Why are fix-and-flips more popular than creative financing?
Rental Property Investor · Member since 2021 · 423 posts · 190 votes
Why are fix-and-flips more popular than creative financing?
Most Popular Reply
Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votesI see no evidence to support the inference in your question.
We are undoubtedly seeing much more interest in creative finance than fix and flips.
17 Replies
- 2yScott TrenchPro MemberRental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
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.
- Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes2y
Quote from @Mike Schorah:
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.
I am not really understanding what you are trying to say?
- Rental Property Investor · Member since 2021 · 423 posts · 190 votes2y
Quote from @Scott Trench:
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.
Thanks. I’m sure what you’re seeing or that analysis is better than mine.
I was mainly going by the number of book reviews on Amazon. Of course, BRRRR seems to be the most popular strategy. As of me typing this, there are 5,479 reviews on Amazon for David Greene's "Buy, Rehab, Rent, Refinance, Repeat". J Scott's "The Book on Flipping Houses" has 1,802 reviews on Amazon. Todd Fleming's "If You Can't Wholesale After This" has 1,695 reviews on Amazon at this time of typing. Pace Morby's "Wealth Without Cash" has 583 reviews on Amazon.
I’m sure the year published also reflects a change in trends. “Buy, Rehab, Rent, Refinance, Repeat” was published in 2019. “The Book on Flipping Houses” was published in 2019 (At least that’s what it shows on Amazon. I am aware of an earlier copy coming out a decade ago.). “If You Can’t Wholesale After This” was published in 2019, although I think the first copy for that one came out around a decade ago as well. And Pace Morby’s book was just released. So I’m sure the high number of reviews in the short amount of time could show a shifting trend.
- Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes2y
Quote from @Mike Schorah:
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.
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 overleveragedhttps://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.
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Account Closed:
Quote from @Mike Schorah:
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.
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 overleveragedhttps://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.
so creative financing is in all practically is just "Unstructured Overleverage Dangerous Financing" LOL
- Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes2y
Quote from @Carlos Ptriawan:
Quote from @Account Closed:
Quote from @Mike Schorah:
so creative financing is in all practically is just "Unstructured Overleverage Dangerous Financing" LOL
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. - Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
@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.
7e investments53 Reviews - Flipper/Rehabber · Bloomfield CT · Member since 2020 · 1k+ posts · 408 votes2y
Creative financining takes a lot of energy and is soul draining.
- Flipper/Rehabber · Seattle, WA · Member since 2015 · 333 posts · 459 votes2y
Quote from @Mike Schorah:
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.
Mobile/Manufactured Homes – good investments?
You’ll find many opposing opinions of course. Mine comes from actual experience.
Here’s what I’ve documented from more than two decades in the business:
MOBILE HOME FLIPS
Mobile homes in parks are most often occupied by the owner. The homeowner rents the lot from the park. Most parks do not allow the homes to be occupied by renters.
Mobile homes in parks are considered personal property, not real estate. They are bought and sold like cars or boats, etc.. The paperwork needs to be no more than a title and a bill of sale.
Mobile homes are depreciating assets. Hang on! This is one of the main reasons they are so profitable for those that understand how to benefit from this housing type.
Many mobile home loans go into default when the homeowner stops paying. The homeowner is the registered owner on the title, the bank is the legal owner on the title.
Upon default by the homeowner, the bank repossesses the home and becomes the sole owner. The bank then becomes responsible for the park rent, the utilities, the maintenance, the insurance, etc.
With no money coming in from the loan and being responsible for hundreds of dollars in expenses every month the bank is in a real bind. The home has depreciated and is most often in need of TLC, repairs, or rehab to bring it back to saleable condition.
The bank may have hundreds or thousands of loans on mobile homes spread over a huge geographical area. There is no way they can reasonably afford to keep enough crews or hire unknown entities in all the areas to try and fix up the homes to sell and try to make any profit on homes that are worth less than when the loan was initiated. The banks are in the lending business, not the rehab business. Besides, the actuaries have figured in these defaults as part of their normal business process.
