What's your MOST Creative Finance Story?
Mindy JensenPro Member
BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votesI want to know the most creative way you've ever financed a real estate purchase.
Mortgage? Pish, I've done that.
You sold plasma? Tell me more.
Seller Financing? I'm all ears!
Brandon Turner told us in How We Bought a 24-Unit Apartment Building for (Almost) No Money Down the story of seller financing mixed with HELOCs and Partnerships. That's awesome, but I want to know how YOU did it!
I'm going to wrap the best of these stories into a book about Creative Financing. I'd love to include your story! Bonus points for before/after pictures, too!
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.
Personally I prefer "horse trading."
Case in point... I traded a guy my Harley for his house that had $60k in equity by asking him one simple question.... "what do you need?"
I'm not crazy about signing my life away to mortgages and promises to "solve other people's problems."
You don't mind paying the lawyer or doctor to solve your problems... why is this any different?
Jus' some of the things I've learned over the years in dealing with people and their problems...
Thanks, Erik,
recently I closed on a a triplex on Centre St in Trenton. I paid $110,000 for it which is ok, but the financing is beautiful. I have owner financing with $10k down which is less than 10%.the balance at 2% fully amortized in12,5 years. It also have about a $600/mo cash flow per month
HI @Haseeb Awan.
This project was in South Bend IN. I love the midwest. I can still find value there. Both the Duplex and Tripex that I just bought should have a return around 18%.
I don't invest in Ottawa. I find it hard to cash flow. CAP rates for SFRs are between 3-5%. Too overvalued for my taste. Everything becomes an equity play. Too close to speculating rather than investing.
This may seem very small-time for some when you look at the dollar signs, but I think we are getting pretty creative.
We are in the Short-Term Rental market. A lot of our clients are average homeowners, so they don't have much extra money to fix up their place to make it suitable for STR. Anyway, since you won't find many "hard money lenders" willing to do deals for as little as just a few thousand dollars, we started leveraging our existing clients who are looking for more revenue streams, and borrowing the money from them.
The best part is the loan is repaid through the profits of the rental, so the homeowner is out of pocket exactly $0, the rental makes more, faster, and the lender is made whole in just a few months at most.
I consider myself a newbie when it comes to real estate however I just closed a couple months ago a 12 unit deal with no money down. Cap is 8.6% I did have equity in two single family homes that I used but those homes I bought at auction for less then 55k all together back in 2011. I have both of those homes rented and they have paid for themselves 2X now. This was my 7th deal and 2nd multi family unit deal. I know I still have a lot to learn but with 22 units I think I'm on my way. These units are all in south eastern Kentucky.
Very first home purchase bought with a fairly boring 5% down conventional loan in the amount of $7k down. A couple months later got a check in the mail from the lender for a little over $7k and no explanation. Reached out to the lender to make sure nothing was amiss and he eventually called me back explaining there was something incorrect in the closing disclosure that didn't affect the actually closing in any way, but that the servicer required the check be sent to "cure" the error. Said in all his years he's never seen that happen. So the classic Delayed No-Money Down Rebate...might have to get @Brandon Turner to name that one for me...
Hello, I'm looking to better understand what my options are as far as putting a down payment on a 'flip' property.
I know the requirement is 20%, but can I use gift funds, funds from a personal loan, or HELOC as the source for the down payment???
I'm seeking my first deal, and going in on it with a friend. Between the two of us we need about $40K for both down payment and reno costs... just wondering what our options are, as we don't have that much liquid cash.
Thank you!
Deal #1 Bought a property $160k, took sub-2 $100k and seller carried a $40k note 0% no payments for 10 years, balloon due in 30 yrs. I paid for arrears, closing costs, & gave seller $10k cash. Property is worth $300k+ 3 years later. rents for $1,100/month
Deal #2 Bought property for zero down, closing costs only, took over payments on $40k 1st Private Note. Ended up buying the note a few years later for $4,000 plus delinquent property taxes
I get $595 monthly rent on free & clear property.
