Creative Deal Structuring

April 2006
By Keith Donald

Contrary to popular belief, creative deal structuring, including "Seller-Financing” is a major force in real estate deal-making. This is true even with the popularity of more flexible institutional underwriting and inexpensive financing.

Private financing accounts for over $100 billion in assets in residential markets alone. The market has grown by $20 billion over the past five years. Factoring in commercial, industrial and agricultural real estate transactions, private real estate notes currently represent over $350 billion in total assets.

This pool of private paper assets offers a great resource for investors and those real estate professionals who understand the advantages and techniques of practical real estate deal structuring.

Knowledgeable professionals have long recognized that there are always more takers in the marketplace with Seller-Financed real estate notes than there are cash buyers!

As one respected real estate professional put it: “There are more than 169 known ways to close a real estate transaction -- only one of which is cash!"

Here's a great real-life example of creative deal structuring that took place in Florida some years ago. See if you can follow along.

A retiring landlord listed 20 rental homes valued at $1,000,000 with his local Realtor who was experienced in practical real estate techniques.

The Realtor approached an equally insightful Investor who was willing to trade his $250,000 equity in a multifamily project, which the Realtor subsequently sold, for the 20 homes.

The Investor provided the Seller with an escrow reserve for the remaining $750,000 owed. Now the beauty of this is that the Investor got the money by obtaining a new loan secured by the 20 homes.

The Investor then spent the next six months purchasing $833,000 worth of private real estate notes at a 25% discount using the escrow reserve funds to purchase the notes. Upon the Seller's approval the notes were assigned to the Seller at 90% face value or $750,000.

As a result, the Seller received $833,000 in safe, high-yielding private notes secured by real estate, which only cost the Investor $625,000!

This visionary application of equity exchanging and discounted private real estate notes enabled the Investor to pocket $125,000 in profits, while obtaining ownership of 20 rental homes and completing a transaction with no money down!

The Seller received $83,000 extra out of the deal, while satisfying his objective of achieving a well-secured, low-maintenance, long-term income stream.

The knowledgeable real estate professional sold 20 homes and a $600,000 multifamily project transaction.

As this real life example illustrates, creative real estate techniques offer far more innovative options than simply having a Seller carry back a note or the Realtor simply carrying back a commission.

Regardless of the dollar amount of your next real estate transaction it is extremely important to understand that Seller Financing and creative deal structuring can enhance all your real estate deals.

If you’re not sure how Seller-Financing can help in your case, just visit the web site listed above and follow the instructions.