The banks are highly motivated to remove these negative cash flow homes from their inventory. Most of the time the homes are sold to investors for quick cash. The banks know they must leave a lot of room for the investor to make a decent profit. Ater all, the investor puts out the cash and time to buy, fix, and resell the home. Buying the homes at steep discounts and adding a little TLC accounts for very healthy profit margins for flippers. The homes are rarely sold to people that will occupy them. They normally don’t have the cash, time, or expertise to buy and fix up the mobile.
Besides banks I've purchased many homes from FSBOs, some I even found on the MLS. There's a lot of reasons people will sell mobile homes for a lot less than they could have. Once again, they're not real estate. A whole different, rarely understood mentality.
I always flip mobile homes in parks for cash; I don’t carry contracts. I can make a lot more money quickly reinvesting cash than trying to make interest over an extended period. And, I don’t have to worry about getting payments, dealing with defaults or evictions, or having to repossess and rehab trashed units. Profit margins on mobile home flips have consistently ranged from 40% to 200% over the last two decades.
Mobile homes require a lot less cash than real estate to buy and fix.
Mobile homes are bought and sold easier and quicker than real estate.
Mobile homes offer higher profit margins than real estate.
Mobile homes have far less competition than real estate.
MOBILE HOME RENTALS – and , YES! I also own real estate!
Most of my rentals are SFR mobile homes on private property. These can be considered real estate (just eliminate the title). I purchase them for around half of what a similar size stick-built house would cost but can rent them for practically the same amount of money. Many renters don't care, they're only interested in the number of bedrooms or the square footage. I rent them for 10 or 15 years then sell them on a 20 year contract and let someone else take care of the maintenance and upkeep. I don't have to be concerned about either appreciation or depreciation. Flipping units allowed me to make enough cash to buy the rentals outright. I don't have to worry about banks or other lenders.
I’ve moved many mobile homes, developed property with mobile homes, done just about everything possible with mobile homes :)
BOTTOM LINE
Sure, there’s a fair amount to know about this unique housing niche. It’s not complicated or difficult to learn. Worthwhile? I’m not the best person to ask – too darned prejudiced.
Mobile/Manufactured Homes – good investments?
You’ll find many opposing opinions of course. Mine comes from actual experience.
Here’s what I’ve documented from more than two decades in the business:
MOBILE HOME FLIPS
Mobile homes in parks are most often occupied by the owner. The homeowner rents the lot from the park. Most parks do not allow the homes to be occupied by renters.
Mobile homes in parks are considered personal property, not real estate. They are bought and sold like cars or boats, etc.. The paperwork needs to be no more than a title and a bill of sale.
Mobile homes are depreciating assets. Hang on! This is one of the main reasons they are so profitable for those that understand how to benefit from this housing type.
Many mobile home loans go into default when the homeowner stops paying. The homeowner is the registered owner on the title, the bank is the legal owner on the title.
Upon default by the homeowner, the bank repossesses the home and becomes the sole owner. The bank then becomes responsible for the park rent, the utilities, the maintenance, the insurance, etc.
With no money coming in from the loan and being responsible for hundreds of dollars in expenses every month the bank is in a real bind. The home has depreciated and is most often in need of TLC, repairs, or rehab to bring it back to saleable condition.
The bank may have hundreds or thousands of loans on mobile homes spread over a huge geographical area. There is no way they can reasonably afford to keep enough crews or hire unknown entities in all the areas to try and fix up the homes to sell and try to make any profit on homes that are worth less than when the loan was initiated. The banks are in the lending business, not the rehab business. Besides, the actuaries have figured in these defaults as part of their normal business process.
The banks are highly motivated to remove these negative cash flow homes from their inventory. Most of the time the homes are sold to investors for quick cash. The banks know they must leave a lot of room for the investor to make a decent profit. Ater all, the investor puts out the cash and time to buy, fix, and resell the home. Buying the homes at steep discounts and adding a little TLC accounts for very healthy profit margins for flippers. The homes are rarely sold to people that will occupy them. They normally don’t have the cash, time, or expertise to buy and fix up the mobile.
Besides banks I've purchased many homes from FSBOs, some I even found on the MLS. There's a lot of reasons people will sell mobile homes for a lot less than they could have. Once again, they're not real estate. A whole different, rarely understood mentality.