I purchased a home on a Lease-option for $100 option consideration, and $1300/month lease. Now, two years later, I still hold that lease-option and have been renting it out for the last two years for $2400/month.
The owner wanted $425K for the house, but the value was only $370 at the time of the lease. I informed him I was not sure we could find a good fit as I didn't see that it would make money in the long-term if the market adjusted and the price was at $425K. We discussed it over the course of several days and he agreed to lower the price to $417K and was happy with a structure that ensured upfront cash flow for me. If the market adjusted, I was protected. If the market climbed, then he would get his price.
Now, the property is valued at $500K so selling it is an option for additional cash!
I recently purchased a three family home in a gentrifying area of Trenton, NJ for $110KI. The price is OK but not great. The financing is the key. I purchased it with $10K down and owner financing at 2%. It will be paid off in 12.5 years. I got rid of two of the troublesome tenants and raised the rents to market rent. It cash flows at about $500/month. I try to involve the seller in the financing whenever possible. if that fails, I use private money.
I received a call from another real estate investor I had met through our local REIA. He had a property he wanted to sell and the numbers seemed perfect. When I got to the house we walked through and I knew it would be perfect for me, and that it needed only minimal rehab. On the spot, we negotiated a purchase price of $42k, with $5,000 down, and he was going to finance the rest of the loan at 5.5%, interest only, but he only wanted to hold the note for 6 months. We closed in a few weeks, and I immediately began searching for another lender. I found another private lender in a few months who lent me $47k at 5%. This allowed me to pull out any money I had in the deal, including closing costs and minor repairs needed for the CO.
Appraised Value: $65k
Loan amount: $47k @ 5%
PMT: $252.31
Rent: $1,250
50% Rule Analysis: $1,250 / 2 = $625
Minus Mortgage = $625 - $252 PMT = $373 Cashflow with $0 invested
I received a call from another real estate investor I had met through our local REIA. He had a property he wanted to sell and the numbers seemed perfect. When I got to the house we walked through and I knew it would be perfect for me, and that it needed only minimal rehab. On the spot, we negotiated a purchase price of $42k, with $5,000 down, and he was going to finance the rest of the loan at 5.5%, interest only, but he only wanted to hold the note for 6 months. We closed in a few weeks, and I immediately began searching for another lender. I found another private lender in a few months who lent me $47k at 5%. This allowed me to pull out any money I had in the deal, including closing costs and minor repairs needed for the CO.
Appraised Value: $65k
Loan amount: $47k @ 5%
PMT: $252.31
Rent: $1,250
50% Rule Analysis: $1,250 / 2 = $625
Minus Mortgage = $625 - $252 PMT = $373 Cashflow with $0 invested
Very nice Justin! What was your experience in finding the second private lender? Any balloon payment/call on the note?
We bought a 12 unit townhouse complex from a local Dr who owned the property outright. He agreed to hold the mortgage, and we purchased it for $50k below appraised value. Rents were below market, the property manager was ripping him off, and there was room to clean up the utilities/increase profits from the get-go. We put 12% down, 30 yr mortgage @ 5% with deal to payoff after 10 yrs. In just over 2 yrs, we've increased monthly cash flow from $1800/mo to $2400/mo. In 6 mo, we'll have made our initial investment back. And in another 2.5 yrs, we plan to payoff the previous owner early, and cash out with approx $150k-$170k equity. That'll be nice to keep building our portfolio!
Now we're closing on a triplex where the owner is holding 20%, commercial financing for 80%. We're paying quarterly interest for 5yrs, and by the time we'll owe the full 20% payment to the current owner, we'll be able to cash out the equity - all the while enjoying a monthly cash flow of $550/mo. Not bad for approx $4k in closing costs!!
@Mindy Jensen Im ready to get on the podcast! Let @Brandon Turner and @Joshua D. know!
