hello out there again this is Peter Harrison promotional property advisers also author of this book commercial real estate investing for dummies and coach and mentor to many commercial real estate investors all the crosses great nation of ours the title and subject of today's video is creative financing for commercial real estate is really important that you know how to structure deals that no one else does what if you don't have enough of a downpayment how do you close that deal what if you find a great deal that's distressed how do you finance something like that what if the seller has a great property with great upside but has no financials how do you creatively structure and close that deal well in my experience real estate agents are not the best source to learn how to be creative in commercial real estate they're more concerned about your commission and rightfully so because they have to make a living so they're not a good source and also my experience nearly 95% of all sellers have no clue how to creatively structure anything creative so they're not a good source either so who's left it's you so it's going to be up to you to learn this topic very well so in this video I'm going to dive deep into details on how to show you how to create any closed deals that you otherwise would have possibly passed on okay so let's get starting to go over seven things today with you today number one is the three fundamental creative financing strategies every single deal that I've seen done credibly are bred from one of these three fundamental strategies number two I'm going to show you how to structure deals commercial deals with little money credit or experience the key word here is little money in commercial real estate you do need a little bit of money number three I'm going to show you how to finance a distressed commercial property you're going to find out there there's lots of motivated owners with distressed properties that banks won't touch how do you find themselves number four I'm going to show you the single most important mentality to have when structuring a creative deal with a motivated seller and they're ready and willing property number five I'm going to share with you why would a seller even consider create a financing I'm going to give you four reasons why they would even consider create a financing very important topic at number six the one secret to create a financing yes it's very simple is not what you think it is but it's very powerful I'm going to start here though I'm gonna start with number seven the power and importance in knowing how to structure create a financing for commercial property and more importantly why you would do that alright let's jump into the power and importance of knowing how and why to structure commercial deals creatively number one is leverage don't you agree that there's power in knowing how to lower your down payment alright there's power there don't you also great that there's there's power and learning how to avoid banks and lenders and credit rupturing your commercial bills there's great power there number two is you have the cash but not the credit or experience so these guys have recovered well from the recession they built up a little bit of savings but they have no credit and they have no experience a bit they're not favorable to the bank right so how do you structure a deal like that they found a great property they have the money but they don't have these two requirements here to get to commercial property so there's power and knowing how to do that number three I said number three for you commercial whole sellers out there or those of you wanting to wholesale commercial properties out there for big dollars we T set in our company here how to structure wholesale deals that are small and and on the large side and if you were to structure a creative deal let's say with a master lease what the seller carries second mortgage seller carry first mortgage all those type of things that are that are really really cool then the teaching few minutes if you were to structure a deal like that and take it to your buyer it will immediately give the impression to your buyer that your deal is unique and very desirable all right very very important here number four knowing how to structure creative deals it gives you a way to finance distressed properties that a bank wouldn't touch you're going to run across quite a few of those as you jump into commercial real estate number five is a how to deal with the seller who wants to sell but he wants to sell but he's concerned about his capital gains taxes all right how do you deal with that you're going to want to cross quite a few of those sellers and you must know how to structure deals where you can quote-unquote avoid or delay their capital gains returns I'm going to sure to do that in example in a few minutes number six you're dealing with a seller who is ill elderly or burnt-out now let me stop here for a second how many of you know a seller who is ill elderly amber job you know either residential or commercial how many of you a raise your hands I bet a lot of you have seen those type of sellers alright how do you deal with those I bet some of you have unknown Lee passed through or passed on quantity few of those deals because you had no clue of how to handle those sellers well after his training you're going to know how to deal with them all right number seven it's just plain fun putting together creative commercial deals is just plain fun it's so fulfilling for me and for my students I would say that roughly half of the deals that we do have some type of creative component so it's just a lot of fun and lastly I know for a fact that some of you have run across this situation all right where you need to leverage where you have the cash without the credit where you find a distressed property or distress owner and you had no clue of what to do alright or maybe one of you are trying to sell a property and this and you fit one of these categories right so this video is for you so the next few minutes I just want you to pay