Is “Creative Financing” Really That Creative?

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The term “creative financing” has become an increasingly common word in the language of real estate investors. But is “creative financing” really that creative…is it just creative in comparison to “normal financing” from banks? And is “creative financing” something to be proud of, or is something to be embarrassed about, that you have to “fall back on” because you don’t qualify for regular financing?

In this episode, Jeff dives deep into what “creative financing” means, and explains why creative financing isn’t really that creative—it’s just resourceful problem-solving. And most importantly, Jeff explains why being a resourceful, problem-solving creative financing dealmaker is something to be proud of, even if the rest of the world doesn’t understand.

Episode Transcript

Hey, super quick, before we dive into this episode, I want to share with you a belief that I have, I want to see if you share this belief with me. You see, I believe that we as real estate entrepreneurs should get to grow our real estate portfolios or rental portfolios at the rate that we want to not at the rate that a bank or the marketplace tells us that we can see when I talk to real estate entrepreneurs, which I have the privilege of doing so often. Really, there’s three problems that come up when I asked them what are they encountering when they try to scale and they say there’s three things: number one is, they have to have access to deals that actually make sense. And they’re having trouble doing that. Number two, they’re having trouble getting access to enough loans to be able to buy those properties. And then even if they had both the access to deals and the loans, they don’t feel like they have enough access to cash. And those three reasons are why I created a new program called deals.

So here’s the deal with deals pun intended. Yes, absolutely. Of course, I would do that. This is a group coaching program, with a structured curriculum that is all about leading you through the linear process of creating an off-market acquisition system for seller financing deals, so that you’re not limited by what the market has to offer. You’re not limited by what the banks will give you and shows you also some new fresh alternative ways you can generate cash to do the deals you need.

Now, look, I know that deals are not for everybody. And that’s totally okay. So if you think the deals program is the right fit to help you get where you’re trying to go in your portfolio, go to www.thoughtfulre.com/deals, and on that page, you’ll see a little description of the program. And if you are interested, just hit the button where you can start a conversation, I would definitely want to personally ask you a few questions and make sure that you are a fit because I know it’s not for everybody and that is a-ok, so head on over to www.thoughtfulre.com/deals to find out about this group coaching program to help you slay those three problems that we have when we try to scale access to deals access to the right loans, and access to cash. All right on with today’s episode.

One of the popular words these days in real estate investing is creative finance. But sometimes I find myself wondering, is creative financing really that creative? Or is it only creative because it’s sitting next to normal conventional financing? So is it really that creative? Or is the normal financing just really uncreative? Well, we’re going to ponder that today and discuss that. But more importantly, we’re going to talk about why this distinction matters for you in terms of your mind and in terms of the other way that people perceive you. So let’s cue up our theme song I want to dive right into this. It’ll be a little bit of a rant a little bit philosophical and also very practical.

Welcome to Racking Up Rentals, a show about how regular people those of us without huge war chest of capital or insider connections can build lasting wealth acquiring a portfolio of buy and hold real estate. But we don’t just go mainstream looking at what’s on the market and asking banks for loans nor are we posting We Buy Houses signs are just looking for “motivated sellers” to make lowball offers to you see, we are people-oriented dealmakers we sit down directly with sellers to work out win-win deals without agents or any other obstacles, and buy properties nobody else even knows are for sale. I’m Jeff from a Thoughtful Real Estate Entrepreneur. If you’re the kind of real estate investor who wants long term wealth, not get rich quick gimmicks or pictures of yourself holding fat checks on social media. This show is for you. Join me and quietly become the wealthiest person on your block. Now let’s go rack up a rental portfolio.

Thanks for joining me for another episode of Racking Up Rentals. Show notes for this episode are going to be at www.thoughtfulre.com/e79. Hey, please do us a big favor by hitting the subscribe button real quick and your podcast app should just take a second. And it really does help send a message back to the podcast platforms that they should tell other people looking for great real estate content that our podcast is what they should check out. Thank you so much for doing that. Onward with today’s episode.

