Why Would a Seller Consider Creative Financing?

How to Structure Creative Real Estate Deals

It’s really important that you know how to structure deals that no one else does. What if you don’t have enough of a down payment? How do you close that deal? What if you find a great deal that’s distressed? How do you finance something like that? What if the seller has a great property with great upside, but has no financials? How do you creatively structure and close that deal?

Four reasons of how creative financing may be possible for you to close your next deal. “Why would a seller even consider creative financing? Why wouldn’t the seller just go ahead and just put their property on the market and just sell it? Why wouldn’t he just pull in the cash buyer and sell the property for the price he wants and be done with it?”

Well, in many cases, he may not be able to. These may be one of the reasons a seller will consider creative financing:

  1. The first reason why a seller would even consider creative financing is if this property has high vacancy or is in poor condition. These days, if a property is eighty percent occupied, it’s considered distressed these days, all right? A bank wouldn’t want to qualify the property for a loan, so how could you sell it for top dollar with high vacancy? Same thing with poor conditioning. The property’s in poor condition, same situation as this here. If a property suffers from this, and the seller still wants to sell the property, the only way to get his price is to do creative financing.
  1. Let’s say the property is in good condition, condition’s okay, but the seller’s not. What if the seller kept no books and records on the property? Amazing as it sounds, a lot of commercial owners keep very poor records of their income and expense. It doesn’t allow you to validate how much the property makes.

If it doesn’t allow you to validate it, the bank is going to have the same problem, so the bank is not going to give you the dollars you need to buy the property. The banks may do that, but they may want to ask for a large down payment to protect their downside, and the deal makes no sense. When the property’s okay, but there’s nothing to substantiate the pricing, that’s when creative financing may come into play.

  1. Let’s say the seller has concerns about paying capital gains taxes if he sells. Some sellers use seller financing (owner is the bank) to mitigate their concerns about paying taxes when they sell. We can mitigate it by spreading out over time his capital gains taxes. You can look at an installment sale as a creative financing solution. You can also look into structuring a master lease. You can look at an owner carry first mortgage as a way to mitigate this as well.
  1. The seller needs a quick sale because of a life situation. For example, if the seller is ill, going through divorce, or being relocated, he needs to sell the property quickly. Sometimes, for privacy’s sake, a seller does not want to list a property on MLS or online, and wants a quick sale. In any case, when a life circumstance requires a quick sale, the best way is to do creative financing.

Give us a call at California Private Money Lenders to discuss how creative financing can benefit you the buyer but also the seller. We are just a phone call away at 707-315-1119 or fill out our contact form or borrower form and one of our trained private money professionals will be in touch promptly to answer your questions.

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