How is a creative financed deal structured ?

Question

Just like the title says can someone explain what the most common deal looks like or just give and example ?

Ryan Thomson · Answer

There are a few structures worth knowing, and they work very differently from each other.

Seller financing is the most flexible. The seller acts as the bank. You negotiate rate, term, amortization, and balloon payment directly. No lender approval, no conventional underwriting. It usually needs a motivated seller who owns the property free and clear (or close to it). Common structure: 6-8% rate, 30-year am, 5-year balloon, 10-20% down.

Subject-to is where you take over payments on the existing mortgage without the lender's knowledge or approval. The loan stays in the seller's name. It works, but there's a due-on-sale clause risk. Most sellers don't love the liability exposure once they understand it.

Assumable mortgages are different from both of those, and I'd argue the cleanest option in the market right now. The lender is fully involved and approves the buyer. The original loan terms transfer: rate, balance, remaining term. I closed 7 of these in one quarter last year. One buyer put $19K down to take over a 2.75% loan on a $400K home. At current rates, that same buyer would pay about $900/month more on a new loan.

The structure: buyer covers the equity gap (purchase price minus loan balance) in cash or with a second lien. The lender charges $750 to process it. Takes 45-90 days to close.

Every FHA and VA loan is assumable by law. That's roughly 30% of the market right now.

Jorge Vazquez · Answer

Hey John, there are a bunch of ways to structure these deals. You can buy subject-to, where you take over the existing mortgage payments, buy through an LLC, do a wraparound mortgage where you create a new loan over the existing one, or even do a sandwich deal where you're in the middle making money on the spread. I've seen deals structured all kinds of ways depending on what the seller needs. Just be careful with due-on-sale clauses and make sure everything is documented correctly. Are you looking to buy and hold, flip, or make money in the middle without actually keeping the property? That makes a big difference in how I'd structure it.

Daniel McDonald · Answer

John, one common structure on the commercial side, especially when you're buying a business along with the property, is an SBA 7(a) loan paired with a seller note. Simple example on a $1M purchase:

SBA 7(a) loan: $900K (90%)

Buyer cash: $50K (5%)

Seller note: $50K (5%) on full standby

Under current SBA rules, a seller note can cover up to half of the 10% equity injection if it's on full standby (no payments) for the life of the SBA loan. That's how a lot of buyers get into a business with 5% of their own cash. 7(a) goes up to $5MM total loan size, so it covers most small and mid-size deals.

Pure investment property (rentals, or a NNN building you don't occupy) doesn't qualify for SBA. That's where seller financing, DSCR, and private money come in.

I'm an SBA 7(a) lender here in Tampa Bay too, so I'm happy to compare notes on local deals.

Sagi Gliksman · Answer

The most common structure is straight seller financing, where you give the owner a down payment (usually 10% to 20%) and they carry a promissory note for the rest. You pay them monthly principal and interest just like a bank, usually with an agreed-upon interest rate and a balloon payment due in three to five years. The biggest trap beginners miss is that balloon, because if you can't refinance into a commercial loan or sell before that clock runs out, you lose the property.

Max Comperatore · Answer

John, Greg is right that creative finance is a permutation game, but the label matters less than the capital stack. Divin’s $300k example is directionally clean, and Noah’s point about the balloon being a second deal is the piece most buyers underwrite too casually.

Three structures price differently. Subject-to leaves the senior loan in the seller’s name, so you inherit due-on-sale risk and need lender consent or a workable waiver. A seller second behind senior debt requires written senior consent, a subordination agreement, and an intercreditor with a standstill: the seller cannot foreclose or collect note payments while senior debt is in default. A wrap/AITD is a new buyer-to-seller note wrapping the existing senior loan; the seller remains borrower on the senior debt and the buyer pays the seller, who pays senior. That adds spread and payment-chain credit risk.

Run the blended debt constant, not just the seller’s rate: (annual senior debt service + annual seller note debt service) / total debt principal. Example: $1.0M property, $95k NOI, $650k senior at 7.5% over 25 years, annual debt service about $57.6k. Seller note $200k at 6% interest-only, $12k annual. Total debt $850k, total service $69.6k, blended constant 8.19%, DSCR 1.36x. At a five-year balloon, if senior refi rates are 9% and the lender needs 1.25x DSCR, max debt service is $76k, supporting roughly $754k at a 10.07% constant. You need about $96k of new equity to retire $850k. That is the real underwriting test.