So as I mentioned in the intro, I want to ponder this question of is creative financing really creative? And maybe just as importantly, you know, who cares? Is this just some real estate geek? You know, philosophizing on you know the deep thoughts in life and real estate business or is there actually a point here and I think it is true that both are the case. We are deeply thinking but there is a practical point on this as well. And that’s what I want to get around to. You know that TV show, the Iron Chef? Well, I don’t watch a lot of cooking shows myself, but if I was going to watch one, it would be that one because I think it’s really interesting to see people be presented with some unique ingredients that they don’t get to use all the time. And then to be asked to create certain outcomes with those unique ingredients, right? That’s kind of the gist of Iron Chef. And in many ways, that’s kind of the gist of what we do when we are practicing, quote, creative financing, as well. So I bring you back to this question, is creative financing, really that creative? Or is it only creative because we’re putting it right next to something that is extremely boring, and comparing it to that. And that would be traditional bank financing. And I would argue that the normal type of financing is really uncreative, that our creative financing isn’t that creative. In and of itself, it’s just simply basic financing. It’s just that it looks more interesting when compared to the normal stuff, right? If you put, you know, chocolate peanut butter swirl ice cream, next to vanilla ice cream, it looks more interesting than vanilla ice cream, because vanilla ice cream is sort of what we think of as like the baseline. So anything that’s not the baseline is now considered unique and more interesting, but isn’t intrinsically creative.

Here’s my take normal bank financing is a template; it tells you here’s how this works. Let us make some of the decisions for you. Let us do the thinking for you. You know what our loan program, it’s built there, it’s built this way to protect you will tell you what loan amount is safe in relation to your purchase price will tell you how much you need to put down so that you are protected against a downturn, we’ll tell you what your debt service coverage ratio should be. So that you know that if there’s a decrease in your monthly income, that you’ll be protected. We do all the thinking for you. So you don’t have to, and you know, what templates do? templates make you lazy? I saw a question the other day somewhere on Facebook, or somebody said, Hey, can you please point me to deal calculators for XYZ thing, and I just had to comment and I had to say, you know what? I’m really not a fan of deal calculators. You know why? Because deal calculators make you lazy. They do too much of the thinking for you. If you build your own little analysis spreadsheet, if you effectively build your own deal calculator on a case-by-case basis, is it going to take you longer? Yeah. But you know, what it absolutely forces you to do is think it through from start to finish. And I would argue that it’s thoughtful real estate entrepreneurs, we don’t we’re not looking for ways to make things harder on ourselves. But we are looking to make sure that we are being thoughtful and thinking things through from every angle that we want to templates make you lazy and non-creative financing, like bank financing is a template. The people who are part of the establishment who represent what this non-creative bank financing really is, they want you to believe that it is the only way to do things, they want you to believe that it is the right way to do things.

And thus, they want you to feel like creative financing means exotic financing, that creative financing must be weird and scary, because it’s different than the normal template and creative way that they represent and that they advise and that they promote in the world. They want you to think that creative is only for people who can’t do things the normal way. They want you to think that creative is inferior to the normal way that the normal way is better that creative financing is desperate financing. Creative financing is a Hail Mary for people who aren’t really qualified to do a deal, but they’re scraping together some way to make something happen that they really shouldn’t. When they talk to you about creative financing by comparison to their normal uncreative financing, there’s judgment built in the judgment is saying, Well, if you were a normal upstanding citizen, you would just go get one of our normal loans and you would qualify for that. But since you’re doing this creative thing, well, that must mean that you are not at that same level that you have to find some other way of doing things because frankly, you’re not good enough for the normal. uncreative but conventional type of path.

They say creative is exotic and it’s weird, and it’s scary. I say that intelligence is your ability to solve problems and create creative finance. When other people say creative finance, it is simply you looking at a problem. And you seeing a lot of different ways to solve that problem, not just the one conventional way to solve that problem. So I would say the most intelligent people are the ones who have the best problem-solving skills. And that’s what creative finance, so to speak, really is. It’s your ability to get things done. And in order to get things done, it is your ability to understand the elements that make up a deal. It’s your ability to not just understand those elements. But to be able to pull those elements apart in your mind, and to see how those elements could go together in different configurations that still meet the objective. Creative, as far as I’m concerned, makes you a more versatile, being creative.