attention and watch closely and understanding that there is power and importance of knowing how to creatively finance commercial estate deals all right let's get into the one secret to sell in financing the one secret for creative commercial financing all right here it is I'm going to unveil it right now here's the one secret the one secret is to ask that's right there is power in asking in life if you do not ask you did not get that's how it works in real estate the same thing especially when you do something creative you must ask the seller here's how you ask you would say mr. seller would you be open to any type of summer financing you see pretty simple right now if the seller says yes what do you have in mind you would just say I'm not sure yet I just want to see if you're open to it I'll get back to you that simple if the seller says no okay to us no means not yet or yes to something else okay that's matagi have been dealing with sellers with seller financing no means not yet or yes to something else all right next I have just one rule one asking okay one rule want you to follow here's the one rule the one rule is never ask for seller financing on their first phone call all right that will tell them that you have no money and you will scare him away so that's my one rule all right so never ask for seven financing on their first phone call so now I want to jump into more of them meat of the video I want to go now into the three fundamental strategies of creative commercial financing all right all right let's get started with the three fundamental creative strategies for commercial estate financing nearly all of our creative deals that we've done in our company have all started with this with one two and three now it's really difficult to create anything of value without a solid foundation that goes for life as well right now in commercial estate that is so true the three fundamental strategies that you really have to learn number one is the owner carry first mortgage the owner carry second mortgage and the master lease agreement in a few minutes I'm going to give you an example and break down all three of these for you but first let me give you a quick 10 second explanation of each and then we'll dive deep into the details okay number one the owner carry first mortgage is exactly what it is the owner is carrying your first mortgage he is being the bank for you for example let's say the purchase price of a property is $100,000 I'm just making it up and the down payment is $10,000 that means the mortgage is going to be $90,000 right so the seller is going to carry the mortgage for you this is great for properties that are owned free and clear now when I dive deep into details on this on the air I'm going to give you a few examples of when and how to use this strategy all right number two is the owner carry second mortgage like the first the owners carrying a second mortgage for you so that means their first mortgage is with the bank the second mortgage is what the owner here's a quick example let's say that the bank is requiring a 25% down payment which is quite typical right now but you only have 15% of the 25 what happens to the other 10% well in this strategy the owner can carry that short is that 10% for you so the bank will carry the 15% mortgage and the seller will carry that the 10% mortgage equaling 25% is a great way to leverage and to increase drastically your cash on cash return all right again I'll give you another deeper example this is a couple minutes now number three is the master lease agreement and you guys know that that's one of my favorite techniques to use when buying creative commercial real estate however in this video I'm not going to go any further on this technique because I have another video on this channel that explains it completely okay so again nearly all of our creative deals have started have begun on bread from the owner Kerry first the owner carrie's second and emasculates now what I would like to do is give you a quick example a little deeper explanation of the owner Kerry first market strategy number one is the owner Kerry first mortgage in this part of the video I'm going to give you a quick example of how I only care if first mortgage works first and secondly I'm going to share with you where is useful for in this section right here alright so let's get started here let's say you have an 8 unit apartment building and the purchase price is $500,000 as an example okay you found this property now this quickly compute the income and expenses all right so we have 8 units at $800 a month times 12 months is equal to 7 $6,000 800 ok so now we have the income next is the expenses now we're going to take away 35% for a typical and normal expenses 35% of 76 thousand eight hundred for expenses i'ma so to do that subtraction and I come up with 49 thousand dollars so income minus expenses equals 49 thousand dollars that's by the way the net operating income very important term so now how the income have expenses what's next going to figure out the mortgage right so in this deal we have negotiated a 10% down turn why is because the owner owns it free and clear and he can be the bank so we're going to offer him 10% down on this property 10% of $500,000 is $50,000 so your mortgage is going to be four hundred and fifty thousand dollars right now let's figure out what the payments will be I'm going to make this up again all right so payments can be 5% with a 30-year amortization pretty typical so those payments will be about $2,400 a month which would be about $29,000 a year so we have mortgage payments in about $29,000 per year okay mortgage payments so what I do next is I will subtract my mortgage payments for my Noi so if I do 49 thousand dollars - twenty-nine thousand dollars equals twenty thousand dollars per year in cash flow right so that's my cash flow twenty thousand dollars per year now to do ROI calculation or a cache of gas calculations basically you would divide your annual cash flow by your down payment right so twenty thousand dollars divided by fifty thousand