Creative Financing Strategies: Novation Agreements
Introduction
- The video discusses creative financing strategies, particularly focusing on novation agreements.
- Pace shares his techniques in the current market which are valuable for investors.
- Novation agreements are gaining popularity but have been relatively underground.
What is a Novation Agreement?
- Definition: A temporary strategy used to sell property without holding it.
- Not suitable for buy-and-hold strategies.
- Common among wholesalers and flippers.
- Comparison: Known as "net listing" by agents.
Explanation through Example
- Example using a 1990 Honda Civic:
- Purchase price: $1500.
- Improvements made to sell for $5000.
- Seller receives initial $1500 once sold.
- Involves renovating or cleaning a property and selling it at a profit.
Advantages of Novation Agreements in Real Estate
- Allows fixing and flipping without hard money loans.
- Eliminates acquisition fees and closing costs.
- No need for payments to sellers during renovation.
- Can bypass FHA anti-flipping rules.
Case Study: Metro Detroit
- Problem: FHA's anti-flipping rule delays closing by 90 days.
- Solution: Use novation to sell without changing title, avoiding FHA rule.
- Competes with wholesalers by offering higher prices due to lower costs.
Real-Life Application: DJ Martin
- DJ Martin used the novation strategy successfully.
- Solved issues with a seller who couldn't finance traditionally due to debt.
- Opened escrow to check for title issues.
- Postponed foreclosure, renovated property, and sold retail.
- Made significant profit.
Protecting Investment and Profit
- Lien Strategy: Attach private money lender as a lien holder.
- Ensure the lender gets paid from the sale proceeds.
- Executory Contract: Provides more security by establishing legal ownership without changing the deed.
Considerations and Risks
- Importance of securing profit through liens or contracts.
- Executory contracts offer better protection compared to standard novation agreements.
Conclusion
- Executory contracts are suggested as a more secure method.
- Creative financing strategies like novations are powerful but require careful management and protection.
- Suggestions for future content and where to find more information.
Additional Resources
- Check out playlist for more videos on creative financing.
- Follow Pace's YouTube channel for more hands-on learning and strategies.
Ensure to revisit these notes as a reference to understand novation agreements and their application in real estate investing.