Creative Financing and Subject-To Deals

Introduction

• Presented by Jerry Norton with guest Pace.
• Focus on creative financing in real estate, specifically subject-to deals.
• Aim to help viewers understand the process and benefits of creative financing.

Overview

• Subject-to deal: a real estate strategy where the buyer takes over the seller's existing mortgage.
• The importance of creative financing in solving complex real estate problems.

Key Concepts

• Subject-To Deals

  • Buyer assumes existing mortgage of the seller.
  • Avoids obtaining a new mortgage, advantageous for properties with low-interest rates.

• Creative Financing Techniques

  • Enables investors to capitalize on deals that traditional financing would reject.
  • Techniques include seller financing, lease options, and more.

Case Study: Jerry and Pace's Subject-To Deal

• Deal Breakdown

  • A million-dollar property with a $450,000 first lien and a $191,000 second lien.
  • The second lien is foreclosing; the property owner has been in denial (ostrich effect).

• Solution

  • Jerry and Pace buy the house subject to the existing mortgage.
  • They pay off the second lien in cash to prevent foreclosure.

• Seller's Benefit

  • Seller stays in the property for 12 months.
  • Seller has an option to buy back at $865,000, protecting equity.

Best Case and Worst Case Scenarios

• Best Case

  • The seller pays off at $865,000; Jerry and Pace earn approximately $235,000.
  • Potential for long-term rental income if not paid off.

• Worst Case

  • Costs include eviction, legal charges, or market decline.
  • Even with challenges, investors are likely to recover investment and earn profits.

Real Estate Investment Insights

• Importance of evaluating downsides and upsides realistically.
• Understanding seller motivations and structuring deals that offer mutual benefits.
• Advantages of building a reputation in real estate to attract deals others can’t solve.

Conclusion

• Encouragement to explore creative financing as a strategy to find hidden opportunities.
• The potential of creative financing to increase cash flow and prevent losses.

Resources and Further Learning

• Creative Financing Guide available for free.
• Subjectto.com for deeper learning into subject-to deals.

Next Steps in the Deal Process

• Opening escrow and proceeding with transaction coordination.
• Ensuring seller's understanding and agreement with the deal structure.