The Art of Creative Deal Structuring.
The Art of Creative Deal Structuring.
I have done a lot of creative deal structuring in my career.It has always been my goal to master that art of buying property with little or no money in the deal.The reason for this is that if you learn to buy with no money, and you will never run out of no money, then you can buy property forever.
There are a lot of books and gurus out there that will tell you or rather sell you their version of a script to buy houses with no money down.I am here to tell you that the script doesn’t matter.You can say darn near anything if you are solving a problem.
The crux of all creative real estate deals is a problem. If you ask enough questions to find out what your sellers problem or pain point is, then you can possibly solve that problem for him.
Many new real estate investors are taught that a negotiation is a competitive event, where one party is going to lose.I am here to tell you that, that attitude will cost you lots of money.
The proper way to negotiate a creative financing deal is to look at the other party as a partner.Think in terms of “how can I make money by getting him what he wants”.Take a seller who is overleveraged, he wants out of a house, and he doesn’t want to bring cash to the closing table.For someone like this, I simply suggest an owner finance deal where I either take the property subject-too the existing financing, or we look at a wraparound mortgage to allow him to just walk away.On my end, I get a house for no money down, that I can rent out, or sell to another buyer who can’t qualify for a bank loan.Either way, I have a decent exit strategy and no money at risk.
There are a ton of permutations that I can get into, but the core of the owner financed deal is, finding the sellers problem, and then thinking like a partner to get him out of that problem in a manner that is profitable with little to no risk.
Comments (11)
@Elliot Smith Great job, you just walked into 22k worth of equity, you dont need cash for a down payment, and your credit is irrelevant.
I just asked the question at my REIA meeting. We had about 125 people in attendance. I asked people to raise their hand if they had ever bought a property with no money down. About 2/3 raised thier hand. The other 1/3 looked like a light just went on for them
All of the creative finance stuff sounds like voodoo until you actually get to talk to someone who does it. So thank you Elliot, for having the balls to make the offer. Now close that deal and tell other people how you did it.
To your success
Josh
Josh Caldwell, almost 10 years ago
Josh,
great article! I have a verbally accepted offer with a sub to on a duplex (drawing up contract with lawyer on Monday. I got this deal from a mailer that I sent out. She owes 148k worth 170 but the place needs a new roof for Conventional financing. she will walk away with no money because she doesn't want to spend any more money. I have never done this and this is our first creative deal! In very excited and hope everything works, but if it doesn't I ha e placed abother tool in my belt!
Elliot
Elliot Smith, almost 10 years ago
Great attitude Rick !!!
Josh Caldwell, almost 10 years ago
great article Josh. I've got a 10 unit apartment building that a mix of institutional, seller carry of the down, and private money may get the deal done. The main thing is, as you mentioned, what does the seller need and is it a deal. If so, solve that problem and the property is yours and move to the next.
Rick Corbin, almost 10 years ago
@James Murray, you are 100% correct. One of the best book that I have ever read was Zig Ziglar's book on secrets of selling, Zig was the brilliant man who turned my concept of selling from one of forcing to one of giving people solutions to their problems.
The key to what I do, and one of the reasons that I can out-deal my competition is that I focus on giving my buyers and my sellers really good deals. The sellers are harder to deal with, but because I offer them more value for being flexible, I can do deals where others see nothing.
I will give you another example. I once bought a house for $500,000 and sold it for $375,000 and made money on the deal. My seller wanted a net of 500k, to my buyer I offered the same house, with 100% owner financing at 375k at 6% over 20 years. When you do the math, I made (am in the process of making, because the deal is ongoing for the next 18 years) $152,000 + and if the buyer defaults I will make more than that. I had to stay in this deal and do a sandwich lease purchase to make this work, but its worth it to me.
Josh Caldwell, almost 10 years ago
James Murray, almost 10 years ago
James Murray, almost 10 years ago
James Murray, almost 10 years ago
Wow @Josh Caldwell that is a cool deal. I love the creativity and the win-win factor. Nicely done and thanks so much for sharing.
Jeremy Jones, almost 10 years ago
@Jeremy Jones
Subject-to is a great technique, but it is only one way to but a property with no money. The first problem that you run into is that you are dealing with agents. Very few agents understand creative financing. Very very few.
I dont deal with agents. I either go after FSBO deals or I target people who arent actively selling. On multi-units, I target property that was purchased 17 years ago or longer, and I target out of state owners. The 17+ year group are nearing the end of their ability to depreciate the property, so they may be interested in getting out of that property. The out of state guys tend to have a lot more tenant issues, get ripped off by both contractors and property management, and they have a much higher rate of being burnded out landlords. You can also target pre foreclosure, and pre notice of default lists. I buy my lists and then I create a direct mail piece for them to get the conversation started.
As I write this I am negotiating a sub-to takeover with a twist. The property is a small strip mall. It has 5 tenants in a smaller town. the owner is 85 and he wants to leave the propert to his kids, The problem is that his kids live out of state and they dont want it. So my proposal is to create a long term income stream (30 yr term owner finance) that will be distributed to him first for the rest of his life, then his kids equally after his death. There is no mortgage to take over, so I will have my lawyer create the note, and then start making payments. Technically it is an owner finance deal that will be purchased in a trust, but the legal mechanics are irrelevant, its the deal that matters.
This will also have the added benifits of saving his etate from taxes. The double bonus is that the old guy has been cooking the books to keep tax money away from the IRS, so the property appears to make little or no money. Its really a 12 Cap property but without records no bank will finance this purchase and no conventional buyer will pay as much as I will. As an added bonus, there is no interest rate in my offer.
Josh Caldwell, almost 10 years ago
Thanks for this, @Josh Caldwell!
I have done a couple multifamily purchases in this vein, where i bought in enough money to pay off their existing mortgage, and the owner carried Seller Financing for the remainder of the purchase price.
I'd like to take it to the next level (in terms of decreasing my cash-in) by doing a Subject-To deal.
If you have any specific tips on that, I'd be very interested. I've worked with 4 different agents buying various multifamily deals and none has even mentioned Subject-To as a possibility!
Jeremy Jones, almost 10 years ago