A few months ago on my YouTube show The Real Deal, I talked about a home that we had sent to us from a wholesaler.
We ended up taking this property with a no interest loan!
You can see the whole procedure in the episode:
In the episode, we went through 5 different aspects of this deal:
Acquiring the property
Where the property came from
How we structured the deal
How we funded the deal
Our exit strategy
From the beginning, this property was going to be a bit of a challenge. Why?
Because it was built in 1973.
This property is in Mesa and is a manufactured home; any home built before 1976 are ineligible for financing from traditional banks.
This is a huge issue for several reasons:
A family would not be able to get a bank loan to buy this property once fixed/repaired
Only someone with a large amount of cash would be able to purchase this home (the area the home is in would not be an incentive for a huge down payment)
I would have to sell the property seller finance, which while great in some cases, was not something I wanted to do here.
A Seller Finance Deal from a Wholesale Dead Lead
As I mentioned, this property in Mesa originally came to me via a wholesaler who was looking to sell for $80K.
Once I saw the year of the home, I declined the deal.
A few days later, one of my Subto students texted me that same house; however this time, he managed to not only get the price down, but managed to structure the deal as seller finance.
So here’s how this all went down:
The original wholesaler couldn’t do a deal with the seller or with me for the asking price of $80,000.
One of my students ended up sending me this same house deal a few days later.
Not only did Blake, my student and all around great guy, structure a creative finance deal with the seller, he ended up taking home $10,000 from his assignment fee.
Because he structured a deal with the seller, I was able to go to my private lender and raised $38,000 capital to get the house, do repairs, and even pay a portion of the seller’s payments.
Let’s break this down:
I paid $3,750 to the seller
$1,500 goes to Title Alliance of Phoenix to structure the deal
Blake got $10,000 for bringing us the deal
$23,000 left over for renovation!
Now, as you’ll see in the video above, the house was going to have about $20,000 in renovation costs, which left us with about $3,000 for misc costs.
What are miscellaneous costs?
These include our monthly payment to the seller, utilities, and other items; for us, we actually make the first two payments back to the lender with this same money.
This is the perfect example of raising capital the right way.
Along with this, we make sure to add an extra $140 as a safety net, in the case we need to make any additional repairs on the property.
Why Creative Financing Works for Real Estate Investing
We talked about how we got this property, talked about how we got funding to buy the house, and how it was structured.
But here’s why creative financing worked in this deal – this particular property is valued at $75,000 and I paid $110,000 for it.
That’s $40,000 over the retail price. So why did I do that?
For one, it’s an interest free home that I bought from the seller and I get $400 a month income from it, with a monthly rental amount of about $1400.
Creative financing worked in this deal because I never had to use my own money; the seller never once pulled my credit, didn’t check any bank accounts…
Guys, without creative financing, I wouldn’t have been able to buy this house, much less sell it to anyone willing to buy it from me.
That’s the power of creative financing.
And ultimately in the end, the people who move into these manufactured homes are some of the nicest people, very hardworking, and very appreciative at being able to find a home that meets their needs.
If you want to learn more about using creative finance to grow your passive income, come join our Subto community.