If you’re sick of barely scraping enough together to make ends meet and you’ve got some expertise, you just might find yourself longing to start a small business.
Whether you’re selling a service or a product, the objective is the same: to maximize return on investment.
So, you might find yourself leaning towards real estate as a way to set yourself up for success and build the foundation of generational wealth.
Problem is, a lot of small businesses in the real estate industry struggle with getting the funding they need to expand their ventures. Banks and traditional lenders are not always excited to extend loans, especially to new investors with a limited credit history.
But don’t lose hope just yet – there are tried and true options for entrepreneurs open to exploring creative solutions that aren’t as sketchy as offshore accounts in the Bahamas or cloak-and-dagger bank vaults in the mountains of Switzerland.
When we talk about creative financing tactics, we’re referring to strategies like subject-to and seller financing that you can use to successfully grow your small business into a titan of industry - all without ever having to rely on conventional bank loans or investing large sums of your personal savings.
Using Seller Financing
Seller financing means extending credit to buyers by having investors hold mortgages rather than relying solely on banks. The main advantage seller financing offers is that potential buyers don’t have to put themselves further into debt with a bank just to get themselves into a home.
Both the investor looking to purchase the home and the seller of the property make money by the seller acting as a bank and letting the buyer make payments to them directly.
This alleviates the stress of multiple mortgages for investors looking to own multiple properties while putting more money back into the hands of the original homeowner.
This gives the homeowner more money than they would have gotten by accepting the full sum upfront because the seller also gets to keep the interest that the bank would have kept from lending out a mortgage.
Right now, the average interest rate for a mortgage in the U.S. is 6.4%. So a bank would make an extra 6.4% on a mortgage on top of the value of the loan. When a seller chooses to act as the bank - even if they negotiate with the buyer on a lower interest rate at 2-3% - that money ends up in the seller’s pockets, not the bank’s.
Leveraging Subject-to
Subject-to is a type of real estate transaction where an investor gets ownership of property while leaving the existing mortgage untouched, thereby essentially taking over responsibility under agreed-upon terms.
There are people looking to sell their homes now who have a lower interest rate locked in from the past. Because you can’t force a bank to drop their interest rate to 2-3%, in some cases it’s more attractive to take over the remaining debt owed on a home than it is to get a new loan at a higher rate.
And when a seller needs help getting out of their home quickly – like if they need to move, if they’re going through a divorce or if there was a death in the family – they may be a good candidate for subject-to.
For context, the average interest rate in 2021 was 2.65%. We can’t wind back the clock, but there are people – like people who don’t have equity in their homes so they don’t think they can sell – who need to get out of their properties. Subject-to’ing a home gives them a way to get out of the property, put some money in their pocket and lets you take over the home at that historically low-interest rate by making their payment to the bank.
It gives you and sellers a way to take care of their debts and properties without doing it the traditional way, which is why we call it creative financing.
Benefits and Advantages of Creative Financing
The benefits that come from implementing creative financing like subto and seller financing are for anyone looking to enter the real estate market:
1. There’s no need to use your own cash or bank loans: With creative finance, you don’t have to leverage any amount of your own capital upfront because you're using assets acquired via other people's money (OPM).
2. Increased net worth without credit: By using seller financing, you eliminate any risks involved with extending yourself too thin financially while also increasing revenue streams due to the interest payments coming in on notes from buyers. This strategy offers a way out when banks don't want anything else but perfect scores!
3. Find a network of lenders: One advantage of embracing subject-to deals is that most would-be sellers understand little about the options they actually have outside of finding a traditional buyer – meaning there are plenty of opportunities where one might approach someone already motivated by hardship like foreclosures who can’t take offers that can’t actually help them get out of hardship.
For example, if someone is behind on their mortgage and afraid of facing foreclosure if they can, they’ll likely opt to sell their house. But if their home appraises for less than they thought it would, or the appraisal amount doesn’t cover the cost of the home plus the accrued debt (like on missed payments), then the homeowner might find themselves having to pay someone else to sell their home. At the end of it, they might avoid foreclosure, but they end up with no home, no assets and a still-unpaid bank tab.
The SubTo community is not just a course that teaches people how to enter real estate; it’s also a huge networking opportunity that includes lenders and key players willing to take over all or some parts of existing mortgages. They can keep making timely payments and own the property of the person facing hardship all while putting money in the seller’s pocket.
Steps to go from Small Business to Industry Leader in Real Estate Investing Using Creative Financing
Setting Goals
Setting measurable, achievable goals gives direction toward what you want to achieve while also providing clear steps required for said growth. The goal-setting process is ultimately about promoting clarity, accountability and motivation.
In SubTo, we don’t just show you how to set achievable goals; we also show you where to start in order to set the goals that will help your business scale.
Building a Team
SubTo lets you surround yourself with individuals interested in your success and theirs. This includes people like accountants, business attorneys, licensing agents, transaction coordinators and anyone else you could think of who is needed to help smooth out wrinkles in deals.
At the beginning of 2023, 11 million homeowners were behind on their mortgage payments. With so many properties and families in need, it’s important to surround yourself with people who have the same goals as you do so you can extend your reach to help more people.
SubTo doesn’t only give you the confidence to actually approach potential leads because you understand how creative financing works, it also gives you the opportunity to practice.
It might sound like role play, but outside of doing actual deals, practice calls with investors who have industry experience is invaluable in helping you get your bearings and learning how to respond to objections you haven’t heard before.
High-performing members of the community can also walk you through what to do and give you the info you and your potential seller need. They can point you in the right direction toward specific contracts or scripts for what to say without confusing yourself or your seller.
Explore more investment opportunities beyond single-family homes
Exploring expansion beyond the conventional single-family home market gives numerous new opportunities to grow both your investment portfolio and net worth.
Investing in other assets like RVs, boats, apartments or businesses offers the chance to diversify your portfolio while growing wealth.
It's essential to have contracts written accepting legal framework limits well-suited towards "subbing," that guarantee everyone's clear about the terms and costs associated with taking over an existing mortgage.
When you join the community, you’re armed with court-tested, bulletproof contracts that make sure everyone is on the same page. They not only ensure ownership, who's making payments for how much and who has liability, but also who has ownership of the property once everything is paid off.
This makes sure there’s no confusion, and that everyone gets paid.
Creative financing truly can be a game-changing solution that I encourage all small business owners to explore, regardless of what assets they’re looking to invest into.
You can only become an industry leader if you know how to invest without being weighed down by large amounts of debt or having great credit scores. Those things will just end up holding you back from making your next investment and building generational wealth for you and your family like we show you how to do in the SubTo community.