In spirit of the upcoming September event regarding creative financing and deal structuring. I wanted to share my quick thoughts on that topic as it is important as a real estate investor to get creative when traditional capital channels keep shutting you down. Never give up on a good deal as there can always be a way to get it funded if you are creative enough.
What is creative financing?
Creative financing is a defined as acquiring or financing an asset/acquisition utilizing non-traditional financing structures
What are the different types of creative financing techniques?
This is a tough question to answer as there can be an unlimited number of methods depending on how creative you can be and how willing the seller is to work with you. Below is a list of a list of a few creative financing techniques that I have utilized and others that I think can actually work in real world real estate transactions:
Owner financing - In this technique the seller becomes your banker on an asset that they are familiar and comfortable with. The seller will transfer the title to you in exchange for a promissory note and deed of trust/mortgage for the full purchase price of the property.
Payment assumptions - If a seller needs to sell a property quickly and has financing in place and is willing to let you work with them on assuming it. Then you can utilize this technique to take over the mortgage on the property either through assumption, subject-to, or wrap mortgage.
Lease option - a lease option allows the buyer to rent the property for a given amount of time, with a portion of their rent credited toward the purchase price of the home. At the end of the lease, the buyer has the option to purchase the property at the amount agreed upon when the lease was created.
Sandwich Lease- a sandwich lease is in which a party rents property from the property owner and then subsequently leases it out to another tenant. An investor can use this technique when a seller is not comfortable holding a mortgage or transferring title to you but they want to get rid of the day to day headaches associated with owning the asset. This is truly an arbitrage play wherein you give the seller a no headache lease at below market rent and you re-rent it to a market rate tenant. The spread between your lease with the seller and your lease with the tenant is your monthly profit spread.
These are just a few examples of creative financing. There are tons and tons of other ones that can be structured utilizing bartering, options, trades and other financial instruments/assets. So get your creative juices starting to flow and structure your next deal creatively and attend the Tri-State Mixer upcoming September event to get even more ideas.