The Science of Flipping - The Three Best Ways To A Creative Finance Deal

Starting point is 00:00:00 You need to ask the question if you're going to get the deal done. The question is, Mrs. or Mr. Seller, I can't get to the number that you are looking for, not as a cash investment. However, if you're open to being creative, maybe creating some terms, I think I can get closer to your number, if not even get you that number. Are you open to that? what is up everybody what is up my name is justin colby and welcome back to my podcast the science of flipping on this podcast you are going to hear all things real estate, wholesaling, wholetailing, flipping, buying and holding, raising money. It's all about making your business better. Whatever tools, systems, strategies that I'm using in my business to do anywhere from 10 to 20 deals a month in seven different states,

Starting point is 00:00:59 I want to try to impress upon you and show you and teach you exactly what works today. So that's what this podcast is about. And on this episode, we are going to be talking about one of the most highly asked questions, which is all about creative financing. Now in wholesaling, you see, we tend to teach and educate about making cash offers. Well, I will tell you in first-hand experience that is great up until the seller is not terribly motivated at that point you might need to start getting creative that's why we call it creative financing so the most simple way to do that is just by asking the homeowner or seller hey if i can get to your number would you be open to being a little bit more creative and creating

Starting point is 00:01:45 some terms around my offer? And then they were likely either going to say, no, I just need to sell it at that number. That's the only way I can sell. Or they're going to say, well, what do you mean? So I want to give you a very concise example of probably the three best ways that you can create a creative finance deal so the first would be a seller carry back now what is the seller carry back well it's kind of self-explanatory in the sense of the seller owns the home free and clear they are going to actually create a note just like the bank would for you they then in turn become the lender just like the bank you buy the home from them you take title of the home and then they use certain instruments meaning creating notes and

Starting point is 00:02:35 promissory notes and deeds of trust to secure their money just like a bank would and you negotiate the terms now this is a seller carryback or a seller finance deal. The terms are completely negotiable. There is no right or wrong way to do it. So in my opinion, you might as well go after the very best way you know how to structure it, like the best deal you possibly can, your perfect world. So zero interest, principal only payments over a long period of time, call it 30 years. Maybe you have a balloon payment after year 10. I would try and negotiate the very best deal for yourself that the seller is willing to take. That being said, it doesn't mean they're going to take it. They also might just say no i'm not willing to do that or

Starting point is 00:03:25 you need to come in with 30 down cash and then i'll finance this and in my point to saying that is it quite literally is up to negotiation so the first thing that you need to think about when going into that negotiation is what is your exit strategy if you're trying to flip that home your exit strategy and your negotiations are going to be that home, your exit strategy and your negotiations are going to be a whole lot different than if you're just trying to keep it as a rental. If you're trying to wholesale the home to a flipper, your negotiations are going to be a whole lot different than if you're trying to keep it as rental. And if you're trying to keep it as a rental, you have a lot of flexibility because it really just comes down to the math. It comes down to, does this math out for me?

Starting point is 00:04:07 Meaning if I pay $150,000 for this property, will it rent at least for $1,500? And if it needs any work, do I need to remodel the home? What condition is it in? And what is my interest rate? All of those terms can be negotiated and you just need to do the math on that. So for me, I tend to go into these seller finance deals or creative deals, ideally with the intent that I'm going to keep it in a rental portfolio. However, over the last 14 years or so, I've been very successful wholesaling these deals. Now, why would that be? be well primarily because there are a lot of people that don't have the ability to go get a loan or they don't have any more access to a loan meaning they can't get more than ten loans in their name so this creates an opportunity that for them to continue to build their rental

Starting point is 00:04:58 portfolio without having to go get a loan so it's a really good way to be able to get a deal that was not a deal in terms of a cash offer, but creating options for the seller will help you create an opportunity that maybe would have been dead to the lesser wholesaler. Now, point two here would be I call a great job making this out there on his social media and a lot of his other platforms. And he is buying a ton of deals here in Phoenix. In fact, I just got off the phone with him about a property or two that we might do together. But I say that to say subject to really is a great opportunity if the homeowner is motivated to sell. In the first scenario, the homeowner probably wasn't terribly motivated because they own the home free and clear. In this scenario, which would be a subject two, you are going to be talking to a homeowner typically that has some

Starting point is 00:05:56 sort of distress. Typically. They can no longer make the payments on the mortgage. Maybe they're even behind on the mortgage. Maybe they have a bunch of tax liens. Maybe they lost their job. There's some level of distress that you can come in, help them out, catch them up, and continue to make the loan payments so that they don't go into foreclosure or lose their home. Now, does this strategy maybe need a little bit more money out of pocket? Potentially, right? You might need to catch their loan up maybe they missed two three four five six mortgage payments you might need to bring money to the table but there's also times that you don't they just literally can't afford their mortgage anymore and they need to get rid of it and you can actually create it very similar and the structure is you're keeping their loan in place in their name. They're selling you the property.

