Creative Real Estate Financing

Creative real estate financing techniques are the secret to buying investment properties with nothing down. Here are a few tips to help you get started.

Perhaps you can identify with the chap in the picture below, no money.

When I was 25 years old and looking to buy my first investment property, a small old duplex, I basically had nothing to put down.

To make the problem worse, the duplex had functional obsolescence and needed to be rehabbed.

What is a person to do? I didn't want to pay rent to someone else all my life. Saving 20% for a down payment would take a long while.

The cavalry to the rescue. Creative real estate financing was the answer. I didn't do anything sophisticated like a lot of creative real estate investors do, but I did 100% finance the property purchase.

How did I do it? I had a partner put up the cash for the down payment. In return, the partner got 50% ownership of the property and a share in all profits.

Since I was going to live in the property, the Savings and Loan bank only required 10% down. One problem solved.

The next hurdle was obtaining additional funds to rehab the building which included, remodeling the lower unit, replacing the old gravity furnace with two new furnaces, updating and separating the electrical entrance. (I wasn't going to pay the heat and electric for my tenants, they could.)

Fortunately the Savings and Loan had a program at the time to include additional financing for any home improvements up to a limit. They escrowed the rehab money, and released funds after the work was done and inspected by the bank.

In order to use creative real estate financing, you must give people benefits. Asking the seller to do anything out of the ordinary, requires that you show the seller how it will benefit him.

A motivated seller is the key to unusual offers. Let's begin with creative down payments.

Creative Down Payments

Your down payment does not have to be cash. It only has to have value to the seller.

Let's say you asked the seller the question "what are you going to do with the money if I buy your house?" He may balk, but you kindly say "I need to know in order to structure my offer to purchase your property."

Let's assume you learn the seller was going to buy a boat and go fishing. Let's say that you already own a fishing boat. You could offer the boat as your down payment on the property.

Don't have a boat? Could you find one somewhere, buy the boat on credit, and then use it as a down payment?

Perhaps the seller would carry the rest of the financing for the property. A purchase money mortgage, wrap around mortgage or land contract could cinch the deal.

Other creative down payments could include vacant land, another property you own, valuable jewelry, stocks and bonds.

Creating A Discount When You Buy

One great way to create a discount when you buy is to buy some item at less than face value, and then offer it at full face value to the seller as a down payment for their property.

Bonds are great for this. Some bonds are sold at a discount because of rising interest rates.

Some bonds, like savings bonds, are sold for 50% of face value. That is, a $1,000 bond can be purchased for $500.00. When the bond matures, it will pay out the face value of $1,000.

If the seller would accept $10,000 of savings bonds for example as a down payment, you would effectively create a $5,000 discount in the property when you buy.

The seller would have to hold the bonds for the full length of the term to realize the $10,000 pay out.

Who would accept this as a down payment? A motivated seller! Someone who wants to sell yesterday!

I have only scratched the surface on the topic of creative real estate financing.

I would recommend that you buy Robert G. Allen's best seller "Nothing Down for the 2000s" and "A Fortune At Your Feet" by A.D. Kessler.

These two books go into great detail about creative real estate financing. You will learn about wrap around mortgages, purchase money notes, blanket mortgages, options and much more.

As you apply these techniques, you will create wealth and cash flow in your legitimate home based business.

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