What Is A Real Estate Creative Deal Structure?

In today's video, I'm going to show you what a real estate creative deal looks like. Coming up next. Owner financing, also known as seller financing, lets buyers pay for a new home without relying on traditional mortgage. Instead, the homeowner finances the purchase, often with an interest rate and with a balloon payment due at least after 5 years. This can simplify the process of buying and selling a home by eliminating the need for a lender and an appraiser. Welcome back. I'm Joe Homs. I have over 40 years of experience as a broker, mentor, and investor. Make sure that you like and subscribe to this video. Let's jump right on in. The great part about creative financing deals that you have the ability to put together a structure where everybody wins. Let's go over a couple of real-world scenarios. Okay, let's talk about this deal and this Is a mobile home. This is a mobile home where you own the land underneath it. It's not in a mobile home park, it's actually in a mobile home park, but you own the land underneath it. Okay, so this is totally different than something that's owned in a park itself. The lead came through a wholesaler, tired landlord, had a bad tenant in there. These are great leads to work with. As you're speaking with the people on the phone, obviously we got a purchase price, $75,000. The ARV on this mobile home was $140,000. Down payment that he was requesting was $10,000. As you're negotiating and you're talking to the seller about this, you always want to ask, are you willing to do some seller financing on this property? Okay, so instead of buying this outright and cashing this guy out, he decided that he would do a $10,000 down payment. Okay, and then take— and then you would take back a note for the remainder. So that would be $65,000 in this case. So the payment he wanted was $500 a month. He wanted that for whatever reason. Okay, the normal payment on something like that would be about $350 a month. But obviously we're getting him to agree to this deal with only $10,000 a month. The insurance costs about $100, taxes about $100, rents are $1,500 a month. So if you add these numbers, $500, another $100, another $700, subtract that from rents, you're making $800 a month on this property. due to this seller financing. You only had to come up with $10,000 into this deal. You're making $800 a month. You're almost getting your cash that you put down back in a year, maybe a little bit over a year, and you've got all this money back. And so then the rest after that is pretty much gravy. So seller financing deals are That's gold. If you can get somebody to agree to something like this, it's gold. Okay? And I would even have paid a little bit more on the purchase price to get this type of deal. Why not? Okay, let's talk about this deal. I did this deal about a year and a half ago now, right as the market started to go crazy. And I put this deal under contract at $500,000. There was an existing loan of $500,000. So what I negotiated with this gentleman was, okay, so there's, there's a loan in there in place right now. How about we put this into a land trust and then you assign that trust to me? So basically, the reason we did that is so that the existing lender would not call that loan due. So it would be into a trust, and then he assigned that trust paperwork to me as the buyer. Okay, so remember, I have nothing down in this transaction, and now I'm going in, and he had these questions. Well, what happens if, you know, you don't do what you say you're going to do and sell it? I go, you can see here my rehab number is about $60,000. I'm going to put $60,000 of my own money into this property. Do you think I'm not going to close at the end of the day? If I don't, I actually lose that money and you can go sell the property for more at the end of the day. But that's not what happened. So you could put $50,000 down on this deal. He didn't feel comfortable with me not putting initial deposit, so I ended up putting $50,000 down on this deal. The original after-repair value was $650,000. We negotiated all this. We had a contract. Contract was signed by all parties. 2 or 3 days later, I'm getting— trying to get a hold of him to get this thing put in escrow to open it up, and he's like dodging my calls. I go— finally got a hold of him. I said, well, what's going on? And he says, well, I talked to a real estate agent and they said that I could get way more for this property. And I said, What does that have to do with anything? We have a contract, okay? We have a binding contract. I can get out of this contract as a buyer because I put contingencies into this contract, but you as a seller cannot get out of this contract. We made a deal. So anyways, he went ahead and decided to employ this other agent, and they put it on the market for sale. And I ended up calling the agent. I tried to negotiate something with her. I called her broker. Trying to negotiate something with the broker, even though the broker did tell me, Joe, you're correct, he has to sell this property to you. I do flips myself and I know what you're talking about. But then they both kind of went dark on me. So I ended up hiring an attorney to get to the point where I purchased the property. But this took about 4 or 5 months. The attorney filed what's called a lis pendens. So that's a lawsuit onto the property. So that tied up the property. They couldn't sell the property without my permission. Okay. So finally he came back to the negotiating table and said, okay, Joe, you can buy the property. I bought it at the same price we had it negotiated at. I wouldn't budge on that. Okay. So the waiting period, 5 to 6 months, that property price actually shot up to $800,000, which is where I sold it. So I started out with a $150,000 spread. I ended up with $800,000 spread, and the profit I ended up making on this deal was $280,000 on this deal. But remember, that's on a market that's going up like it's been shooting up. We're starting to level off now, but this is another way that you could put some creative seller financing deal together to accomplish what you need to accomplish. So all I had into this deal was $50,000 and then the $60,000 of the rehab. So I had $110,000 into this deal, and then I ended up making $280,000 at the end of the day. So there is ways to do creative financing. You just have to know how to do it and be creative. So if you need any help with any of that stuff, feel free to reach out to me anytime. An owner financing agreement between a buyer and a seller should always be memorialized in a written document that includes The specifics of the deal. The 3 different ways to do that are: use a promissory note, a mortgage, or a deed of trust. 2, draft a contract for deed. 3, create a lease purchase agreement or land contract. If you're in the market for a new home or having trouble winning loan pre-approval, owner financing is an alternative that can keep your dream of homeownership within reach. Though not all sellers will be willing, to provide direct financing to the buyer, it can be an excellent way to buy property while also simplifying the closing process. If you're new to investing and want to know whether you should sell or rent your property, click on this video right here. As always, feel free to reach out. I'm here to help.