subject: An Introduction To Creative Financing [print this page] In todays real estate market, real estate investment are hearing the words creative financing more than ever before. These words mean different things to different investors and sellers, but nearly everyone agrees that creative financing happens outside the bounds of the traditional mortgage application and loan approval process.
Of course, there is a lot more to creative financing than just getting around the banks, and these days knowing your options can dramatically expand your real estate investing potential. Here are just a few examples of types of creative financing:
Buying subject-to
This strategy has been around for decades. It involves taking over the current mortgage on the property in its current state and starting to make the payments. It can also include catching up on past payments. It is a big risk for the seller, because it is their credit on the line until the property is paid off. There are some legal issues with this strategy, and you should always work closely with a real estate lawyer when drawing up this type of deal.
Buying using a lease-option
This strategy generally involves the buyer making payments on the property in the form of rents for a predetermined amount of time. If all the rent payments are made, then the buyer can make a larger payment on the property and finance the balance with a conventional loan through a bank or through owner-financing. As with subject-to agreements (and indeed all real estate transactions) you should always have these types of agreements drawn up with the help of a lawyer.
Buying using owner-financing
Owner-financing involves the owner basically serving the role of lender in the transaction for the property. This can enable a seller to get more from a property than the going market rate, but it also involves greater risk for the seller since they may not be able to collect the payments and be forced to foreclose. Many of the issues with owner-financing are similar to those with private lending.
These are just a few options when it comes to creative financing. In this era of 20-to-30-percent down payments and nearly perfect credit requirements, creative financing can be a huge advantage for both buyers, sellers and investors. Knowing the right type of creative financing to use for a given program can mean the difference between success and failure of your real estate transactions.
Peter Vekselman has been successfully investing in real estate since 1996.He has completed over 1200 real estate deals, owned a construction company, been a private lender, and owned a property management company. Peter currently works with clients all over the US helping them achieve riches in Real estate investing. For more information please visit www.CoachingByPeter.com.
