Why are fix-and-flips more popular than creative financing?

Question

Is it because most people don’t like marketing? Is it because subject to’s can be very risky in terms of the certainty of making payments and the potential loss of equity built? Is it because people don’t want to deal with penny pinching landlords when doing owner financing? Is it because there’s a lot of drama with pre-foreclosures? Is it because it’s tough getting expireds on board? Is it because people don’t like the scammy look of finding off market properties?

You can lose a ton of money flipping homes… I’ve talked to people who have lost $10k-$100k. It’s very difficult finding contractors in this market unless you’re doing 10+ flips a year. And what about all the money lost when you sell the property and pay closing costs and agent fees?

It must be the time factor. Flipping a house takes way less time than doing creative finance.

Scott Trench · Answer

I see no evidence to support the inference in your question.

We are undoubtedly seeing much more interest in creative finance than fix and flips.

Jerry Lucker · Answer

Flipping has never been high risk for me. I use a simple formula of 4 figures:

1) What will the home sell for after it's fixed up (ARV). Base on solid comps - what is the actual market for similar units right now?

2) What will it cost to fix up? Base on complete bids from several reliable contractors.

3) What is an acceptable profit margin for the time and money invested? A reasonably sufficient amount here is also a safety margin.

4) What I can pay for the property initially. 1 - (2+3) = 4

Has worked without fail for over 20 years for me

Chris Seveney · Answer

@Mike Hern

There are 3 types of financing/lending :

1. Bank

2. Private

3. Seller

Calling someone who pumps gas a petroleum transfer engineer is still a gas pumper - coming up with some cool name for it doesn’t change what it is. As you know These fancy names are created to sell a program.

With the first two, they follow pretty strict requirements where they will look at income/expenses. They also typically do not allow for over leverage. You get standard rates/terms and valuations

With the last you typically are over paying for the rate or the value - one may be lower and one higher.

Another example is going to a bar, the bank will never serve under 21, in a private deal someone may get away with a fake id and in seller financing most id’s are not checked unless you are in diapers.

Seller financing is the Wild West and in 2 years when the economy stalls and interest rates are still 7 and housing has sunk 15% we will see how some of these “creative financing” deals panned out.

Account Closed · Answer

You speed up your investing by about 5 years working with someone who knows creative financing. It's just a matter, as you say, of hand holding one on one through the process. I've extensively written about it on Bigger Pockets and you can see some of what it takes at https://www.biggerpockets.com/forums/311/topics/1141313-subj...It doesn't take long under proper supervision, to understand what it takes to retire early. You probably learned to ride a bike as a kid. My first attempt, I ran into the telephone pole. Nobody told me about brakes. Then, when the older kids started coaching me, I was up and zooming around the neighborhood with them in no time. Same thing with creative finance. You can click the link below to get the Spreadsheet we use, to Calculate and Plan Creative Finance Deals, to see if it speeds up your investing. It's very enlightening.

Account Closed · Answer

No, that's wrong. That isn't what I said.Please reread the post.I said "There is way too much hype regarding creative financing. Especially from those who are overleveraging, which seems to be the way it's being taught.I use creative financing all the time, but not to overleverage. And I teach how to buy and structure the deal, so one isn't violating banking laws or the S.A.F.E Act or equity skimming, among other serious things. I never see any references to these issues by the "subto community". And the time will come when those issues are part of the daily news once again, like they were in 2008. But for now, "they are happy to be part of the community". Like any other group built on emotion, they are not analytical or fact based by nature. Cause and effect escape their considerations.

Account Closed · Answer

There are 2,354,817 people who believe there is an Alien base on the far side of moon. You can't just look at numbers and decide something is true,

Why do you assume Creative Financing is safe or easy to do?

Very few people know how to find, negotiate, close and properly deal with Creative Financing in a safe and legal way.

I read the articles and Facebook posts. There is an astonishing lack of either candor or knowledge in the "Sub To Community", where everybody " feels like they are a part of the community". 

There is way too much hype regarding creative financing. Especially from those who are overleveraging, which seems to be the way it's being taught.

They are confusing simple overleveraging, which is dangerous, ill-advised and problematic with creative financing. They are not the same thing. Changing the definition of creative financing doesn't make it "safe". It's just overleveraging.Meaning of overleveraged

https://www.investopedia.com/terms/o/overleveraged.asp

One reality is that for 7 years after you mess up someone's loan, you can be sued, investigated and pay the cost for what you don't know.

Fix & flips rarely have legal entanglements. Once you sell the fix & flip property you move on. That's a huge difference.

Bill J Fay · Answer

There are no HGTV shows on creative finance. People that are not interested in real estate still love to see the before and after on a home. Seller financing isn't as sexy to the average person. I do think socials like Tiktok and instagram are starting to highlight creative financing in this way though.

Bob Stevens · Answer

Simple answer Lack of knowledge. Flipping is a job, passive income provides freedom, which is why I now offer selling financing with 30% down vs one lump sum. 500- 700 a month x 20 , 30 40 homes, well....

Great post

Corby Goade · Answer

There's no correlation between those two things. Flipping and buy and hold are opposite sides of the coin.

Flipping- high risk, high reward, active income, tax liabilities.

Buy and Hold: Low risk, low reward (at first), passive income, tax benefits.

Nicholas L. · Answer

This is comparing apples to helicopters

I've done both. They are totally different.  I prefer neither to the other...

Why are fix-and-flips more popular than creative financing?

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