Should You Consider All of These Creative Financing Techniques?

[Ken M.]

There are a lot of ways to buy properties. Some ways are best for single family residences, some for multi-family, some for commercial, some for Short Term Rentals, some for manufactured, some for land, some for building, some for vacation and on it goes.

So, if you are buying in CA how is that different than in TX or in OH? Creative Finance or Traditional?

Did you know that creative finance is only a very small portion of the purchases being made? Then why are all the people acting as if it's banana cream pie or carrot cake (if you like that better). It's fun to dream about but it makes you fat or has other side effects.

The differences of creative finance varies state by state. The hardest part of putting a creative finance deal together isn't structuring the deal, it's finding the deal in the first place. Let me explain:

Buying a property on the MLS at full price using creative financing is not a smart idea. Especially in a declining market.

All purchases are subject to a possible "reversal". Something changes. You have to sell the property. My typical purchase is in the $400,000 area. I typically buy at 85% of value. So, I pay about $340,000 for the property with no expenses going to real estate agents. If the market crashes and I have to sell for some odd reason, I have plenty of equity to over the cost of selling.

However, if I bought off of the MLS at $400,000 for a property worth $400,000 using "creative financing" and I had to sell for some reason, my cost of selling runs about 9% (as will yours) so about $36,000. I then have to bring in $36,000 just to sell the property. Now. if properties go down 10% which is predicted to happen, (Wall Street Journal, Core Logic) I'll have to sell at $360,000 ($400,000 minus 10%) AND have the same closing costs. So, my cost to sell is now $76,000 out of pocket. Even if it's a creative financing deal, you HAVE to know your numbers.

The only ones that benefit when you use creative financing, buying off of the MLS, are the real estate agents and the "Gurus" who teach that it's a good idea. Heck they say, they'll even find someone less trained than you to lend you the money for the real estate agent costs and for closing . . . for a fee of course.  That puts you in an even worse situation. It's like lending you money at a high interest rate to buy an F1 to drive in a demolition tournament .