In this series we talk about understanding creative financing, the strategies used, and the pro’s and con’s of each. Here are the different strategies and how they pertain to the following …

Title Transfer

Foreclosure

Taxes

Due on Sale Clause

Maintenance and Repairs,

Closing and Transfer tax

Lease Options- No title transfer, so no closing or transfer tax, no foreclosure, only eviction. No Due on sale. Maintenance can be passed on to the tenant. Taxes are typically paid by the Landlord.
Contract For Deed/Land Contract- No title transfer, there is typically a closing but no transfer tax until the contract is fulfilled. No foreclosure just a Forfeiture process, which differs state to state. Taxes paid by Buyer, Buyer responsible for maintenance and repairs because this is a sale.
1st position Trust Deed and Note- Only used when property is free and clear. Title does transfer, so there is a closing and transfer tax if applicable by state. Foreclosure process. Taxes paid by Buyer, Buyer responsible for maintenance and repairs. No Due on Sale because the property was free and clear.
Seller Subordination- Title does transfer,so there is a closing and transfer tax if applicable by state. Foreclosure process, Taxes paid by Buyer, Buyer responsible for maintenance and repairs. No Due on Sale because the first mortgage should be paid off at closing. .
All Inclusive Trust Deed/Wrap Around Mortgage- Title does transfer, so there is a closing and transfer tax if applicable by state. Foreclosure process, Taxes paid by Buyer, Buyer responsible for maintenance and repairs. There is a Due on Sale because there is an existing loan in place.
Subject-To- there is no recourse for the Seller to take back the property. Title does transfer, so there is a closing and transfer tax if applicable by state. Foreclosure process, Taxes paid by Buyer, Buyer responsible for maintenance and repairs.. There is a Due on Sale because of the existing loan in place.

We use an example of a property with 4 single family homes on one lot. It needs about 60K in repairs, the seller is asking 110K and owns it free and clear. It can rent for 2400/month with an estimated expense of 800/month, which leaves 1600 in monthly cash flow. We can offer the Seller 750/month principle only. Now with the amount needed in repairs we need to get in light, say 5K, then refinance the property as soon as possible after repairs are complete, in order to recapture our capital. So what strategy do we use? We would just use a 1st position trust deed and note because it's free and clear.

Now Let's say there is a debt of 40K with 550/month payment. Then what? Well we can still offer 750/month, with wrapping their exact loan terms and offer 200 in principal only payments on a second note for the balance of their equity. This is where we would use an All inclusive trust deed and note or wrap around mortgage as our strategy.

Wrap Around Mortgage: 1 Note Example: Property info- SFH with ARV of $250K. Owes 57K. Payment 635/m PITI. Rented for $675. Could rent for 1400/month. Needs 25K in repairs. Cash offer at $165K.

Offered 180K PP. 9K down. New note $171K @ 2.5% 850/m principle and interest. Term 3.5 years. Balloon 149,351.

Wholesale to a landlord for $201K with $30K down.

Wrap Around Mortgage: 2 Notes Example: Create 1 note for exact terms of the existing note on the property. So 57K principle, same interest rate and term with same amortization schedule.

Second note- 114K principle with 225/month principal only payments for 42 months. Balloon of 104,550 on seco

Creating Long-Term Creative Financing Offers

The Creative Financing PodcastBy Cody R, Nicole K, and Jeff Rappaport: Real Estate Investing and Creative Financing ExpertMay 15, 2023