So many people start their real investing journey with the most straightforward of business models — wholesaling or fix & flip — vanilla, linear formulas. Because they work. Those are time-tested, proven solid strategies.
And there’s creative dealmaking — something that the vast majority of investors have heard about but never thought about actually doing… even though it can really open up the doors of possibility.
I’m talking about profit centers you can discover hiding in plain sight… deals that you assumed aren’t deals because you only approached them in one way but actually are deals with different creative models… and so on.
Basically, creative dealmaking is a worthwhile skill to learn and, believe it or not, you can learn how to think creatively sooner rather than later as you structure deals.
I want to share a recent deal that I came across, so you can view it through my creative eyes and get a taste of what it’s like to think creatively, instead of just making low price cash offers for quick wholesale flips. (Again, nothing wrong with those at all! But just want you to see the options you have in the REI game.)
Creative Dealmaking in REI Example
A seller contacted me through one of my websites. She wanted to dump her townhouse ASAP. It’s a 3-bedroom, 1.5-bath in a desirable neighborhood. She already had another house to move into.
Pro Tip: Knowing a seller’s moving plans gives you an inside track on structuring the deal
so you can meet the seller’s needs.
Her Situation
- The house reminds her of her ex, who passed away recently, and the house payment is 1 month behind. She wants nothing to do with the house anymore.
- This is a common thread I encounter — broken relationships.
- She said she wants to put some extra money in her pocket… but that’s just an added benefit from selling and not her primary motivation.
Financial Details
- She’s asking $85,000 for the house.
- Her loan balance is $65,000 and was originated in 2001 on a 30-year fixed rate loan around 7%.
- It needs $10–$12K in repairs.
- The ARV (after repair value) of the property is between $120,000–$125,000.
- Her monthly payment is around $700.
- Rental rates in this area would bring about $875–$925 per month.
How the deal went down
I contracted to buy her property “subject-to” the existing mortgage of $65,000, and I’m giving her $6,000 in cash — instead of the $20k she was asking for originally.
So, I’m buying the property for $71,000 in its current condition, and the property’s ARV is $120,000-$125,000.
One of the “moving parts” of the deal is the money she’s getting at closing and how she receives it. We could have negotiated paying the $6,000 over time, or better yet, when I sell the property at the end. (These are all factors that you, the creative real estate investor, should be thinking about when structuring a deal.)
In this scenario, she needed the money at closing, and I felt there was enough room to give it to her. So, all in all, I’ll be in this property for around $85,000, after the purchase and renovations, with minimal money out of pocket.
Potential exit strategies
One of our Awesomely readers commented that he would do a “handyman lease option.” This is where someone is willing to take a property as-is, do the work themselves and have an option to buy…
- A benefit for that tenant-buyer would be building sweat equity into the property.
- A benefit for the investor is being able to forego the renovation process and spend much less money.
This is a great way to boost your ROI in any deal. The less cash that sits in a deal, the higher the rate of return.
Another option would be to do the renovation with my team and retail the property on the open market. We could even wholesale the deal to another investor for a few thousand dollars by assigning the contract to them. There is never anything wrong with making a few grand and moving on to the next deal.
The Bottom Line: Creative Dealmaking in REI
Ok, hopefully this exercise has been helpful to you and will challenge you to take the time to look at deals that come your way and consider how else you could do them.
Obviously, creative dealmaking is an entire topic of its own — before you embark down this road, do a little self-education on the best practices for doing creative deals.
I love it and maybe you will too.