It was the summer of 1987. George Michael had faith and Whitney Huston just wanted to dance with somebody. I was 10 and my sister had just turned 7. Our days consisted of waking up early and scarfing down cereal. This was about the time that my best friend, Michelle Gavin, would show up at my door ready to ride our bikes (Yep, that blue Schwinn) until the pool would open at 10am , which seemed like forever. We would go spend the day diving for quarters and annoying the teenaged lifeguards that saw as these older, wiser windows into the embodiment of “cool” and the entire basis of our goals for the future.
Oh Blue Monday, the pool was closed. We were forced to entertain ourselves in ways that did not include going home smelling of Banana Boat and chlorine. Maintenance had been changing the color of the beautiful 1970’s shutters from olive green to 80’s burgundy and that played a huge roll in this particular Monday.
One of us noticed that there was a “dark red” spot on the sidewalk in front of one of the garden apartments in the neighborhood. Obviously, this was blood. Which was confirmed when we poured Pepsi on it and nothing happened, of course.
We saw an INXS video playing on a TV in a ground floor apartment and a “costume” which today I am pretty certain was lingerie but no one in sight. This must be the crime scene. Right now, as an adult, I have a completely different theory about the whereabouts of the knockout 20-something that lived in 2B at that moment. #youthfulnaivete
We spent the rest of the day breaking into people’s storage units on the complex looking for clues. We never find the answer to that mystery but we did find kittens…Mom, Dad, you’re welcome for that… I learned a few things about imagination that day as well.
Imagination is really just the wide eyed love child of creativity….and that, folks, is what I want to talk about…
Creativity in real estate investing….more specifically… creative financing. Creative financing is that tool that allows the investor to achieve beyond the black and white of flip and hold.
1. Sub to. Sub to is the REI lingo for purchasing a home by taking over payments or Subject To the existing mortgage. This is generally a desirable option when you are working with a seller who has little to no equity but has a monthly payment that allow for you to make some residual income.
For example; Joe Homeowner bought a house four years ago but has since lost this job and cannot afford the payments any longer. Since he bought the home so recently he would actually have to pay money out of pocket to sell his home which he cannot afford. Rather than have a foreclosure or short sale on his credit he will sell it to you subject to his existing financing.
You will be in the same position as any homeowner with a mortgage. This is not the same as an assumable mortgage FYI.
2. Owner Financing. When you purchase a home via owner financing you put the seller in the position of the bank. You make monthly payments to the seller rather than a mortgage company.
This is a great option for people who own their home without any liens or other financing and either like the option of monthly payments or believe that the final sales price is more valuable than getting the money now.
For example; Sally Seller has a home she inherited. It is worth $100,000 but she really wants $125,000. You offer to pay her the full amount at a low interest rate. You both get what you want.2. Wrap mortgage. When you enter into a wrap or a wraparound mortgage you are basically combining 1 and 2. You wrap a mortgage when the seller has a loan balance but the buyer agrees to pay more than the amount. This is used very commonly when we, as REI’s, sell a home we purchase with owner financing.
You bought Joe Homeowner’s house at $100,000 and you are selling it to Betty Buyer for $125,000. You will continue to pay Joe while Betty pays you a higher amount.
This can work with you as the buyer as well.
As we all know I like to yap any you are probably are a busy person… this is why I am breaking most blogs into two parts….this is not a creative ploy to get you to read the next one. J
Honestly, I have made more money from creative financing than any other niche of investing. It is less glamourous than flipping and less well known than being a landlord but it can really be your bread and butter.
Happy investing my real estate junkies!!
I was born an entrepreneur. I am pretty certain that I was peddling passies in the hospital when the nurses left the room.All of the other kids in the neighborhood were riding bikes and playing with dolls I was selling jewelry out of a catalogue and creating a back yard consignment shop. At 21 I became a real estate investor and fell in love. This was/is/ and always will be my passion. I have been madly in love with flipping, holding, and writing offers on real estate that seem crazy for 18 years. Ladies and gents I am willing to share the love of my life with you. Maybe its polyamory maybe its jut because I can’t shut up about it. Either way I will be sharing every mistake I ever made and the lesson that came from it. I love questions. Please ask away!!!