Creative Financing: Bill Gulley Needs To Know, What Is This Really?

Question

What is your thought on "creative financing" (CF) in RE?

How do you define this?

How do you expect CF to apply in buying or selling?

I'm seeing some "promoters" of CF putting out some pretty old and basic stuff calling it CF. Seems like an area that we could drill down in and get some real nuggets to leverage assets.

Where would CF be on a scale of difficulty? Easy and simple, Moderate knowledge required, Somewhat difficult, difficult to master or very difficult and intense subject matter?

I'd really like to know your opinions, the what, when, where, why aspects of what new and old investors think.

Gurus, coaches, mentors, teachers, instructors (or whatever any other promoter of CF may call themselves)  are certainly welcome. Let's just keep in mind to leave out the "spin" or "sizzle" and any pitch. Where's the meat in CF?

Go into any realm of financing you like! If it's about using money, assets or equity it can certainly go here!  :)

Account Closed · Answer

I don't think the phrase "creative financing" applies to very much when it comes to most investors who buy SFHs and multis. I can see how no banks = creative to a lot of investors I know. But straight-up seller financing/seller carry backs is about as uncreative as it gets. Things get more creative, IMO, with sub2 and wraps, subords, cross collateral, etc.  But banks do that all day long.  It doesn't make it creative just because it's me doing it instead of them.

I think I'm more interested in creative deal making/structuring.  Buying interests in estates and converting the interests to real property is my idea of creative. Buying someone's interest and then tacking on to someone's notorious and open use and then gaining title via adverse possession/quiet title?  I thought that was pretty creative. :)

In the end, there's probably not much that hasn't been thought of already, it's just a matter of having the strategies in the toolbox and knowing (remembering!) when they might apply.

Jon Klaus · Answer

No bank involved.

Creative doesn't necessarily mean innovative.

Matt R. · Answer

I would agree with Jon. Any financing without a bank is my definition.

I will use CF on JVs.

Thanks

Brian Gibbons · Answer

@Bill Gulley

@Bill Gulley  there is nothing new in creative financing.  If there is no equity, sub2 or land contract or lease option all make sense vs selling with an agent and having the seller break savings to sell the house.

If selling on terms, I would just sell on lease w option to a buyer-renter that has reasonable income especially with Dodd Frank.

Call me boring.

Re: wholesaling, bringing in Private Money for JVs with Sellers, rehabbing the deal for JV profits (note and mortgage - DOT) beats a "we buy houses offer" for the seller, and I get a guaranteed profit with no sales costs, no conveyancing costs, and no carrying costs.

Your brain Bill can do more permutations on this subject than most.  Thanks for starting the thread.

Chris Martin · Answer

Creative financing. I'd say 'monetizing something where traditional methods aren't or can't.'

Collateral subsitiution (buying property A with equity in B, C, D...) can be used in creative financing. And I'd contend you could do creative financing with some banks, since they provide collateralized lines. Taking down payment in non-standard (non-cash) forms, like offering a vacation package (heard this one from Rich W.) or a truck. Maybe even future profits from a flip.

Buying all cash isn't CF, in my mind. But no bank involved....

Bill Gulley · Answer

Thanks Jeff, good thoughts!

Just what I was wondering, how others see the subject, not my opinion of what CF is.

As to your loan commitment with a property at an unknown price, consider:

This commitment is to fund the borrower's request up to a loan amount of $50,000 at a loan to value not to exceed  75% of the purchase price established by agreement or sale bid.

Another way is to say up to 75% of any purchase price or sale bid up to a loan amount of $50,000.

Don't forget your other requirements being satisfactory to lender, title, escrow, taxes, insurance, sale contract or confirmed bid amounts, etc.

Good luck.

Others, please chime in.

How do you see CF in RE? :)

Jeff Rabinowitz · Answer

Before Dodd-Frankenstein (when I was on the sell side of a transaction) creative financing meant offering scenarios where I would help my buyer with the financing.  Usually it was carrying a land contract, or offering to, for all or a portion of the price due after a significant down payment was made or my sale price target was agreed to.  Occasionally, it was offering a lease with option to buy.  Unless my buyer is an investor and is not intending to occupy the property these scenarios are no longer on the table.  Even if the buyer is an investor I would hesitate to use them now.  (I had one borrower who moved into a property after giving written assurance that it would not be their residence).
	
	When I am lending, creative financing means trying to find terms that will fit my borrowers project.  Is a balloon payment appropriate?, if there are payments required will the project support them?, is the term long enough to allow completion of the project?  Is there a way to fund the project that the borrower has not considered?  For instance, I have been approached by several borrowers about funding deals they are planning on bidding on at courthouse auctions.  I have never found a way to draw up this transaction since the price is unknown and the likelihood of a successful bid is small.  When the bidder has owned other properties with equity I have been able to reach terms on the existing property that would let the bidder attend the auction confident that funding would be available should they place a winning bid.  (This was a complicated process and the bidder was not successful anyway, as I had thought.  I would be unlikely to do this again).
	
	Essentially, creative financing is considering situations that the banks and institutional lenders will not.

Bill Gulley · Answer

Great points!

No bank??? Hmmm??? Simple concept.

Might say no BoA, Wells, Citi, LOL, as they are pretty structured on small deals. A bank may do cross collateralization or collateral substitutions or finance securities or other assets, we did some inventory financing.

I understand acquisition tactics, buying an interest and moving to patrician of property forcing other interests to sell, not sue I'd call such tactics a financing strategy. Creative acquisitions certainly.

I like Chris' "monetizing something where traditional methods aren't or can't",

it's my thinking, the use of assets in non-traditional transactions or methods.

When do folks need to think out of the box?

I know, some always need to be out of the box due to other limitations, credit or lack of funds.....but more to situations, ideas there.

Distressed properties that can't be financed traditionally?

Owner will sell, but wants granny to live there for a year?

Buying out an LLC interest?

That type of stuff.....when you need to get out of the box.....?

Feed the beast, more opinions on out of the box financing alternatives

Might use some creative financing to pay my losses 43-8, I got smashed on that game! LOL   :)

Creative Financing: Bill Gulley Needs To Know, What Is This Really?

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