that could be rented. The owner really wanted to sell it outright and have the cash so I structured the deal as a win win for both of us. We bought 4.5 acres including the old house for 40k with a mortgage but also included the construction loan for the 4plex. This was phase 1. The owner got 40k for the property and I built the 4plex so we got 80% of appraisal and got this done with no money down. We owner finance the remaining property for 1 year interest only at 5.5%. At the 1 year Mark we bought 14 more acres for 40k but rolled it into our home construction loan and again no money down since I built then home for 80% of appraisal. Finally we owner financed the remaining land for 15 years at 5.5%. Essentialybthe rents pay for the property. This entire deal was structured from the start and played out in stages.
- Investor · Trenton, NJ · Member since 2017 · 97 posts · 60 votes9y
@Rick Stein has some enlightening stories he should share on this topic!
- 9yStephen FryerPro MemberInvestor · Ottawa ON / South Bend, IN · Member since 2013 · 186 posts · 93 votes
I have a classic transactional engineering story. While cruising BP Marketplace, I found a BP member who was a contractor that had put a property under contract but didn't have the money to close. I had a private lender that was willing to put up the cash, which I brought to the table. We rehabbed the property, paid back the lender and split the profit. No money out of pocket.
- Investor · Ottawa, Ontario · Member since 2016 · 225 posts · 46 votes9y
@Stephen Fryerthanks for sharing. Was it in Ottawa ?
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