Creative Financing for 2025

[Ken M.]

What does the surge in 2024 of newbies (inexperienced & making mistakes) doing creative financing purchases, mean for 2025? I think a new administration brings new ideas and new people. They may take an interest.

Some of those people might actually be more aggressive about enforcing existing laws. Everyone wants to look good and impress the boss. 

I've read a lot of bad information on how some gurus are promoting techniques that are flawed at best, fraud at worst. But, they are very popular gurus and are making a lot of money teaching their "classes" and groups. They are unlikely to quit. 

Make sure you thoroughly know how the regulators view the way things are being done, before committing to a "creative financing" technique. The gurus apparently aren't savvy enough to teach how to avoid trouble.

It could end up being like a cowboy fest campfire dinner of beans from the old chuck wagon. Everything suddenly makes a loud & notable entrance. 

[Jonathan Greene]

There is a difference between newbies trying to do creative financing deals and actually doing them. I would say less than ten percent of new people who try actually get a deal done like this. The thing that the gurus never tell anyone is that the majority of creative finance deals are done by investors who don't need creative financing, that is their leverage and why they can walk away, thereby making them more attractive then the one person who can only do the deal one way because they have no money of their own.

[Mitchel Johnson]

@Jonathan Greene I myself am a new investor and have been learning as much as I can before purchasing a property. Have read and done some preliminary research on assumable loans, and was wondering if you could help me understand the hurdles that go along with it.  Obviously some potential issues with the lender, but how often do these deals really happen?  And is there risk of the bank changing the rates on an assumption?

[Chris Seveney]

Quote from @Ken M.:

What does the surge in 2024 of newbies (inexperienced & making mistakes) doing creative financing purchases, mean for 2025? I think a new administration brings new ideas and new people. They may take an interest.

Some of those people might actually be more aggressive about enforcing existing laws. Everyone wants to look good and impress the boss. 

I've read a lot of bad information on how some gurus are promoting techniques that are flawed at best, fraud at worst. But, they are very popular gurus and are making a lot of money teaching their "classes" and groups. They are unlikely to quit. 

Make sure you thoroughly know how the regulators view the way things are being done, before committing to a "creative financing" technique. The gurus apparently aren't savvy enough to teach how to avoid trouble.

It could end up being like a cowboy fest campfire dinner of beans from the old chuck wagon. Everything suddenly makes a loud & notable entrance. 

Most gurus have their clients journey end the moment they send them the money, they join a facebook group - have overseas VA;s moderate it and provide some old videos that get repurposed.

Those who are new and thinking they are creative typically get crushed as they are gambling not investing. Real estate for the last four years was betting on red or black but the ball was fixed to win as it was nearly impossible to lose. Today is very different as it is all about the management (and not appreciation) compared to past where management could suck but you still had superior apprecation.

This will not crash housing of course but all those "creative" deals where people are paying more than market value are going to realize they have no exit. 

[Ken M.]

Quote from @Mitchel Johnson:

@Jonathan Greene I myself am a new investor and have been learning as much as I can before purchasing a property. Have read and done some preliminary research on assumable loans, and was wondering if you could help me understand the hurdles that go along with it.  Obviously some potential issues with the lender, but how often do these deals really happen?  And is there risk of the bank changing the rates on an assumption?

There is "assumption" which involves the bank. The buyer is qualifying for the loan just as if he were the originator of the loan. Same interest rate, same terms. Same income, same credit, DTI ratio, underwriting requirements. That process has direct lender involvement.

Where the challenge lies, is when unsophisticated "investors" with no experience, no money and no reserves use creative financing (often called wrap, subto, lease option, seller financing, land contract) to purchase properties and along the way there is a "hiccup". There are always "hiccups" in life and in real estate investing. For a relatively "safe" creative financing, one needs serious reserves (lots of moolah) and the ability to sell or refinance quickly when one of those "hiccups" occur.

