The Science of Flipping - Creative Financing: What Lists To Pull

Starting point is 00:00:00 What's up everybody, welcome back to the Science of Flipping podcast. I am your host, Justin Coldby, and on this podcast we talk all things real estate investing. If you're a wholesaler, you're a flipper, you're buying and holding, you're a wholesaler you're a flipper you're buying and holding you're burring this is the podcast you need to be watching and listening to yes i said watching which means if you have not yet gone over to youtube and started watching our podcast episodes you really need to go to youtube.com forward slash justin colby subscribe so you and I can start engaging right there on YouTube because I drop three podcasts a week. I also drop three YouTube videos a week that are about business, real estate, as well as entrepreneurship. So you have six videos a week to watch just on my channel to help you gain the traction that you need.

Starting point is 00:01:05 Now, these are also podcasts on iTunes. So if you're listening to these on iTunes, I'd love a review. Would love a five-star review as a matter of fact. I'd really appreciate it. So with all that being said, let's talk about something that is super, super important, which is going to be creative financing deals. This is a subject that obviously a good friend of mine, Pace Morby, has done a great job talking about and educating people on. And so I'm going to do an episode just talking about this because my coaching students actually have done a whole week on this. And a lot of the questions are things that I think most people are asking themselves. And so I want to address a lot of this stuff. So the first thing that my students were asking me is like, hey, if I want to address a lot of this stuff. So the first thing, the first thing that my

Starting point is 00:01:45 students were asking me is like, hey, if I want to do creative financing, what type of list would I want to pull? And so what I would tell you there is all lists will work for creative financing. There's not a wrong or right list, but a lot of times what you'd want to try to find is someone that's in financial pain more often than not. Now, could you find a seller that quite literally owns the home free and clear and you create a creative financing structure? Absolutely. In fact, we've done one here in the recent past where the person actually owned the home outright. He had no financial need to do this, but because we were able to give him a higher offer based around him taking our terms, we created a creative finance deal, even though he wasn't financially in need. So the first

Starting point is 00:02:30 thing I would tell you is lists like the pre foreclosure list would be pretty good. I would definitely be focusing on absentee list and people that are landlords that have tenants that aren't paying can be absolutely great and then i still like my virtual door knocking list right because you have a home that is maintenance deferred and those people typically need to sell they're in a rough spot financially and so those are just three lists that you can use to find a deal that would tend to be good for a creative finance deal. Now, the other question that came to light and many people would ask was, you know, how do you negotiate a creative finance deal? Well, it starts with the motivation of the seller, right? That's what I really want to tell

Starting point is 00:03:17 you guys is you need to understand why they're selling. If they're in financial pain, they maybe can't make their next month's mortgage, then you can say, hey, I might be able to give you the opportunity to get out of making these payments as long as you're open to creating some more creative terms. Are you open to that? Great. Now let's structure it. And then there's no wrong answer. At the point of structuring the deal, there's no wrong answer because you are basically creating the value by getting them to not have to continue to pay their mortgage because they can't afford to. And then you just work up the term. So you might make the mortgage payment and that's it. You might wrap a loan around it. Maybe they have a lot of equity in the home, but they still can't pay their mortgage.

Starting point is 00:04:02 Well, maybe wrap the equity. There's no wrong way to do that, but most of these deals, most of them are going to keep the existing loan in place, and that's why subject two has become such a popular topic is because of this. Now, here's something really cool. I did a post on Instagram yesterday, I believe it was, talking about how Miami just surpassed LA as the most expensive city to buy real estate in based around the median income of the city and the median real estate price. So what the post was is, and again, I didn't fact check this a ton, so forgive me here, but essentially the median price for salaries or income in Miami is $39,000, which blows my mind.

Starting point is 00:04:56 I'm not certain how people actually live off $39,000 a year, but good for them. But then the median home sales price was $550,000, which again leads to this idea that the market's going to crash at some point because these individuals who make 40 grand and are buying a $550,000 home, they can't afford it. They shouldn't be buying a home. I bring this all up because that is going to create a lot of motivated sellers that can't afford their home anymore. And doing creative financing deals with those type of sellers is ideal. You're creating a big value.

Starting point is 00:05:38 You're going to leave their loan in place because the loans these days have been amazing, right? Anywhere from the high twos to low threes, you would keep their loan in place and you would actually essentially take it over and I guess you could live in it is one thing, but essentially rent it, make an incredible rental. You didn't have to go get a loan. And then you have the tenant paying down the mortgage. Now I actually brought on my creative financing transactional coordinator. She is an animal. She's done thousands and thousands of creative finance transactions. And that is only for my students.

