Creative financing often takes financing from one type of situation or product and applies it differently to another. For example, consider how a R.E.I.T. raises money without borrowing any. It slices a target property into tiny slices that everyone can afford by putting it into a corporation and selling shares of the corporation. This concept is applied to real estate by those who convert apartments to condos and sell individual units to users. This can also be applied to large mobile home parks.
What about individual houses; where do they fit in? Let’s go back to expensive mobile homes for our inspiration. Recently a California buyer paid $2.8 million for a 3500 square foot mobile home on leased land in Santa Barbara. When asked why, he responded that a similarly sized house in the same locale would have cost $8 million.
Suppose you are trying to sell an expensive house. Even with the entire property mortgaged to an institutional lender, there is not reason why you couldn’t break the house and into different parcels which could be put into an entity such as a corporation, limited liability company, partnership, joint venture, or trust.
The deed used to convey the house into trust would include the right to lease the land for market land rents until such time as the land and house were rejoined, and it would give the house owner the right to buy the land at any time for a set price, or under the terms of a contractual formula. This deed would also exclude the land, which would be retained by the seller.
Next, the seller would convey the land into an entity and offer it in whole or in part to a long term investor whose return would be two-fold. The first part would be cash flow from the land lease. The second part would be the appreciation the land would enjoy over the entire period.
Admittedly, this kind of deal isn’t for everyone, but you’d be surprised at how many owners of expensive homes would be interested in selling the land under their homes to raise cash with which to pay off the loan entirely, or to use for other purposes, without the necessity of moving their residence. And of course, there are sellers of homes that are hopelessly stalled in today’s slow market who might be very interested in this sort of venture.
