Equity for a house owner means the difference between the prices you get from a buyer and the amount owed by you to the lender. A real estate investor can generate substantial profits from real estate deals, if he can persuade the seller to move out of his house while accepting only a part of the money. The major part is paid only later, with some compensation for the delay in payment. To be able to fund the purchase deposit, a real estate investor should have the ability to resort to generate cash by creative financing. Creative home financing also gives him the option of generating cash for other requirements like repairs or holding costs. There are various options for creative financing that can be considered by a real estate investor.

1. Using a buyer's purchase deposit. Usually, there are two types of buyer's – the tenant/buyer or a buyer. A tenant/buyer rents the house and has the right to buy the house at a previously agreed price. The tenant/buyer pays a minimum of 3% non-refundable purchase deposit on the sales contract, upfront. This can even be increased up to 5%. The down payment can be partially supplemented by undertaking repairs to a house before moving in. A buyer puts down 10-15% down payment before occupying the house. The house deal can be closed with owner-financed loan. The buyer can even go in for a new loan to pay the real estate investor completely before buying the house. Creative financing demands that a 3% down payment is a must from the buyer before he occupies the house. It enables cash payments to the seller, holding costs, closing costs, minor repairs and maintenance of the property, without dipping into your own funds.

2. Taking loans from a private lender. 

• Taking a loan to buy the house and resell it to tenant/buyer is a creative home financing method. Many private lenders offer ‘interest only’ loans to safeguard and grow their principal investment. The private lender can charge 11 to 16% interest on their loans and offer 3 to 10 points. They are only concerned with the value of their property that secures their first mortgage. 
• If the seller of the house has a 50% mortgage left on the $100,000 value of the house, the investor should take a second mortgage of $25,000 and give it to the seller to raise his equity. Take over his first mortgage ‘subject to, as it will have better interest rate and no points. This creative financing technique helps in saving the investor’s money and allows him to pay more for the house. 

3. Deferring down payments. Any left over equity of the house can be offered to the seller in the form of deferred down payment. The investor pays the seller the balance amount in a single lump payment when he resells or refinances the property. This creative home financing helps in saving on monthly payments and the accrued interest. If the seller wants monthly payments or interest, he should take over an existing loan with good terms and offer him the monthly payments but on lower interest rates. This is known as ‘no money down’ method of deferred down payments. The cash needed for this type of deal comes from the buyer’s new loan. 

4. Substituting of collateral. Another creative financing method is to resell the house on a profit with ‘flexible owner financing’ on higher equity than on that it was bought. The seller can be paid a certain percentage of cash and rest as mortgage on second properties at higher accumulated 5-year balloon interest rate by taping in equity from other properties at low rate. 

5. Opening an equity line of credit. An investor can raise cash by borrowing against equity in personal residence or other investment properties. Set up a line of credit by pledging other second mortgages held as collateral. Use this money to close a deal and pay it back after selling or occupying the property, thus paying just the interest on that portion of the credit line and gaining monthly incomes that you will own. This creative home financing method can even get 10-15% off from the actual property price.

6. Selling a house or real estate note for cash. If the investor has his cash or profits tied up in real estate or notes, it is better to liquidate it to retrieve some of the investment for making better deals. Slashing the property price can help recover the tied up cash and is another route towards creative home financing.

Creative financing by a real estate investor gives him various options to raise cash. The cash can then be used to fund the purchase deposit, for repairs or holding costs. The option adopted should be the one that is the most cost-effective and fetches you the best returns.

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