The gurus usually collect a large fee, from people who have neither money, reserves, nor experience. That is the gurus actual income. The guru uses the allure of easy success. However, there is no easy success in creative financing. It's hard work. 

The guru though, uses that income to finance the "creative financing" they "teach". So, id it really doing what they teach if they have lots of money to begin with? Say they have a "community" of 100 and someone does a deal, (it doesn't have to be a deal that actually makes sense), everybody believes that's "their" success and they all do the "happy dance". It's their "tribe".  

Just keep in mind, the guru will not bail you out in a tough situation, unless there is significant profit in it for them. Basically, you do the work, they make the money. Now, ca n you learn to properly do creative financing from a mentor/coach/investor - of course. But, that's a different discussion.

[Mitchel Johnson]

@Ken M. Gotcha, a follow up question. Lets say someone has 190k left on a 2.95% loan for a 220k property. If they sell at 220 after closing and loan paydown they make like 20k or so. If someone instead offered 35k to assume the loan and deed to the property, what are the hurdles to that deal?  Loan would have to be assumable from the bank and the buyer would need to meet all the requirements previously met by the seller.  But in this case what is the difference from the buyer prospective, other then they are getting a better loan/ equity situation then conventional financing?

[Ken M.]

Quote from @Mitchel Johnson:

@Ken M. Gotcha, a follow up question. Lets say someone has 190k left on a 2.95% loan for a 220k property. If they sell at 220 after closing and loan paydown they make like 20k or so. If someone instead offered 35k to assume the loan and deed to the property, what are the hurdles to that deal?  Loan would have to be assumable from the bank and the buyer would need to meet all the requirements previously met by the seller.  But in this case what is the difference from the buyer prospective, other then they are getting a better loan/ equity situation then conventional financing?

I may be misunderstanding your question.

In an "assumption" (it's an actual banking term with a definition) the bank takes you though the same hoops as if it's a new loan. The only real differences are the rate and term. They remain whatever the original borrower has.

When you use typical financing from a lender, you have the lender's hoops to jump through and loan origination fees, the appraisal has to come in at a certain number, oftentimes an inspection or appraisal will kill a deal. In a traditional MLS sale, there are realtor fees, there can be concessions, there can be work orders and delays. You get whatever NEW interest rate they decide on.

However, You have none of those obstacles when you do creative financing. Creative financing doesn't involve the bank, the appraiser, the inspector or concessions generally speaking. If you have a willing seller with a willing buyer doing creative financing, it's the  simplest of transactions. Always use a title report and escrow though.

It's over paying on a creative finance transaction that tends to happen. 

[V.G Jason]

Are you the same subto guy that's been on the forums the last 2 years that just keeps showing up differently?

[Ken M.]

Quote from @V.G Jason:

Are you the same subto guy that's been on the forums the last 2 years that just keeps showing up differently?

Not sure who you are but we've never met, sorry to disappoint you.

[V.G Jason]

Quote from @Ken M.:

Quote from @V.G Jason:

Are you the same subto guy that's been on the forums the last 2 years that just keeps showing up differently?

Not sure who you are but we've never met, sorry to disappoint you.

 That wasn't my question. 

We've had two-four folks parrot their subto teachings on here for the last 2 years+, they come back under different aliases and re do it. 

The fact you evaded my question, answers it. You are likely one of them. Just another mentor wannabe trying to sell their services. 

[Ken M.]

Quote from @V.G Jason:

Quote from @Ken M.:

Quote from @V.G Jason:

Are you the same subto guy that's been on the forums the last 2 years that just keeps showing up differently?

Not sure who you are but we've never met, sorry to disappoint you.

 That wasn't my question. 

We've had two-four folks parrot their subto teachings on here for the last 2 years+, they come back under different aliases and re do it. 

The fact you evaded my question, answers it. You are likely one of them. Just another mentor wannabe trying to sell their services. 

I don't know who you are or what your agenda is, but I assure you, you've got the wrong guy.