Starting point is 00:06:12 If you're interested in me coaching you, you can go to thescienceofflipping.com and you can have access to my team, such as my creative finance transactional coordinator. But what she has seen is the same thing that I'm echoing to you guys when individuals such as people that make $40,000 but buy a five hundred thousand dollar home they can't afford it at some point it's gonna hit the fan right and that's when you coming in and being a solution for them helping them out and keeping their loan in place really can provide a ton and ton of value. Now, when do you make this offer was the third question.

Starting point is 00:06:50 Like, Justin, when do I make a creative financing offer? Well, usually it's because your cash offer, the traditional cash offer as a wholesaler, doesn't actually work for them. You might offer $120,000 cash, but they can't take less than $160,000. Well, then you say something to the effect of, well, I might be able to get to your $160,000, but I would have to have you be more open to terms, right? And getting a little more creative and open to terms. Are you open to that? Well, yeah. What are you thinking? Okay, well, let's start with, you know, how much you need to put in your pocket to walk away and make this deal done now

Starting point is 00:07:28 depending upon what they say you sometimes are gonna have to you know cut a check to get the deal done and sometimes you're not they could say hey I need to sell for 160 primarily because I owe 160 so they're not gonna put anything in their pocket if you get up to 160, right? But they might take 160 and they owe 100. So their price is just 160, that's what they want. So when people want that, then you might need to cut a check at closing.

Starting point is 00:07:59 You also might be able to structure, again, a wrap, right? Where you wrap a sixty thousand dollar loan that the seller gives you now the sellers being the bank you're paying their mortgage that you've escalated them to a bank position you are the homeowner you're also able to structure it that way and be able to pay them over time okay um but this situation that inevitably will hit the fan if that data is accurate and people are making 40 grand a year and buying $500,000 homes, inevitably things are gonna hit the fan

Starting point is 00:08:29 and people are gonna start losing their homes. And that's the type of individual that you, myself, and real estate investors can create a massive amount of value for and put together a deal that's not a deal because we were able to be creative enough to create the terms now if you are um doing creative financing deals and you have not worked with uh my transactional coordinator

Starting point is 00:08:53 does all my creative financing deals then in the comments below because hopefully you're watching this on youtube you're liking the video duh would love that but also in the comment below let me know i'm happy to make an introduction to my creative financing transactional coordinator so she can handle your deals many people get very scared about creative financing because the paperwork well guess what if you have her on your side she can get you the paperwork that you need she can get you the authorizations forms she can make you the addendum even a subject to type purchase and sale agreement if that's the type of deal you're doing. She handles all that for me. I literally don't have to think about a thing except for contracting the deal and figuring out how to exit. Am I going to keep it? Am I

Starting point is 00:09:36 going to wholesale it? Am I going to do a lease option to it? Am I going to remodel it? So all I have to think of is the traditional, how do I acquire it? And then how do I exit it? Am I going to remodel it? So all I have to think of is the traditional, how do I acquire it? And then how do I exit it? She handles all the paperwork and all the structure. In fact, she at times gives us suggestions of like, hey, why don't you do this and arrange the terms like that? And sometimes that works even better than what we were offering the seller, right? And so there's a lot to creative financing definitely way more than the last ten minutes is gonna be able to cover but I'll tell you it's really important especially when thinking about what is pending which likely is some

Starting point is 00:10:13 sort of real estate I don't want to say crisis or recession but there's gonna be some corrections going on with the real estate world because you can't print this much money, create this much of inflation, give loans for 2.85% to homeowners that don't necessarily qualify, can't really afford the home, can't afford the maintenance, but they get away with it because the lending is so loose right now. There's something's going to happen, right? And so the more you know, the better. And so hopefully you guys continue to listen to these episodes. Hopefully you guys continue to watch my YouTube channel because I put out six videos a day

Starting point is 00:10:50 and you can get enough information to really execute, not six videos a day, six videos a week that you could put out, or I'm sorry, you can get enough information to actually start taking action. Again, if you're interested in coaching, leave a comment below here on YouTube or go to thescienceofflipping.com. Otherwise, I will see you guys on the next episode. Peace.

The Science of Flipping - Creative Financing: What Lists To Pull

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