Being a creative deal structure makes you more resilient, it makes you less reliant on anybody else, or anybody else’s approval, or a normal path or anything else like that. It makes you more self-sufficient. It makes you more independent. I’ll tell you, if you’re going to be dropped into the world with no resources at your disposal other than your knowledge, you are going to want to be as resourceful as possible. And you’re going to be very grateful that you have those resourcefulness skills. And when you only do things the normal way or when you believe that the sort of normal bank financing uncreative way of doing things is normal and it’s better and that it’s, you know, the baseline that you should be shooting for when you believe that it doesn’t give you a chance to develop your resourcefulness and resourcefulness, I would say is the number one criteria of a successful entrepreneur in any industry in any area of business whatsoever. It’s resourcefulness. I want you to develop your resourcefulness and being a practitioner of quote, creative financing is a way to always do that.

So here is my practical set of takeaways for you. Okay, now I’m done ranting. I promise. I’ll rant privately after I stopped recording. But here are my practical takeaways for you: embrace the idea of being a creative dealmaker, embrace the idea of being a creative deal structure and a creative financier, because when you are a creative person like that, it makes you better. It makes you more versatile, more self-sufficient and more independent. You don’t just blindly follow the path that’s laid out for you, you are charting your own course and you are doing so with your own resourcefulness. So my advice to you is, embrace it don’t see it as something that. Well, I have to fall back on being creative, because I can’t get it done in these other ways. Creativity is not your fallback plan, my friend, it is your front foot, it is the thing that you are going to in your toolbox. First and foremost, you’re not falling back on it because you have no other choices. Don’t think of yourself as being into creative finance, or into creative deal structure. Just think of yourself as being into finance, and deal structure. You see what I mean? When people say, Oh, so Jeff, you’re into creative finance. What I want to say back to them is no, I’m into finance. That’s it. I’m not into creative finance, I’m into finance. And in deal a, I have to be more resourceful than I do in deal B and you want to call it creative finance shirt, whatever, that’s fine. But those words don’t matter to me. I am in the business of financing. I’m in the business of creating a deal structure. And that’s what I do. I don’t think of myself differently if I have to brainstorm harder to figure out how it works on one property than I do on the other one.

You are not a creative financier, you’re just a financier and a resourceful one at that. And maybe the most practical thing I can tell you overall is don’t tell your sellers that you are, quote, a creative deal maker. Don’t tell your other lenders and other people that you do business with that you are a creative deal maker because you know what, while you and I respect that term, in their minds, it might conjure up images of, Oh, well, they can’t get this done in any other way. And so they have to be scrappy, and be hustling because they actually don’t qualify to do it the better normal way. Don’t even bother using that language with others, just quietly, confidently to yourself know that you are indeed a creative deal structure. You are a creative financier; you are a creative deal maker. But don’t label yourself publicly with those words because they won’t get it. You and I, we get it. You and I we can be proud of that. We can take great confidence and solace and knowing that we are resourceful, and we’ll get as creative as we need to be to solve a problem. But it doesn’t help our cause to say that to other people. Let them think what they will and we will know quietly inside that we are creative and we are resourceful.

That is it for today’s episode of Racking Up Rentals. Again, show notes for this episode are going to be at www.thoughtfulre.com/e79. Please do us a massive favor by hitting that subscribe button in the podcast app and take just a second to rate and review the show, wherever you listen to it. I would be super, super grateful.

Did you know also that we have a Facebook group for thoughtful real estate entrepreneurs. It’s called Rental Portfolio Wealth Builders and we would love to have you join us there. It’s a small but mighty group that is growing rapidly and I’m so grateful for that. Just search Rental Portfolio Wealth Builders on Facebook or type group.thoughtfulre.com into your browser and you’ll be redirected right there.

If you liked this episode, please take a screenshot post that screenshot to Instagram and tag us, we are @thoughtfulrealestate. I will catch you in the next episode. Until then, this is Jeff from the Thoughtful Real Estate Entrepreneur. Rant over and I’m signing off.

Thanks for listening to Racking Up Rentals where we build long term wealth by being a win-win deal makers. Remember solve the person to unlock the deal and solve the financing to unlock the profits.