dollars that's a pretty good cash on cash return all right so you do the math that's really really good but that's only possible because you put down 10% that's only possible now you understand the only care first mortgage and it's only possible because he owns the property free and clear so only carry first mortgages are great for free and clear properties aren't very useful so the next time you find an owner who owns is property free and clear check out this strategy and see if it works we have you now know how the math works right it's also useful for distressed owners it's also useful for when you have little cash no credit or experience why is because if you have little cash let's say you want to buy this property it will pop from a banker it probably cost 25 percent down payment but because he can be the bank force we're able to put down 10% you don't need credit or experience because the seller is the bank there's no credit requirement other than what the seller wants to see next is this is really cool if the owner used to delay paying capital gains taxes at these sales so the only care first mortgage works really really low for that in fact that little technique is called the installment sale all right I'm not going to go too now but installment cell is a very very effective technique if the seller needs to somehow split up his capital gains taxes over the course of years for example let's say that you know he owned is probably free and clear and he's about to make a huge profit he doesn't want to pay one lump sum of taxes and you can do installment sale with the only carrier first mortgage and you can buy his property over the next five years twenty percent of the time something like that so you can be as creative as you can be on this type of strategy all right okay in summary this is the only carrier first mortgage now you know how to calculate the cash flow and cash on cash return and this is what is useful for the next thing I'm going to go over with you is the owner carry second mortgage fundamental strategy number two is the owner carry second mortgage much like I did in the owner carry first mortgage I'm going to share with you the concept how the only carry second mortgage works and then I'm going to give you how a word to use it all right so let's get started let's say that you have an 8 unit apartment complex commercial property $500,000 purchase price and the down payment from bank so typically is going to be 25% on average ok so 25% of the purchase price of $500,000 is $125,000 what if you couldn't come up with the entire $125,000 but the seller is motivated he wanted to sell but all you had was $50,000 but the bank was a total equity 125 what do you do well what you do is you have this seller the owner carry a second mortgage in the amount of $75,000 he carries a 75 you have the 50 you meet the banks $125,000 equity requirement so the bank is happy you get to buy their property and the seller gets a seller's property what are the small but important detail need to add is when you do your calculations cash flow don't forget that you making a second mortgage payment you make an interest only payment on the $75,000 of the seller okay so that means that you're going to have two mortgages to pay so make sure the numbers work out so here's how this is useful and we're how this can be used now again let's say you have a motivated seller but you only have 50,000 of the 125 well this is useful for we need to leverage right you're leveraging your $50,000 into this deal because you have a down payment shortage so it's very useful for that but you need to have a motivated seller for that to work so we have a motivated seller and ready willing bank that will allow a seller carry second you can leverage your $50,000 into a $500,000 property now what it does is when you're putting down $50,000 that's your outlay your investment instead of the 125 well what basically it's going to increase your cash on cash returns so in this case your ROI your cash and cash return is going to more than double that would be if you were to put down $125,000 so the seller the owner carry second mortgage is a great way to not only leverage but to just go through the roof on your cash and cash and all awry when you see this language here let's say that you're on loop net or any other type of online community where you see commercial properties or you can maybe in a flyer you see this language here seller financing available if you see that or you see owner may carry all right that is code language for motivated seller for seller needs to move this property so this is code language for bringing something creative now you know what to bring them you see this language you bring them an owner carrie's second mortgage offer you now know how and where it's useful for the only carry second mortgage the next thing I wanted to yes with you is why would a seller even consider creative financing with you so I'm going to share four reasons of why that may be possible in this part of the training I am going to answer the question why would a celery may consider creative financing why would the seller just go ahead and just put the property on the market and just sell it why wouldn't he just pull in a cash buyer and sell the property for the price he wants to be done with it well in many cases he may not be able to and the reason why is because of these four reasons you guys have just learned how to put together conceptually a celery carry first mortgage a seller carry second mortgage and the mass release you can now take those three strategies and see if your seller falls in one of these four categories or reasons and apply what you just learned all right let me get started number one the first reason why seller would even consider creative financing is if this property has high vacancy is in poor condition these days if a property is 80 percent occupied it's considered distressed these days right so a bank wouldn't want to qualify the property for alone so how could you sell it for top dollar with a high vacancy same thing in poor