What is Creative Financing?

Creative Finance is buying and selling real estate on terms. The terms typically consist of paying the seller in equal monthly payments for their property. This way, a bank is not needed to purchase the property. In this climate of rising interest rates, we purchase most of our portfolio on creative financing. This allows us to pay more for the house, cash flow while we hold the property, and pay realtors their entire commission in a quick close.

In many cases, when we buy on Creative Finance, we pay sellers much more than if we had to get a bank loan. For example, we purchased one of our properties at a 20% higher price than the highest competing cash offer. We purchased the property on a payment plan where we paid the sellers an equal monthly payment of $700/mo for 30 years. This does not mean the sellers have to wait 30 years to receive all their funds; when we refinance or sell the property, the sellers will receive a lump sum check of the remaining balance.

Benefits to the Seller

  • Creative finance can help the seller to sell the property faster because it eliminates the lengthy loan approval process and enables the buyer to purchase the property quickly.

  • By offering creative financing options, the seller can attract more buyers who may not be able to obtain financing through traditional means. This could lead to a higher selling price and a larger pool of potential buyers.

  • If the seller chooses to provide financing to the buyer, they can receive regular payments of principal and interest, which can provide a steady income stream for a period of time.

  • Seller financing can provide tax benefits for the seller, such as the ability to spread out the tax liability over a longer period of time and potentially avoid capital gains tax.

  • With creative finance, the seller has more flexibility in negotiating the terms of the sale, such as the interest rate, down payment, and repayment schedule.

Click the button below to book a free consultation.

Benefits to the Buyer

  • Creative financing works in up and down market cycles, meaning buyers can buy property when others who were dependent upon bank loans could not.

  • There are many motivated property owners out there who will finance buyers using creative financing, making the numbers virtually unlimited. The amount of creative financing a buyer would get is only limited by their knowledge, ambition, and trustworthiness.

  • Banks give buyers a rate and term sheet. Take it or leave it.

    Instead, creative financing allows buyers to sit across from real sellers and discuss what each party needs. If both are happy, they typically do the deal.

  • Most creative financing deals have no personal liability (the property itself is the only collateral). Most bank loans require personal guarantees, which means things like a personal house, cars, other investments, and bank accounts are all at risk if things go bad.