How To: Creative Financing for Real Estate

On a recent Situation Saturday segment on the Best Real Estate Investing Advice Ever podcast, Joe Fairless spoke with CEO Todd Dexheimer, CEO of Venture D Properties, LLC about creatively financing in the real estate business. How do you do that? Luckily, we got someone who not only knows how to do that, but he actually did it as well. And the story behind how his latest deal came to be is an all too familiar one to real estate investors.

“The latest deal I did, which I think we can spend the most time on, was about 120-unit apartment complex,” Dexheimer said, “and I put it on a contract with the intention to just get regular financing on it. Well, I shouldn’t say regular financing. The property was 78% occupied. So, it was low occupancy, and it needed some work. So, sixty of the units had been renovated to a pretty good standard, but basically, the rest of the units needed a pretty substantial renovation. So, I needed to get either a bridge loan, a local bank loan, or seller financing, and as I went through this deal, I just didn’t want to use a bridge loan because they’re expensive. So, anybody who has done a bridge loan understands the expenses.”

This is very true. While a bridge loan can be helpful in the scope of buying a new property, there are many downsides to this type of financing. You’ll likely have to pay very high-interest rates and APR. Some lenders utilize a variable prime rate that can increase over time as well.

“So I was trying to get local bank financing, but I had kind of three strikes against me. The first strike was the fact that I was out of state. The second one is [that] I’m syndicating the deal, and the third one was the deal wasn’t stabilized. It was 78% occupied. So, three strikes against me. The local banks were very hesitant. I did have one local bank that was semi-interested, but we were running out of time. My earnest money was going to become hard. So, I said, ‘Look. Let’s do seller finance,’ and I approached it at that level, and we ended up working out a deal.”

Seller finance is essentially a real estate agreement in which financing is provided by the seller and included in the purchase price.

There are many benefits for both sellers and buyers when it comes to seller financing. From the buyer’s perspective, selling financing is one of the best alternatives to a standard bank or bridge loan. For real estate newbies who may not be able to pay that standard 20% down payment, it may not be the best option. But for those who are ready to invest, it’s very doable. Sellers can also benefit from seller financing by essentially using the loans as a form of additional income. Seller financing is essentially just real estate investment, just with a personal edge.

What do you think about creative financing strategies? Tell us about it in the comments below.