Creative Financing 101:
A New Way to Buy and Sell Real Estate
When traditional financing isn’t the right fit, creative financing opens up new possibilities for buyers and sellers alike. Over the years, I’ve had the opportunity to work alongside clients like Ashley to successfully sell properties that struggled on the traditional market — all by tapping into the power of creative financing.
So what is creative financing, exactly? Let’s break it down.
What is Creative Financing?
Creative financing refers to alternative methods of purchasing or selling real estate without relying on conventional mortgages. It provides flexibility for both parties and is designed to create a win-win situation. Here are the main structures we use:
- Subject To (Sub-to): The buyer takes over the seller’s existing mortgage without formally assuming the loan. While effective in some cases, I generally recommend caution here due to its higher risks to the seller.
- Seller Financing: If a property is owned free and clear, the seller can “become the bank” and finance the purchase for the buyer, collecting monthly payments plus interest.
- Wrap Financing: A new loan is created that “wraps” around the seller’s existing mortgage. The buyer pays a third-party servicer, who then pays the underlying mortgage and passes any extra cash flow to the seller.
Why Would a Seller Consider Creative Financing?
- Speed: These transactions can close in as little as 10-14 days.
- Price Flexibility: Buyers focus more on terms and cash flow than on purchase price.
- No Loan Hassles: Skip the appraisals, lender approvals, and financing contingencies.
- Additional Income: Sellers can earn interest income over the life of the loan, boosting their total return.
- Tax Benefits: Spreading proceeds over time may defer capital gains taxes.
- Protection: In case of default, the seller retains the down payment, collected interest, and regains ownership of the property.
How We Structure These Deals
- Down Payment: Typically 20% or less. Enough to cover selling and closing costs.
- Interest Rate: Set to cover the existing mortgage payment and create positive cash flow.
- Balloon Payment: Generally 5-7 years, though longer terms are even better for sellers.
- Third-Party Loan Servicing: Ensures transparency and reliable monthly payments.
- Legal Protections: All transactions are closed through experienced attorneys and title companies.
Who Are The Buyers?
I have a network of over 350 qualified investors (plus their groups) actively seeking properties with creative terms. Their investment strategies vary, from short-term rentals (STRs) and mid-term rentals (MTRs) to long-term rentals (LTRs) and even Padsplits.
Ready to Learn More?
If you’re struggling to sell a property traditionally, or just want to explore a more flexible approach, creative financing could be the perfect solution.
Whether it’s a full seller finance, a wrap, or a custom structure, I’m happy to run scenarios for your property based on your goals.
Simply send me the property address, asking price, current loan details (balance, interest rate, monthly payment), and I’ll do the rest.
Let’s make a deal that works for everyone!
