My 4000th post - Creative Financing do's and dont's

17 Replies

Every time I make a milestone BiggerPockets I do a really long post. This is my 4000 post so I thought that I would do a do's and dont's on creative financing

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Definition of creative financing is how can the seller sell on terms or some unconventional way

How can a buyer buy on terms or some unconventional way

Generally if you act as a principal buyer, seller, optionor, optionee, vendor, vendee, lessee, lessor, you don't need a license if you're not acting as a fiduciary agent

There are some states that are cracking down like Ohio Florida and California about marketing houses without a license even though you have equitable interest in an agreement

There's nothing wrong with being license and acting as a principal and disclosing that you are acting as a principal buyer

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Pretty houses little equity

I think this is where new people should start, get an attorney, get a realtor license, and learn subject to, lease options, lease purchase, wraparound mortgages and installment sales

The location of the house and the condition of the house and type is existing financing of the house of the most important things to look at. I call this  "looking at the product first" and not the seller of pretty houses.

The location meaning A quiet street, a good school district, low crime, a place where family can sink their feet for 5 to 10 years

A corner house, a busy street, these things make it difficult

The condition you want to house in really good shape so if it needs major repairs it's not a good terms deal

The existing financing meeting what is the loan against the house look like, is it fixed or adjustable rate mortgage, is there a first only or first and second, was the second mortgage used to have to pay off debt?  Is the house upside down mean the mortgage balance is more than me your market value?  All these issues come in the play

Another one of my favorite creative financing situations is a "joint venture with the seller" where there's minor repairs needed and they don't have the money to repair the house

What say you have a $200,000 house, and 20,000 in work

Wholesaling is 70% of ARV or 140,000 minus 20,000 in work minus 5000 in Wholesaling assignment fee, $115,000 to seller

For minor rehabs that's a tough offer to get accepted and owners laugh at it, or perhaps get insulted by it

When I talk to sellers of minor rehabs I show them this formula and tell them that that is only one choice, another choice is doing a joint venture with them, where are use my private lender money to fix the house, and I give them a note that will pay their equity, but  in three months time

To figure out how much to give them a note, you subtract the cost to sell minus the rehab minus the private lender money interest

In this example you would subtract 20,000 in rehab -10% to sell with commissions and closing costs or $20,000 minus a joint venture fee of $10,000 or totaling $50,000

So instead of 115,000 for the seller

You get the seller 150,000 and you make 10,000

--------

Next post in this thread is talking about 

how to negotiate with homesellers for creative deals, 

getting a letter of intent for the seller drafted

and then getting the contracts drawn by a talented contract  attorney

Great Info and congrats on your 4000th post!

Well, that about covers creative finance...hahaha

Good stuff, my friend. You are way smarter than necessary :)

Thanks @Valencia Nicholas and @Lisa Kohl

PA and ID have some great "rent to PITI" values. I live in Los Angeles where a modest house 3B2B is $800,000 and rents for $2000 - $2500.

@Ben Leybovich how are you my friend?

How are your syndications coming along?

@Brian Gibbons , congratulations on your post #4,000.  It is always nice to hear from you.  Thanks for taking the time to share.

@Jerry W.

How is my favorite legal mind in WY?

Thank you for kind words.

@Brian Gibbons , thanks for this post.

Your posts always make me think (in a good way) and help me understand topics clearer.

Congrats and keep posting!

Hi @Raul 

@Raul Pedrozo

You are in OH, look at the land contract purchase, and rent out exit strategy.

I would get 100 properties with that if the numbers and condition were attractive.

No banks.  No Credit.

Thank you for the kind words.

Brian

Congrats on your 4,000th BP post!

I love creative financing. For several reasons:

1) The opportunity to control real estate and trade benefits outside the envelope of traditional broker/conventional lender transactions.

2) Additional opportunities that develop later when markets have changed and poorly documented deals go sideways.

The business is about solving problems. Also, as I learned early on, attorneys do not like the term creative financing and it raises red flags. So, consider other labels that focus on benefits to the person with the problem. And, never do any transaction that you'd be uncomfortable looking a judge in the eye and keep a straight face.

Good job, my friend. See you in Glendale tonight (despite the rain)?

Originally posted by @Brian Gibbons :

Every time I make a milestone BiggerPockets I do a really long post. This is my 4000 post so I thought that I would do a do's and dont's on creative financing

--------

Definition of creative financing is how can the seller sell on terms or some unconventional way

How can a buyer buy on terms or some unconventional way

Generally if you act as a principal buyer, seller, optionor, optionee, vendor, vendee, lessee, lessor, you don't need a license if you're not acting as a fiduciary agent

There are some states that are cracking down like Ohio Florida and California about marketing houses without a license even though you have equitable interest in an agreement

There's nothing wrong with being license and acting as a principal and disclosing that you are acting as a principal buyer

-------

Pretty houses little equity

I think this is where new people should start, get an attorney, get a realtor license, and learn subject to, lease options, lease purchase, wraparound mortgages and installment sales

The location of the house and the condition of the house and type is existing financing of the house of the most important things to look at. I call this  "looking at the product first" and not the seller of pretty houses.

The location meaning A quiet street, a good school district, low crime, a place where family can sink their feet for 5 to 10 years

A corner house, a busy street, these things make it difficult

The condition you want to house in really good shape so if it needs major repairs it's not a good terms deal

The existing financing meeting what is the loan against the house look like, is it fixed or adjustable rate mortgage, is there a first only or first and second, was the second mortgage used to have to pay off debt?  Is the house upside down mean the mortgage balance is more than me your market value?  All these issues come in the play

Another one of my favorite creative financing situations is a "joint venture with the seller" where there's minor repairs needed and they don't have the money to repair the house

What say you have a $200,000 house, and 20,000 in work

Wholesaling is 70% of ARV or 140,000 minus 20,000 in work minus 5000 in Wholesaling assignment fee, $115,000 to seller

For minor rehabs that's a tough offer to get accepted and owners laugh at it, or perhaps get insulted by it

When I talk to sellers of minor rehabs I show them this formula and tell them that that is only one choice, another choice is doing a joint venture with them, where are use my private lender money to fix the house, and I give them a note that will pay their equity, but  in three months time

To figure out how much to give them a note, you subtract the cost to sell minus the rehab minus the private lender money interest

In this example you would subtract 20,000 in rehab -10% to sell with commissions and closing costs or $20,000 minus a joint venture fee of $10,000 or totaling $50,000

So instead of 115,000 for the seller

You get the seller 150,000 and you make 10,000

--------

Next post in this thread is talking about 

how to negotiate with homesellers for creative deals, 

getting a letter of intent for the seller drafted

and then getting the contracts drawn by a talented contract  attorney

Boom and congrats

Have a great day

Congrats @Brian Gibbons  and thank your for your service and dedication educating us.  BP is better with you in it.  I consider it an honor being a colleague with you!

@Rob Green

Rob you're quite welcome if I can ever help you please let me know

@Steve Vaughan

You are the most helpful person for people in Washington state, and you should start a coaching service!

Your advice always the sink and clear and no ********

I value your friendship very much.

@Brian Gibbons Congrats on reaching 4000 thats huge, simple question or subject if you will. Can you expand on creating a note? Attorney or closing office, who creates that. Sry for silly question seems basic like something i should know 

@Caesar Blackman

Creating a note I would go to a note broker or to a  registered mortgage loan originator.

I would trust a CCIM realtor to point me in the right direction

Great post!  Thanks for the insight and congrats on your 4000 post!  Look forward to learning more from you all!

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