21 Creative Financing Terms for Your Real Estate Investing Toolbox

1. Payments – A payment is the trade of value from one party to another to fulfill a legal obligation. 2. Amortization – The reduction of loan value over a set period of time. 3. Interest – Interest is payment from a borrower to a lender of an amount above repayment of the principal amount borrowed, at a particular rate. 4. Principal – A capital sum earning interest, due as a debt. 5. Credit – The provision of money, goods, or services with the expectation of future payment. 6. Down Payment – A part of the full price paid at the time of purchase with the balance to be paid later. 7. Balloon Payment – a final payment that is much larger than any earlier payment made on a debt. 8. Moratorium – an authorized period of delay in the performance of a legal obligation or the payment of a debt. 9. Profit Share – Payments to principals in a transaction that depend on the profitability of the transaction. 10. Option – A contract that offers the buyer the right, but not the obligation, to buy a property at an agreed-upon price during a certain period of time or on a specific date. 11. Lease – A contract by which one party conveys property to another for a specified time, usually in return for a periodic payment. 12. Lease to Own – A contract that combines elements of a traditional lease agreement with an exclusive option to purchase. 13. Carry Back – When a seller acts as the bank or lender and carries a mortgage on the subject property. 14. Subject-to – Buying a home subject to the existing mortgage. While title is transferred to a buyer, the existing mortgage stays in place where the buyer takes over the payments. 15. Deferral – A postponement of an action or event (deferred interest, deferred profit, deferred down). 16. Wrap – A term for wraparound mortgage or one where an existing mortgage is wrapped around by a new mortgage. 17. Equity Sharing – Sharing ownership, value and appreciation in a property. 18. Agreement for Deed – Also referred to as Contract for Deed/Land Contract/Installment Contract. An agreement of periodic payments to buy property. Title remains with Seller until agreement is fulfilled. 19. All Inclusive Trust Deed (AITD) – A document secured by a promissory note which combines multiple loans into a single security instrument. 20. Master Lease – A controlling lease under which a lessee can sub-lease the property for a period not extending the term of the master lease. 21. Promissory Note – Written, signed, unconditional, and unsecured promise by one party (the maker or promisor) to another (the payee or promisee) that commits the maker to pay a specified sum on demand, or on a fixed or a determinable date.

Watch https://youtu.be/5ymUQXLK6HE for an explanation of why the “deal after the deal” is so important. Recommended clauses to include in your seller-financed documents for maximizing your returns.

BORROWER’S RIGHT TO PREPAY The Borrower reserves the right to prepay this Note (in whole or in part) prior to the due date with no charge or penalty. If Borrower makes a partial prepayment of five-percent or greater of loan amount and/or a change in interest rate per the terms of this Security Instrument or mutually agreed between Lender and Borrower occurs during the term, Borrower reserves the right, but not the obligation, to cause the loan to be recalculated with a new amortization schedule based on the note’s remaining principal and term.

RIGHT OF FIRST REFUSAL TO PURCHASE NOTE Lender hereby grants Borrower a right of first refusal to purchase this promissory note or any portion of this note if during the term of the note Lender receives either a bona fide written offer by a willing third party to purchase all or any part of this note which Lender intends to accept, or a purchase agreement which Seller intends to enter into (collectively,“Offer”), Seller shall give written notice to Purchaser at the address provided below accompanied by a copy of such Offer at least fifteen (15) days before the date of contemplated sale.

SUBSTITUTION OF COLLATERAL Lender agrees to allow Borrower to substitute any property or properties in which the Borrower has a total amount of equity equal to or greater than the amount of equity as existed to secure this note at the time this note was created, as collateral for this promissory note and accompanying Deed of Trust. Furthermore, Lender agrees to execute in a timely manner any documents necessary for the implementation of this substitution of collateral.

TRANSFER OF THE PROPERTY If all or any part of the Property or any interest in it is sold or transferred (or if a beneficial interest in Borrower is sold or transferred and Borrower is not a natural person) without Lender's prior written consent, Lender may not require immediate payment in full of all sums secured by this Security Instrument.

SUBORDINATION Lender agrees to subordinate this promissory note (and accompanying Deed of Trust/Mortgage) to any future financing Borrower secures against this property providing Borrower maintains the same amount of equity protecting this promissory note by Borrower to Lender as existed at the creation of this note. Furthermore, Lender agrees to execute any necessary paperwork in a timely fashion to comply with this provision.

EXTENSION OF NOTE Borrower may renew this note for _____ additional _____ month terms by paying to Note Holder $______of principal on or before 30 days prior to the expiration of this promissory note or any extension thereof.

10 Creative Deal Structure Examples (educational purposes only)

ASSUMPTIONS- • FMV: $100,000 • Seller’s Asking Price: $95,000 • Monthly Rent: $1,100 • No Mortgage • No Repairs PRICE TERMS

$50,000 Cash, 21 day close

$55,000 $5,000 non-refundable EMD (applied to purchase), $40,000 down payment due at closing (30 day escrow), $15,000 when sold or refinanced

$60,000 $30,000 down payment due at closing (30 day escrow, 21 day inspection contingency), seller carry back financing of $30,000 at 6%, amortized over 30 years, balloon payment due in 2 years. Profit share 80% buyer/20% seller when re-sold or refinanced at $80,000 or greater

$65,000 $30,000 down payment, $20,000 due at closing (30 day escrow, 30 day inspection contingency), $10,000 deferred 6 months, seller carry back $35,000 at 5%, amortized over 30 years, balloon payment due in 5 years

$70,000 $20,000 down payment due at closing (45 day escrow, 30 day inspection contingency), seller carry back $50,000 amortized over 30 years at 2% interest first 3 years and at 5% interest years 4 through 7. 6 month moratorium on first payment. Balloon payment due in 7 years.

$80,000 $20,000 down payment due at closing (45 day escrow, 35 day inspection contingency), $30,000 divided in 48 equal monthly payments, $30,000 at 6% interest with payments commencing on year 5 amortized over 15 years.

$90,000 $15,000 down payment due at closing (60 day escrow, 45 day inspection contingency), 100 monthly payments of $500, balance due on 101st payment.

$100,000 $15,000 down payment due at closing (30 day escrow, 21 day inspection contingency), 200 equal monthly payments of $475