Deal 1: 4 unit for $125k purchased just 6 weeks after graduating from college. I borrowed $25k private money at 8% for my down payment on a commercial loan.
Deal 2: 16 unit for $685k purchased with 80% bank financing at 4.85% 20 yrs, 16% seller financing at 2% 10yrs, prorations of 2%, personal loan from Wells Fargo for 1%, and I brought 1% cash to to table.
Deal 3: 3 unit bought in cash for $56k. I then pulled a secured line of credit at 5.25% with interest only payments required. This way I have a line to pull from for future deals but could make a return on my cash in the meantime.
Deal 4: 8 units for $345k. Used 80% bank financing at 4.5% 20yr, seller note 10% of purchase at 5% 20yr, prorations of 4%, and 6% cash that I used from my line of credit on Deal #3.
In total, expected 2018 cashflow of $70k. Started in summer of 2015.
Recent post on 3 and 8 unit deal.
https://www.biggerpockets.com/forums/223/topics/50...
Post on 16 unit deal.
Becoming a successful real estate investor doesn't give you fewer problems; in fact, it gives you bigger, better ones. Yes, I mean better ones. Not knowing where your next meal is going to come from is a big problem and a bad one. Not knowing how you're going to finish the 22-story ultra-modern high-rise is a bigger problem, but it's also a better one. The value of real estate investing is that it allows you to upgrade your problems to more exciting, more high-profile challenges; and with bigger problems come an enhanced ability to solve them based on the knowledge and experience you've already gained.
Anybody who believes that creative financing is for investors who took a weekend seminar and doesn't have two nickels to rub together probably never read a financial paper or built a high-rise. If they had, they would know that most of the funding techniques in this book have been used to purchase and build multimillion-dollar properties throughout the world. Creative financing isn't for poor real estate investors; it's for real estate investors. And at the highest levels of this business, it isn't the exception; it's the norm.
Some say that cash is king, but no king of commerce ever became rich by spending his own money all the time. Homebuyers, commercial developers, and part-time investors alike need to know how to structure transactions with creative financing because conventional financing isn't always available, and sometimes it’s undesirable or unprofitable. Here are two of the 52 creative financing tips I’ve accumulated over my 25 years buying real estate: (PM me for the complete set.)
Seller Refi. for Takeover
I moved away from home when I was 16 years old, thanks to a lot of help from my father, Charles Parrish (a regular poster here on BP!) I never did get used to city life; and soon after I was married, I came home one day and my wife told me, “It’s time.”
“What!” I said. “We were careful!”
She wasn’t talking about children. “It’s time we move out. Our tenants have nicer homes than we do.”
So, we found a farm in the country and we fell in love with it. Our budget was $800,000, but the sellers were stuck on $900,000. We couldn’t blame them, it was worth $1,500,000. I couldn’t lose the deal. So, I told the sellers the truth.
“You’re $100,000 over our budget,” I said. “If you can make life easy for me, I’ll agree with your price,” I asked them to refinance their home for the $900,000 subject to a one-time qualified assumption with the release of liability. In other words, they refi., I qualify to assume their mortgage, I take the deed and the debt, and they walk with the cash and no strings attached. Beautiful!
“Do you know of any banks that’ll do that?” they asked.
“In fact, I do,” I said.
“Do you think you could qualify to assume the loan?” they asked.
“Actually, I already have,” I answered. I had set it all up in advance through a small local Savings and Loan.
The creative financing tips stop here because the end of the story is a little embarrassing. “This can’t be right,” the title attorney told us there at the settlement table. “I’ve settled I don’t know how many properties for you. How is your wife getting a first-time home-buyer credit?” She was indeed a first time home(not investment property) buyer. “And, Ian, you’re collecting a $27,000 commission for representing her?” Yep. We walked away from the settlement table with a fat check and a brand new farm.
Then I learned how expensive farm equipment is. But that’s another story!
We delivered the logs... paid off the Timber deed.. now we have made 200k large.. and own the ground free and clear.
NO PUN INTENDED!