Starting point is 00:06:45 You are taking ownership of the property, but you are now facilitating payment to their bank. You do this through a third-party servicing company, typically Westar, and they'll make sure the payments get to the bank, not the homeowner or old homeowner. And it turns into a great opportunity. Typically, what I like to do with subject twos, and it turns into a great opportunity. Typically, what I like to do with subject twos is also keep them in a rental portfolio. And the reason being

Starting point is 00:07:10 is because if you don't have to come out too much rent and you have a loan that's already in place at a very low interest rate, and depending upon how far along they are on their mortgage payments, you can really come into a great situation because if I put a tenant in there and they're 10 years into the mortgage payments, all those rent payments are heavily paying down the principal, not as much the interest. You see in the first five, seven, maybe even 10 years, much of your payment in those first years goes towards interest, not principal. So if I can do a subject two on a loan that has been paid for seven years or 10 years, I know my tenants, when I put a tenant in there are actually going to be paying

Starting point is 00:07:50 more of the mortgage than their interest, which gives me more equity. And it just becomes a really good play for myself. And so I really like subject to's. You are going to be wanting to find people who are more distressed so that you can create that value for them. And lastly, on this episode, we'll talk about a wrap. A wrap deal is a combination of a seller finance and a subject to meaning. In the scenario that the homeowner wants $200,000 for the home and a cash offer, you could only get $120,000 so you're nowhere near but they only owe $50,000 to the bank and they want you know some money in their pocket or they want to sell for $200,000 arbitrarily then you say hey what if I take over payments to your bank and you create a loan between $50,000 and $200,000 so call it a $150,000 loan. Let's call it zero interest payment.

Starting point is 00:08:47 And it's only principal only. And we can pay that off in 10 years. So then you create, again, completely negotiable what the terms are, the interest rates, the payments every month, and the length. You create a loan with the homeowner, just like you would in a seller finance deal. And you do a subject too. So you take ownership. You're still making payments to the bank that's existing. They've created a loan for you in second position, which is going to be their loan that you're paying directly to them. And you, again, create an opportunity that could be a great wholesale rehab or potentially keep it in your rental portfolio. Here's the biggest takeaway from this training. Guys, you need to ask the question if you're going to get the deal done. The question

Starting point is 00:09:32 is, Mrs. or Mr. Seller, I can't get to the number that you are looking for, not as a cash investment. However, if you're open to being creative, maybe creating some terms, I think I can get closer to your number, if not even get you that number. Are you open to that? That's it. That's the question. If you don't ask that question, then you don't have the opportunity to structure something creative. That is the missing link to most wholesalers is they're always going in cash, cash, cash. Well, if you just ask that one question that I just said, you will open the door. And I'm not saying a hundred percent of the time they're going to take it, but you're opening the door for the conversation that essentially at that point is a dead deal. You're done, right?

Starting point is 00:10:15 You're at 120. They want 200. You're not going to get there. So why not give it a shot, right? If you don't shoot the ball, you can't make the basket. The age old saying, right? Or maybe I just use it all the time. Who knows? But that's the point. Make sure you're asking that question. And guys, if you have not yet subscribed to my YouTube channel and you're listening to this on iTunes or Spotify or any of the platforms, make sure you go to youtube.com forward slash Justin Colby and subscribe. I drop three videos a week, all about real estate, business and entrepreneurship. Get over to youtube a week all about real estate, business, and entrepreneurship. Get over to youtube.com forward slash Justin Colby. Hopefully you guys enjoyed this episode.

Starting point is 00:10:51 It's one of the top questions I get at any given time is what type of creative financing should I do or should I be doing subject to's. So here's the layout for you. Hopefully that helps and I will talk to you, see you, hear from you, something on the next episode. Appreciate you guys. Peace.

The Science of Flipping - The Three Best Ways To A Creative Finance Deal

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