When Does "Making the Financing Work" Become "Making the Deal Look Good"?

One of the advantages of knowing financing is that I can often take a deal that doesn’t work and find another way to structure it.

That’s also one of the dangers.

The original financing doesn’t work. Fine. Change the leverage. Bring in more equity. Extend the term. Find different money. Change the exit strategy. Run the spreadsheet again.

Still ugly.

Adjust something else. Run it again... Hey, look at that. Now it works.

But does it? There’s a point where creative financing quietly becomes creative bookkeeping. And creative bookkeeping is a dangerous hobby to pursue.

Obviously, I’m in business to make deals work. We all are. I like hot meals and warm beds as much as the next guy. There’s nothing particularly clever about looking at every opportunity until I find a reason to say no.

But the opposite can be just as dangerous. Once I’ve spent enough time on a deal, I become invested in it before I’ve actually invested in it. I’ve talked to the borrower. Studied the property. Called people. Run scenarios. Solved two problems already. I want the damn thing to work.

And now every assumption becomes just a little more optimistic. Maybe the rehab comes in a little cheaper. Maybe the property sells a little faster. Maybe rents increase sooner. Maybe refinancing will be easier by then. Maybe that expense isn’t really necessary.

None of those assumptions has to be ridiculous. That’s what makes this dangerous. Each one only needs to stretch the truth a little. Bilbo Baggins described feeling “thin, sort of stretched,” like butter spread over too much bread. A deal can start looking like that too. Everything technically covers the surface. There just isn’t much substance left.

And I think doing this repeatedly eventually costs more than money. It kills enthusiasm for the business. If every deal needs perfect execution, favorable markets, cooperative contractors, rising rents, no surprises and increasingly creative arithmetic just to survive, I’m no longer looking forward to doing deals. I’m defending them.

There’s an important difference between solving a problem and hiding it. Sometimes changing the financing genuinely solves the problem. A different lender understands the asset better. More equity makes the debt sustainable. A longer term matches the business plan. A different capital structure gives the property enough room to perform.

Great. That’s exactly what creative financing should do. But sometimes I’m simply moving the weakness around until it becomes harder to see. The property still has the same problem. I’ve just persuaded Excel to stop mentioning it.

So when a deal suddenly works after the fifth financing scenario, I think there’s one more question worth asking: Did I actually solve the problem, or did I just make the spreadsheet look better?

Because knowing how to structure a deal is a valuable skill. Knowing when to stop restructuring one may be even more valuable.