Bank-Free Creative Financing - A Case Study
November, 2002 - The Deal is Struck
sons offered a lease purchase arrangement to a young married couple with two children: “The Lessor,
in consideration of $3,000.00 paid by the Lessees, hereby grants the first
right of purchase, to the Lessees...."
With these words, this elderly woman
officially became part of a Win-Win real estate transaction.
was not the first time this lady had been involved in ‘Creative Financing’. The first time they bought a home, she and
her husband purchased in the 1950's using ‘Private Investors’, not
a bank. The lenders were not loan sharks or underworld figures but an ordinary
couple looking for an investment in a good family. With this private financing,
Mary and Lou bought a 'handyman special', a single family home in a good
Lou, self taught in carpentry and plumbing, worked for months preparing the house
for his young family. Finally, after nights and weekends of work, they moved their
three sons from a tenement apartment to their newly renovated home. And, they faithfully
paid the loan off and after twenty years, with the final mortgage payment,they symbolically disposed of the loan document at a
mortgage burning party.
The Next Generation of Finance
years passed by and this now older couple retired to the Jersey Shore. When
her husband passed away, Mary remained in her home until she was no longer able
to care for the property.
After a Realtor
estimated a market value at $262,000, her sons decided to sell the property privately at a higher price. taking advantage of
the rising real estate market prices. They
offered the home as a ‘rent to own property’ and organized a contract, with a young couple, to purchase the house at a future date for
Within the contract, the renters were allowed house renovation and rent credit against the purchase price. This
incentive, the renovation credit, solidified the deal over the course of
the contract, because the renters had then put their 'skin' in the game'.
Note: If the renters/ buyers didn't buy the home, the renovations stay and increase the value of the property. These renovations then belong to the seller.
Another Winning Creative Solution for All Parties
two years, the lease matured; the young couple exercised their purchase
option and used the renovation and rental credit
toward the purchase price. The
Seller offered a private mortgage, using the Hidden
Bank or equity in the house for the remainder of the purchase price. This arrangement generated interest and principal payments based upon a 30 year payout with
a "balloon" payment due after 2 years. This income stream became the basis for
paying their mother's assisted living lodging and medical costs.
two years, the young couple approached a conventional bank and paid off the private mortgage. Counting rental income and the balance paid by the privately
financing the property, the deal accumulated over $375,000 in net cash over the
four year period. This cash supported their Mother for 9 years until she joined her
Creative Financing Works!
Contact us and ask for our pamphlet on the "Hidden Bank" which always has cash to lend.