I always flip mobile homes in parks for cash; I don’t carry contracts. I can make a lot more money quickly reinvesting cash than trying to make interest over an extended period. And, I don’t have to worry about getting payments, dealing with defaults or evictions, or having to repossess and rehab trashed units. Profit margins on mobile home flips have consistently ranged from 40% to 200% over the last two decades.
Mobile homes require a lot less cash than real estate to buy and fix.
Mobile homes are bought and sold easier and quicker than real estate.
Mobile homes offer higher profit margins than real estate.
Mobile homes have far less competition than real estate.
MOBILE HOME RENTALS – and , YES! I also own real estate!
Most of my rentals are SFR mobile homes on private property. These can be considered real estate (just eliminate the title). I purchase them for around half of what a similar size stick-built house would cost but can rent them for practically the same amount of money. Many renters don't care, they're only interested in the number of bedrooms or the square footage. I rent them for 10 or 15 years then sell them on a 20 year contract and let someone else take care of the maintenance and upkeep. I don't have to be concerned about either appreciation or depreciation. Flipping units allowed me to make enough cash to buy the rentals outright. I don't have to worry about banks or other lenders.
I’ve moved many mobile homes, developed property with mobile homes, done just about everything possible with mobile homes :)
BOTTOM LINE
Sure, there’s a fair amount to know about this unique housing niche. It’s not complicated or difficult to learn. Worthwhile? I’m not the best person to ask – too darned prejudiced.
- Lender · Boca Raton, FL · Member since 2020 · 9 posts · 3 votes2y
It's not necessarily that fix-and-flips are more popular than creative financing, but rather that the choice between the two strategies depends on various factors and individual preferences. Here are some of the reasons why fix-and-flips are often perceived as more popular:
- Simplicity: The fix-and-flip process is straightforward, making it easier for newcomers to understand compared to creative financing.
- Quick Returns: Investors typically see faster returns with fix-and-flips, making it attractive for those looking for a quick profit.
- Tangible Assets: Dealing with physical properties throughout the process can be appealing to investors.
- Media Influence: Reality TV shows and media coverage often highlight the excitement and profit potential of fix-and-flip projects.
- Access to Capital: Many investors have access to capital, which makes funding fix-and-flip projects more accessible.
- Local Market Factors: Market conditions and the availability of distressed properties can influence the popularity of fix-and-flip strategies.
- Risk Perception: Creative financing may be perceived as more complex and riskier, while fix-and-flip projects are seen as more straightforward.
Both fix-and-flip and creative financing strategies have their place in real estate investing, and the choice between them should be based on individual goals, risk tolerance, financial resources, and market opportunities. Some investors even combine both strategies to maximize their real estate investment portfolio.
- Member since 2020 · 351 posts · 329 votes2yFor me, the traditional paths of buying turnkey or rehab and holding is much more straightforward. (Especially since I already bought and remodelled my primary home). I don't know what I don't know for owner financing, I still want to rely on a real estate agent to help me look through what needs to be updated andwhat doesn't. I still want my hand held a bit by the bank. Will I attempt a "creative financing" solution at some point? As I get further along my journey, probably. But there is a degree of risk associated with creative financing which I don't understand yet.
Quote from @Mike Schorah:
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.
- Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes2y
Quote from @Peter W.:
For me, the traditional paths of buying turnkey or rehab and holding is much more straightforward. (Especially since I already bought and remodelled my primary home). I don't know what I don't know for owner financing, I still want to rely on a real estate agent to help me look through what needs to be updated andwhat doesn't. I still want my hand held a bit by the bank. Will I attempt a "creative financing" solution at some point? As I get further along my journey, probably. But there is a degree of risk associated with creative financing which I don't understand yet.Quote from @Mike Schorah:
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.
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. - 2yBill J FayPro MemberLender · San Diego · Member since 2023 · 216 posts · 209 votes
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.
- 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
This is comparing apples to helicopters
I've done both. They are totally different. I prefer neither to the other...
- 2yCorby GoadeBusiness MemberInvestor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
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.
- Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes2y
Quote from @Mike Schorah:
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.
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
- Flipper/Rehabber · Seattle, WA · Member since 2015 · 333 posts · 459 votes2y
Quote from @Corby Goade:
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.
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
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