Creative financing strategy to buy/sell quickly

Just another tool to add your tool belt when traditional financing will not work or is not desired for some reason.

For those who want to BUY property:
I recently helped a man buy several rental properties. He had decent credit (620ish) and 10% cash down from a cash-out refi. He was newly self-employed and couldn’t prove 2 years self employment for traditional financing purposes. He contacted a rehabber that had multiple properties for sale. This rehabber was happy to sell this man these properties at a discount because he was buying several of them (and he had a nice chunk of profit on each from his own labors). At this point we had a good buyer and a seller willing to discount the properties. We structured the terms so that the seller would take the 10% down (on each) and create seller- financing notes for the balances BUT then we bought the carry back notes from the seller at the closing table. Seller financed notes are always bought at a discount depending upon the type of property, the note terms, and particularly the credit of the buyer. So… we structured the actual sales price high enough to cover the discount, but lower or equal to the appraised value. The seller was happy because he got the cash he needed at closing. The buyer was happy because he was able to purchase several new investment properties that he couldn’t have otherwise attained. The buyer paid a higher price for the property than the original discount the seller agreed to take - but it worked out to be about the same for him because there are no points or PMI with seller financing. This was a win-win-win situation.

For those who want to SELL property quickly:
Offering owner financing can widen your pool of buyers and help you to sell your property quickly. The problem is most sellers don’t want to carry the note. They want cash to pay off existing liens and/or to purchase new property. Sellers can easily set up owner financing for their buyer (imagine the responses you will immediately get)… and then sell the note at, or right after closing. All notes are always purchased at a discount depending upon the type of property, the note terms, and especially the buyer’s credit. We can help sellers structure the note to minimize the discount and get the cash they need at closing. This can also work for flippers whereby the flipper structures seller financing for his end buyer and we purchase the note from him. The funds are used to pay off the original seller and the difference goes to the flipper.

The first thing everyone wants to know is how much the discount is. After all, that basically determines how much cash goes in the seller’s pocket. Like everything involving mortgages, the answer is dependent upon many variables – but I’ll try to give you a rough idea.

If the buyer has decent credit, and minimal down payment, is an owner occupant for a single family residence, and the note is structured properly… the seller should expect to receive around 90% of the note balance. If the terms are less favorable, the discount will be higher and possibly vice versa. So… if the seller is willing to accept some amount below the appraised value, we can pretty much structure the deal so that the seller gets the total amount of cash he is expecting. We do that by increasing the Sales Price enough to cover the discount. As long as the property appraises for that final Sales Price value, this technique works.

A commercial deal is a different beast all together. We usually like to see a 70-75% first note. The remaining should be made up with buyer’s down payment and a seller 2nd carryback note, if necessary. The NOI should be good, the payor’s credit should be decent, the terms should be set up to be favorable. All said, the seller could expect 85-90% of the first note balance with this type of setup.

I am a principal investor of seller carry-back mortgages and trust deeds. I either purchase for my own portfolio or I work directly with private investors that I outsource to. I am available anytime to discuss strategies or options for anyone on this website. I have references available upon request. I am also a CPA and I am held by an ethical code of conduct.

Typically, self-promotion is only allowed when done in an “attempt to assist” response to another post. However, since you provided some decent info for the readers, I’ll leave it be.

A 10% discount on a 90% loan is pretty steep if you’re primarily buying for your own portfolio. Although I have little experience in this field, I know there are pure brokers who will do better than that.

Also, a 620 score might get cheaper funds even on a stated low doc loan nowadays, not to mention the seller keeping more profit. I frequently see table funding pitched as a fast alternative to traditional selling, but I fail to see the true benefit when money is cheap and easy. Perhaps it would help me if you painted a clearer picture by comparing what the numbers would have been under traditional financing.

Also, if someone were to structure an 80/10/10 or and 80/15/5, what would your discount be on the first in that situation?

I realize I’m taking the “naysayer” angle here, but I’ve never been convinced table funding is a better or quicker alternative to traditional financing during times of low rates and easy qualifying. Thanks.


I absolutely agree with everything you’ve said… almost. But, remember the first line of the post says “when traditional financing will not work or is not desired for some reason.” I ALWAYS tell my property sellers that if they can get a buyer that can get traditional financing, obviously they should do it. Period. It also only works if the seller of the property is willing to take some cash amount below the value. If the seller is trying to get full value for the property, then he will find a different buyer that can get traditional financing and all will be well.

But there are lots of reasons that traditional financing will not work or is not desired - especially on investment purchases, and even more on a flipped property. Some of those reasons are not enough cash down, no way to prove income, no seasoning on the title of rehabbed and flipped properties, too high debt-to-income ratios, too many new property purchases within the year, etc., etc., all of which I’m sure you are aware.

As far as the 10% discount used in my post, that was only an example. If the property were owner occupied and structured properly, we could probably do much better. I have sold notes for as much as 98% of the unpaid principal balance. But, I would rather use an example that is more along the lines of ordinary than to use one that is probably not realistic and then have the old bait-and-switch problem that many go through in this business when dealing with unreputable sources. The bottom line is that the amount of the discount depends on so many factors, it is really difficult to give an example unless you have all of the information. The example in my post was only an attempt to give the reader an idea, nothing more.

If a buyer can find a property that he can buy substantially below market value (let’s assume 20%) but he can not get traditional financing, then this strategy would work great for him. He may have to increase HIS sales price to 90% of the value, instead of only 80% in order to get the seller the cash he needs after the note is discounted… but he still got the property he wanted and the seller got the cash he wanted. A deal which otherwise could not have been done. Same idea for a seller that has a property that isn’t moving. Instead of lowering the price, why not offer owner financing and discount the note instead.

It’s a tool that I think is very valuable and that can be utilized in SOME instances… but as an alternative not a replacement for… traditional financing.

Hope that clears things up. Thanks for your posting. I think it brought up some questions that need to be answered in order to understand the strategy.