The definition of “creative real estate financing” may not sound so inspiring (if your financing is non-traditional, then it’s automatically creative), but it’s really the key to getting the most out of your investment dollars and overcoming any financial barriers to entry.
Solve Problems and Create Financial Openings
If you are just getting into real estate investing, you’ll quickly learn that a standard mortgage is not the only way to buy and finance a property. In fact, experienced investors often prefer creative financing strategies over traditional ones- especially at the beginning of the investment.
That said, here are 3 popular creative financing options you should be aware of that are available to new and experienced real estate investors alike:
- Seller Financing. Also known as a “seller carry back,” this form of creative financing is a great way to fund a real estate investment especially if you are having a hard time qualifying for a good traditional mortgage. Under a seller carry back, the owner of the property agrees to receive monthly payments with a specified interest rate from the buyer. This setup usually has a specified time limit (usually between 1 and 5 years), in which the note needs to be paid in full. The benefit to this approach is that it will give you enough time to secure a refinance loan on the property, which is easier to qualify for than a purchase loan.
- Pre-Foreclosure Properties with Subject-To. “Subject-to” is short-hand for “subject to existing financing.” This setup allows you to purchase a property with the stipulation that the current financing remains in place. In other words, you’ll get the title to the property, but the seller’s original loan will remain active under the seller’s name. You would then make the loan payments in place of the seller for half a year. After that, you can refinance and get your name put on the loan. This option is particularly attractive when purchasing pre-foreclosure real estate since the seller will be looking to get out of the property as soon as possible. You also benefit by not having to come up with an initial down-payment.
- Rent-to-Own. Rent-to-Own, also known as lease option real estate investing, allows you to purchase a property with little to no money down and little risk as well. With this arrangement, you agree to make monthly lease payments for a period of a few years (usually between 2 to 3). You then have the option of buying the property at the end of the term. Rent-to-own will help you if you are struggling to come up with a down payment or if you are dealing with bad credit, since it will give you time to secure financing or clean up your credit profile. In most cases, you can also start building equity by having a portion of your monthly payments go towards the balance of the property.
Keep in mind that all of the creative financing options mentioned above are pretty well-know among both buyers and sellers, and they can really be a win-win for everyone involved. So, don’t confine yourself to traditional financing. With these creative real estate investment options (and others like them), the sky is really the limit.
Join REIA NYC today and take control of your real estate journey. Together, we’ll empower you to succeed in real estate and beyond.
About the Author
Dr. Teresa R. Martin, Esq. is a Real Estate Attorney, Investor Broker, and National Trainer known as The Real Estate Prophet. With over 25 years of experience, she empowers real estate agents, investors, and entrepreneurs with smart investing strategies, creative financing, and legal protection.
As the founder of REIA NYC and the Elite Investor Agents Team at Keller Williams Gold Coast, Dr. Teresa is on a mission to help investor agents, real estate investors, and entrepreneurs seeking to diversify into real estate build bankable businesses and generational wealth.
