How to buy and sell real estate without using money from the bank
The fact that the banks do not lend does not mean that we cannot do real estate business. Before money was invented, buying and selling occurred all over the world for thousands of years. Bank loans and money are not a necessary component of all transactions.
Example:
Able has too many cows and wants to balance his herd of cattle with some goats. Baker has too many goats and wants to balance his herd of cattle with some cows. Able offers Baker a cow for two goats. Baker counteroffers three goats for two cows. They shake hands and make the exchange. No cash changed hands. Bank financing was not used. An amazing thing just happened: no broker fees, no appraisal fees, no inspection fees, no closing fees, no lender points, no paperwork, no file folder created. A buyer and a seller got together and counted the benefits that each sought to better balance his herds.
They then worked out a mutually fair transaction whereby each obtained the specific benefit sought. Presto, a deal was made without using banks or money. Today we can use this same basic model to facilitate our real estate transactions. The key is to focus on the benefits offered and the benefits sought.
Learn what the other party wants or needs and see if you can match what you have with what the other party wants or needs. Forget the money; forget about involving a bank; approach to satisfy the benefits sought by each party.
Example:
MR Mrs. Able just put her two-bedroom, no-basement starter home under contract to close in 30 days for $275,000 to Mr. and Mrs. Buyer. The Ables agreed to do seller financing for Mr. and Mrs. Buyer because the Buyers were unable to qualify for bank financing. The Ables will get a $35,000 cash down payment and repay a $240,000 first mortgage note with 6.5% interest amortized over 30 years, payable $1,516.96 (principal and interest) per month. The reason the Ables sold was because they needed a bigger house for their growing family.
The Ables cannot qualify for bank financing because he is self-employed and his income is inconsistent in when he receives it and irregular in the amounts he receives. Mrs. Able is a stay at home mom. MR Mrs. Baker, they are an elderly retired couple with some medical problems. They want to sell their current home and move into an assisted living facility. They plan to use the profits from the sales to invest in Bank Certificates of Deposit paying an annual interest of 1.25%; this is the highest rate you can find in today’s financial environment.
A few years ago they planned to earn 4.50% per year, but now they don’t have that rate available. His house has three bedrooms, two bathrooms, a full unfinished basement, and a two-car garage. It’s priced at $395,000, just right for the Able family.
The Ables are offering the Bakers the full price of their home under the following terms: $395,000 full price $240,000 First mortgage note secured by Buyer’s note on the 2-bedroom apartment ———— $155,000 $25,000 cash, from down payment paid by Buyer for 2-bedroom home ————$130,000 new first mortgage note secured by Baker 3-bedroom home (6 .5% annual interest, 30-year amortization, $821.69 per month)
Transaction Summary
Now let’s examine the Benefits flowing from these seamless transactions: Mr. and Mrs. Buyer bought a family home they could afford, without using bank financing, for which they couldn’t have qualified anyway, Mr. and Mrs. Able sold a home in a tough market, at a fair price, and received a valuable first mortgage and cash for her equity. They then used some of the cash and mortgage to buy a larger house at a fair price. SR Mrs. Baker, you sold your home in a tough market, at a fair price, and received two first mortgage notes that paid 6.5% interest each and a combined monthly payment of $2,338.65, much more than 1.25% paid in bank deposit certificates.
THERE IS NO BANK FINANCING. NOBODY PAID MORE. EVERYONE GOT THE BENEFITS LOOKING FOR. THIS WAS A TRUE “WIN-WIN” SITUATION. THIS IS CREATIVE FINANCING AT ITS BEST.