Are you pursuing a seller second with written senior consent, or subject-to with a lender waiver?

Noah Wright · Answer

Wanting to see an actual example before signing anything is the right instinct. The part most examples skip is how the deal ends. Most seller carry notes come with a balloon a few years out, and the usual plan is to refinance into a long-term loan before it comes due. If that's a DSCR loan, most lenders qualify it on the property's rent covering the new payment, commonly a ratio somewhere around 1.0 to 1.25. That means the rent the place brings in when the balloon hits matters as much as the payment you agree to today. Every creative deal is really two deals, the one you sign now and the one that pays the seller off later. Is the plan to hold this as a rental long term?

Nicholas Floyd · Answer

Great question, John. One common example of creative financing is seller financing, where the seller agrees to receive payments over time instead of getting the full purchase price at closing. Another is a subject-to deal, where the buyer takes ownership while the existing mortgage remains in the seller’s name, which comes with its own risks.

I work in business funding, and another approach I see investors use is combining traditional real estate financing with business lines of credit, 0% APR business credit cards, or business loans to help cover renovations, holding costs, or other expenses when appropriate.

The key is structuring the deal so the financing makes sense and doesn’t eat up your profits. Are you looking into creative financing for residential properties or commercial investments?

Andrew Horowitz · Answer

John, there are endless possibilities and combinations. Greg pretty much summed it up. Some of the more traditional types, if we want to call them that, maybe the more common types, is seller/owner financed, subject to, and rent-to-own. There is no one deal fits all. And as stated above, the owner needs to be agreeable and most sellers need to be educated.

John Leland · Answer

First you have to be sure that the seller is open to creative finance.

From there it normally goes one of two ways.

A. The bad way

• buyer over pays because "he's getting terms"
• buy pays realtor fees using borrowed mony
• buyer doesn't actually have any cash so he goes to a "gator" lender to borrow at mafia rates
• buyer takes over loan and seller moves
• buyer never records the deed and tries to hide it in a "land trust"
• buyer ignores seller going forward or loses track of where abouts
• buyer rents out house but it can't rent for enough to cover expenses
• buyer makes payment for a while then misses payments and gets sued
• seller's missed loan payments trashes seller's credit

buyer over pays because "he's getting terms"

buy pays realtor fees using borrowed mony

buyer doesn't actually have any cash so he goes to a "gator" lender to borrow at mafia rates

buyer takes over loan and seller moves

buyer never records the deed and tries to hide it in a "land trust"

buyer ignores seller going forward or loses track of where abouts

buyer rents out house but it can't rent for enough to cover expenses

buyer makes payment for a while then misses payments and gets sued

seller's missed loan payments trashes seller's credit

B. The right way

• buyer buys the property below market
• buyer gets disclosures signed
• there is no realtor so no realtor fees are paid
• buyer has already run the spreadsheet to see what the property must rent for to make a profit
• buyer has seller sign authorizations
• buyer records the deed
• buyer never misses a payment no matter what, because missing a payment is what gets you sued
• buyer properly changes insurance into his name
• buyer stays in touch with seller if possible in case any problem arises
• buyer has money to take care of contingencies and keeps "reserves"

buyer buys the property below market

buyer gets disclosures signed

there is no realtor so no realtor fees are paid

buyer has already run the spreadsheet to see what the property must rent for to make a profit

buyer has seller sign authorizations

buyer records the deed

buyer never misses a payment no matter what, because missing a payment is what gets you sued

buyer properly changes insurance into his name

buyer stays in touch with seller if possible in case any problem arises

buyer has money to take care of contingencies and keeps "reserves"

That's the general idea, but there are a considerable number of details

Divin Kanyama · Answer

@John Adair A common creative-financing deal combines some cash with terms from the seller. For example, on a $300,000 property, the buyer might put down $30,000, take over the seller’s existing $200,000 loan subject-to, and give the seller a $70,000 note paid over five years. Another version is pure seller financing, where the seller carries most of the purchase price and receives monthly payments with a balloon later. The structure depends on the seller’s needs, but the numbers still have to support cash flow, reserves, and the exit plan. Because due-on-sale clauses, title, insurance, taxes, and default remedies can create real risk, the agreement should be documented by professionals familiar with the transaction.

How is a creative financed deal structured ?

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