Purchase price … how important is it?

[Sean Bramble]

When using creative strategies to buy-and-hold (subto/ seller finance, hybrids), how important is purchase price? In theory, purchase price only matters when you sell, and I’ve heard of many investors being willing to pay over market value bc the terms they negotiate allow them to cashflow very well … but there must be a limit to how much you should be willing to pay? What are your rules of thumb, and most importantly why?

[Ben Zimmerman]

Quote from @Sean Bramble:

When using creative strategies to buy-and-hold (subto/ seller finance, hybrids), how important is purchase price? 

Most people commenting about how vital purchase price is, are thinking in terms of normal real estate transactions.  However since you specifically stated that you are in creative financing, then purchase price is largely irrelevant.

Terms are often way more important than price when dealing in the creative financing space. Think of it this way, if a home has a fair market value of 200k, why would anyone pay 210 for it? Well, you could get a mythical 100% LTV loan from the bank at 8% prevailing interest rate and pay somewhere in the neighborhood of $1463 per month not counting taxes and insurance. OR, you could sub2 the deal at 210 and take over the payments on the loan that the seller obtained a year or two ago when rates were 2.5%. Now your monthly payment is only $829 per month, a savings of $634 per month.

That's right, I overpaid by 10k for a house, but am saving $634 per month and will quickly come out way ahead and am cash flowing massively right out the gate. In addition no bank will give you anywhere close to 100% LTV for a rental property, but with creative financing that is relatively normal to carry the entire amount allowing you to scale infinitely fast, you are only limited by the flow of deals you find. Now obviously you still don't want to offer more than you need to in order to secure the deal, but this was just a hypothetical example to illustrate that overpaying isn't the end of the world if the terms are right.

From reading a decades worth of BP posts, I know @Account Closed is another legit source of information when it comes to the creative space, and I think he primarily does lease options but there are many different routes you can take.