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Posted about 10 years ago

6 Reasons I Prefer Creative Financing to Bank Financing

[This is part 1 of 7 in a series of articles about creative real estate financing. Each installment will include an article and a short, 10-15 minute YouTube video]

I graduated from Clemson University in 2002. Soon after graduating I began real estate investing full-time with a business partner. Like many recent college grads, we were ambitious, a bit naive, and cash poor.

We started when easy-money loans were the norm, but it turns out that having no job, no experience, and no assets were still seen as problems for loans against investment properties.

Go figure!

So, in order to get rolling we had to get creative with financing. The vast majority of our deals were put together using some combination of non-traditional, creative techniques like:

  • private loans
  • credit partners
  • seller-carry-back financing
  • loans from self-directed IRA owners
  • lease options
  • contract-for-deeds
  • equity partnerships
  • purchasing subject-to the mortgage

Little did we know that our challenging situation was a blessing in disguise. We developed our creative muscles early, and we still use those skills today.

But, we also learned that we actually preferred creative financing, even when we could get bank loans.

Why? I’ll give you 6 reasons.

1. Creative financing works in up and down market cycles.

Did you notice how difficult it was to borrow bank money during the BEST buying opportunity of our lifetime in 2008-2010?

Creative financing still worked better than ever in a bad market. That means we bought deals when others who were dependent upon bank loans could not.

2. Creative financing is flexible and fast.

We recently closed a deal in three days. The bank’s appraiser wouldn’t have even started by the time we closed with private funds.

3. Creative financing has a virtually unlimited supply of money.

What’s the institutional mortgage limit now? 10 loans? 5 loans? Whenever you hit this ever-changing cut-off point, you’re done.

Instead, think about how many motivated property owners are out there who will potentially finance to us? The numbers are virtually unlimited.

Or, how many retirement accounts are languishing with dismal interest rates? TRILLIONS of dollars. If you just show a few of these people your deals that provide safety, reasonable returns, and good service, you’ll be a financial hero for life and have all the private money you need.

The amount of creative financing you get is only limited by your knowledge, ambition, and trustworthiness.

How refreshing!

4. All terms of creative financing are negotiable.

Banks give you a rate and term sheet. Take it or leave it.

Instead, with creative financing I sit across the table from a real person and just discuss what each of us needs. It we’re both happy, we do the deal.

Consider just a few of many examples of flexible terms with creative financing:

  • The lowest interest rates I have ever received came from motivated sellers, not from banks.
  • Private lenders regularly let us accrue interest (no payments) on fix-flip houses.
  • We have negotiated no interest and no payments for months or even years on seller financing.
  • We have done numerous no-money-down deals.

5. Creative financing is less risky.

Most of our creative financing deals have no personal liability (the property itself is the only collateral). On the other hand, most bank loans require personal guarantees, which mean things like a personal house, cars, other investments, and bank accounts are all at risk if things go bad.

6. Sources of creative financing become friends and partners for life.

Our first private lender became our mentor and continues to do deals with us today. With other creative financing sources, we regularly send (and receive) Christmas gifts and consider them our friends. These creative financing relationships don’t expire or get transferred to another bank, so the mutual benefits can last a life-time. Even better, referrals from all of these happy customers have led to even more creative financing so that the cycle goes on and on.


For all of these reasons and more, creative financing has proven to be more profitable, less risky, and much easier than traditional bank sources.

We still use bank loans from time to time. We see benefits in using all available sources. But to show you our preference, of the payments we make today in our portfolio, over 90% are to individuals or IRAs and not to mortgage companies or banks.

For an even more in-depth explanation of WHY we prefer creative financing to bank financing, I made a 13-minute video that I’d like to share with you ...


In the next 6 articles, I will unpack this concept of Creative Financing and cover some of the most important topics. These will include:

  • What is Creative Financing? (and What is it Not)
  • Creative Tool #1: Seller Carry-Back Financing
  • Creative Tool #2: Lease Options
  • Creative Tool #3: Self-directed IRA loans
  • Creative Tool #4: Credit partners
  • Creative Tool #5: Subject-to the mortgage

I hope you find these articles and videos helpful.

Enthusiastically your coach,

Chad signature - cursive

Comments (11)

  1. just want to clear up misconceptions, I keep hearing that no one was lending post crash, I had no problem getting flip funding at a bank in 2008, and still have no problem today, and the terms are the same, just rates have come down, and now edging up a bit. 

    the "10 Loans" crap everyone is spewing is simply NOT TRUE! that only applies to bank internal underwriting guidelines, and only for secondary market loans like Fannie and Freddie, the Commercial/Portfolio side at a bank has no limit on loans. 

    if you are using seller funds, like carry back, sub 2, and other arrangements, this puts the seller in the drivers seat on the deal, so you dont get as good of a deal on the property, my banker will give me a cash letter or a loan commitment to accompany my offer, just like they did in 2008. 

    so yea if you have no money, and no credit, these things may work, but you would be better served getting your financial house in order before buying a rental house. 

  2. Hey Chad,

    Thanks for the links, it made it much easier to find your articles.  I like your up front and informative style.  You do a nice job explaining the complex topic of creative financing in a simple and accessible way.

    1. Thanks for reading and for commenting, Andrew! Glad you found the article and other links helpful. I try to explain it in a way that would make sense to ME. That's why it's up front and as simple as possible:) 

      Best of luck!

  3. Forgive me if this is a stupid question, but where can I find the other 6 articles? I searched the names of the articles as listed above in bigger pockets but had no luck.  I really want to learn more on this topic so any advice would be greatly appreciated!! 


    Ken S

  4. Good stuff Chad, very clearly pointed out.  I am just getting started with the creative financing investing, and read just about all of the stuff you put out.  Figured I would finally show some love by posting a comment!  Crazy to me that a lot of the creative financing doesn't get as much attention as it warrants, I think it is just a bit easier to go to a bank and get a loan for some, but the benefits of the methods you lay out are awesome!  "Opportunity is missed by most people because it is dressed in overalls and looks like work." -Thomas Edison  Thanks for sharing your knowledge!

    1. Thanks Justin! Yeah, it is a little more work and it takes a little more initative than just walking into a bank. But like most good things, the difficulty up front creates long last rewards in the way of rising above your competition and never running out of money. Best of luck!

  5. Chad, great article.  I think I'm starting to catch the "creative financing" bug.  I've never felt it necessary because I get can access to convential loans, but, just because you can, doesn't mean you should!  Thank you!

    1. Hey @Frankie Woods . Glad you're catching the bug:) 

      Yeah, I started with creative financing by necessity but continued by choice. I like to mix in traditional financing too, because it seems like a good strategy not to depend too much on any one source. 

      Best of luck to you!

  6. Good information. All house flippers are looking for additional funds to grow their market. Win/win situations are difficult to find and many lenders don't realize that that condition must exist. Good article and thanks for posting it.

    1. Thanks John. I have found it easier to find those win-win relationships with individuals than with big institutions. It is more of the partnership mentality. Some banks do have that too, but not the norm.