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Updated over 1 year ago,
Creative Financing = Over Leveraged
So this may stir the pot, but i am seeing a ton of posts on BP about "creative financing". While yes there are creative ways to structure financing deals. When it comes to seller financing in many of the cases the borrower is giving up either on price or terms.
What I mean by this is I see people willing to pay well above purchase price on a property to get it owner financed. The other option is they will pay market price but get interest rates well above todays rates. It is very rare to get a property at value and below todays rates. Now some will say they do it all the time, but I can also say that I made $1T in my life but it does not mean its true.
The bigger concern I have with this strategy is I am seeing it from investors with very little experience and are attempting to finance 100% of the deal. This is just a very bad idea. Why? Well you have closing costs on a loan when you purchase the asset and if you were to sell the asset there are also closing costs. So right off the bat you are 10% in the whole. The other concern is if the property has higher vacancy. lower NOI or OMG you have repairs to the property. How are you going to pay for those repairs.
While it may sound cool and sexy to get 100% financing, its only great if you have the money to still weather the storm. But if you do not, do not worry because the guru you paid $5,000 to share this idea with you will gladly buy that property from you for 60 cents on the dollar while you go through a foreclosure.
Sorry just voicing my opinion and feel free to disagree.
- Chris Seveney