When you learn how to buy houses with creative financing you will be able to do more deals and make more money.
What is creative financing? It is when you buy houses without using bank financing or private lenders. Creative financing requires very little cash to buy houses. Creative financing could be buying a house subject-to existing financing or with seller financing. With creative financing it is important to work directly with the seller.
Creative financing is also when you sell houses with seller financing so your buyers do not need to get bank financing.
Why use creative financing? Because you don’t need much cash and you are not slowed down with bank rules and regulations, you can buy more houses… faster. You don’t need to pay points or high interest to private lenders so you’ll keep more of the profit for yourself (make more money).
Here’s a wholesaling example:
We recently posted a motivated seller lead. The seller agreed to sell his house subject to the $29,500 mortgage with only 14 years to pay it off plus $10,000 to the seller. The ARV (after repaired value) is $95,000 to $100,000.
Instead of the buyer needing to come up with $40,000 cash, they only need $10,000 to do this deal.
But it gets even better because the buyer will be able to sell this same property with seller financing for at least $80,000 (more than twice what he paid for it) and likely get all of his $10,000 back plus monthly cash flow of $200 or more. If his buyers every refinance, the investor will get an additional $30,000 cash.
If the investor had to pay $40,000 cash it would limit his exit strategies to either a cash buyer or a buyer who could get bank financing.
Here’s another example which was recently posted in the Community Forum:
An investor was able to get a contract to buy a $450,000 house for $350,000 cash. The house is in perfect condition. It looks like a $100,000 profit potential BUT, the exit strategies are limited because this is a cash deal. The investor is not likely to find a cash buyer for this property and even if he does, he will probably only make $10,000 wholesaling profit.
If the investor did a Highest Bidder Sale to find a retail buyer for closer to $450,000, the buyer will likely need to get bank financing which takes time and cost a lot of money. Anytime bank financing is involved, you also run the risk that the deal can fall apart at the last minute.
If, instead, the investor has negotiated to buy the property subject-to the $350,000 mortgage or negotiated to buy the property with seller financing, then he would have many more exit strategies available to him.
If this deal had been negotiated to buy with creative financing, then the house could be sold with creative financing which would greatly increase his profits. It would also make it possible to close faster. Here are some exit strategies he could use if the property were being purchased with creative financing:
He could sell with a Highest Bidder Sale for the highest down payment. Sales price would be $450,000 sold with seller financing. He’s likely get $50,000 to $100,000 down then monthly cash flow of $500 a month or more.
Or, he could just advertise that the property is for sale with seller financing, skipping the Highest Bidder Sale. He would probably get $45,000 down and a nice monthly cash flow.
Or, he could just rent out the house making a nice cash flow.
If this property were purchased with creative financing, any way the exit strategy is structured the investor is much more likely to find a buyer and make a large profit.
If you negotiate to buy with cash, even way below market, you really limit your exit strategies.
Buying with creative financing is a good way to acquire rental properties. It’s important to negotiate payments to the seller that are low enough so you will have a nice cash flow.
When you buy with creative financing, you have more exit strategy options, so you can do more deals and make more money.