conditioning properties poor condition same situation as this year so if a property is suffers from of this and the seller still wants to sell the property the only way to get his price is to do creative financing got it number two let's say the property is in good condition because your conditions okay but the sellers not what if the seller kept no books and records on the property amazing as it sounds a lot of commercial owners keep very poor records of their income and expenses it doesn't allow you to validate how much the property makes if it doesn't allow you to validate it the bank is going to have the same problem so that is not going to give you the dollars you need to buy the property the banks made but they may I want to ask for a large down payment to protect their downside in a deal makes no sense when the property is okay but there's nothing to substantiate the pricing that's when creative financing may come into play number three let's say the seller has concerns about paying capital gains taxes if he sells we want to learn from previous video about the master lease which is a creative financing technique you also learned that the owner carry first in both situations we can mitigate his concerns about paying taxes when sells we can mitigate it by spreading out over time his capital gains taxes so you can look at an installment sale you can look at a master lease you can look at an owner care first mortgage as a way to mitigate this these three reasons are out there when you're looking at a lot of deals commercial deals and you are talking to the seller directly you're going to run across these three I guarantee it number four is the seller needs a quick sale because of a life situation for example if the seller is still going through boards or being relocated he needs to sell the property quickly sometimes for privacy say a seller does not want to list the property on MLS or on online and once a quick sale alright so in any case when a live circumstance requires a quick sell the best way the best way is to just to do creative financing alright so the next thing I want to talk about is what is the single most important mentality mentality mindset that you need to have when you are putting together a creative commercial deal the last thing I want to share with you today is what is the single most important mentality to have when structuring creative commercial estate finance all right here it is it be summed up in one sentence mr. seller I will give you your blank if you give me my blank all right so this is going to set your posture moving forward when you structure anything creative in commercial real estate all right so watch this mr. seller I will give you your price if you give me my terms that's your posture I always that's the single most important mentality to have when you're structuring anything creative if the seller wants this price you get your terms repeat after me mr. seller I will give you your price if you give me my terms that's your posture moving forward so when you when you want to put together anything creative like the seller carry first sell the carry second master lease this is your posture mister seller I'll give you a price but I want my terms now you guys are probably wondering how do you come up with the terms that's easy the terms will come up via the sellers motivations so we do we ask the sum of a bunch of questions we visit the seller we look at financials we do an evaluation we listen very carefully and we come up with the sellers motivations we take those sales motivations and we structure the creative deals all right that's how you do that okay so terms come from seller motivations I'm going to give you a quick example here of how that works here you have one question but two potential answers and it will put together how you come up with the terms from the sellers motivations three quick examples example number one if the seller inherited that property that's in high distress and what's a quick sell what's most likely to work a is a small down payment ten-day to diligence and 15-day close or is it a large down payment or 60-day close again the question is if the seller inherited the property that's in high distress and what's a quick sell what's most likely to work a small down payment ten-day due diligence and 15-day close or a large down payment sixty-day close the answer is a right because what's the motivation he's distressed needs a quick sell so a small down payment maybe okay ten-day due diligence as opposed to 30 will be great and a 15-day close that will get the deal done so that's how you measure the motivations versus the terms second example the seller wants to delay paying capital gains if she were to sell so what's most likely to work an outright sale with a low-key wealthy cash buyer in close to seven days or a master lease term over an extended amount of time that you can sell to agree upon the obvious answer is be the master leaves will you extend a deal out because their motivation is what she doesn't want to pay what she wants to delay her capital gains again what's the motivation we set the terms here's the last example they were done the seller wants to sell but would like to maintain some type of monthly income from the property what's most likely to work a mass release where you structure a monthly payment plan to him over and above paying his mortgage or be and master lease were a joint venture where he shares in the profits when you sell the property years down the road what's the answer most of motivation he wants to sell but he wants to maintain monthly income so the answer is a a master lease where you structure a monthly payment to him over and above the mortgage payment so now you have an idea of how to listen for the motivations and structure them into something creative okay so hope you enjoy today's video if you want more videos like this please go onto our website commercial property advisors dot-com thank you for watching three fundamental creative strategies for commercial real estate I will see you at the next video
