We gotta talk about another really stupid thing that you could do. I Just ranted about how I'm a fundamental based person and I hate overpaying for stuff. Well now there's this new idea. It's not really a new idea.

it's been around for decades. people have been doing this forever. But there's this idea that's gaining Trend and traction again right now called Creative Financing in the real estate space and a lot of folks are coming to me and they're sending me emails or they're leaving me comments they're like Kevin I Just saw this video on Creative Financing and Real Estate I You know I want to get into Real estate? Let me do Creative Financing and I just basically put my head in my face because look there, let's let me let me explain to you the reality of Creative Financing. Okay, first of all, if you have to get creative with the financing, there's a problem somewhere.

There is a problem. either you can't qualify or the deal is. it's that simple. So let's go through a normal real estate transaction.

In a normal real estate transaction. Let's say, you want to buy a four hundred thousand dollar house. Uh, you know it's in a four hundred thousand dollar neighborhood and uh, and maybe you're able to get it for 350 because it's got ugly paint and ugly carpet and it's nasty. and you go to the bank and you're like, hey, I want to put three and a half percent down on that? It only has some cosmetic damage I Want to buy that property for 350.

the bank's appraiser looks and goes no problem. We could appraise this all day long because you're getting a wedge deal. You're getting something below market value. Even if you were paying market value 400k, the bank will finance it.

Here's three and a half percent down. You don't even have to put a lot of your own money down. It's America is fantastic. You got a 30-year fixed trade mortgage with three and a half percent down.

Sometimes you do five percent down. Conventional. You call up your local Community Development Corporations You're like. You got any down payment assistance.

What do they say? Hell yeah we do. You make a a normal amount of money, You don't make too much money. You're not a rich dude. Okay, no problem.

we'll help you with your down payment. America is so fantastic with getting people into homes when the homes make sense. So in a normal transaction, you either buy a property slightly below market value, or you buy a property, add market value, and you get an appraisal, and you get traditional financing. As soon as people start talking about creative financing, there's usually a problem happening somewhere.

Now there's this idea that people have that oh, you can get creative financing for everything. Yes, this is true, you can, but it's moronic. You, You have to be very, very careful, because here's the reality of real estate investing. In the world of real estate investing, you get either price or terms.

It's that simple. Okay, it's never both. You get price or terms unless you're sitting at the market. So for example, you want to buy a fixer-upper You go in and you waive your contingencies because you're like I want the lower price, but I will give you comfortable terms to make this easy for you.

You either pay cash, you remove your contingencies, you give them some hold-a-back money uh, or some moving money. Whatever right? You somehow made the process easier for them. That's how you negotiate a good deal getting something below market value. But if you're someone who's like, well, I can't qualify for traditional financing because I don't even have five percent down or I don't want to work with the bank because the interest rates are too high and all of a sudden you have this this this you know, a person who makes a YouTube video talking about how great creative financing is and how you could basically get a bunch of real estate with no money down sometimes.

uh, and and you can get a cash flowing property with no money down and no banking instantly. all of a sudden every 18 year old's got a hard on for real estate because they're like oh my God Wait a minute Kevin Creative financing. That sounds fantastic. Now look I'm all four people getting in real estate Okay I Want to be very, very clear: I Think you can build a lot of wealth with real estate.

a lot of money can be made in real estate, but then what happens is you get people with this creative financing Vision that come in and they basically say hey, look Kevin look how great things are right now I Could get a cash flowing property maybe even with a lower interest rate because the seller has a lower rate. Rates are high right now Kevin I Can get a cash flowing property at today's rents and a lower interest rate because I'm going to take over the seller's mortgage. and why would I not do this? Because maybe I can even do it with no money down. This is so great.

What could go wrong? Kevin You're just, uh, you know, angry because you don't want to do creative financing. You're just bagging on it because you don't understand it. Oh my gosh. So let me explain.

First of all, this on screen right here looks and sounds great. Cash flowing property, lower interest rate no or low money down. You know what? easy process you. It only takes a few days.

There's a legal way to make this work easily and you know what? I'll put it in an LLC so I can limit my liability. Those are the Theses right? That's the thesis of Creative Financing and so far that sounds fantastic, right? I mean again, it's fast. You got the potential of cash flow. This is very exciting.

What's there to hate about Creative Financing? Well, let me be clear. I myself am a big fanatic about real estate. I Started as real estate agent, became a real estate broker, became a licensed real estate lender. myself and my wife no Partners included went from zero real estate to over 25 million dollars in properties.

probably somewhere in that about 13 14 million dollars of equity. and we've been through the game of Real Estate We get it. We started at the bottom. We understand real estate.

We understand why people do creative financing. We get it. All of these things that I just listed. They sound fantastic.

Again, cash flow, lower rate, no money down, easy process, few days, whatever. right? All of this sounds great. So Kevin If all of this sounds great, what are the risks? why should somebody potentially be careful about creative financing? Because what did I Just tell you? you'll get terms or you get price. So what does that mean? Well, if you want to do creative financing, you're getting terms.

Guess what? That means you're not getting, you're not getting price. You're literally doing the opposite of a wedge deal when you do creative financing generally. Now, I'm not saying always because there are times you can get a good deal with Creative Financing where you're getting both terms and price. but those are lottery tickets.

They're a lot more rare. the usual creative financing deal where you take over someone's mortgage or you get a seller carry back or whatever. You don't actually get price. You get terms.

Now people say that's okay because this is how they structure it. Okay, let me I'm gonna make it I'm going to make an example for you here. Okay, the way it's structured is something like this: Hey look, you've got properties in this four hundred thousand dollar neighborhood. You've got a lot of properties over here and what you're going to do is you're going to go to a seller of a property like an expired listing or whatever.

Basically somebody who couldn't sell their home because it was an over price. Nice piece of crap and you're going to go to them and you know what? Let's call this not a home. Let's call it a duplex to make it sound like you know. Okay, yeah, the investors like it.

Okay, all right. so 400k duplex? Okay, 400k neighborhood. I Should say the neighborhood sells duplexes for 400k. but you have a seller who wants five hundred thousand dollars and you look at this and you go, hey, you know what seller I'll give you the 500k I Just want the property because right now it cash flows and you know what? it cash flows even after I Pay my property manager.

So why don't you sell me the property at five hundred thousand dollars? I Take over the mortgage I Get the three percent mortgage rate. it cash flows Kevin What's there not to like? Well, we're gonna ignore about the potential legal risks and there are ways to solve those legal risks. So I'm not going to go down that road I'm gonna go down the realistic Road of the market crisis that we're in right now. here's the risk you face.

What if you think you're paying 500k for a 400k property and now the market Falls Even more Now the new actual value of the duplex is 350 000. But wait a minute. Not only does the potential price of the property go down even more, which it's already bad that you massively overpaid for the property to start with. By the way, the people people are like, but Kevin I would never overpay by this People are so dumb when it comes to real estate.

they're so dumb they'll They'll literally pay 500k for a 400k home because they're looking at comps from like March of 2022 and they're like but houses used to sell for close to 500. Uh yeah, at the peak of the market. Dude, it's way less now. people are really bad at comps.

Okay, or they do like these like uh, cost per square foot adjustments that just Rob people who don't know what they're doing in real estate. Anyway, let's say the value of the property goes down. now. All of a sudden the value of the property is 350.

but that's not a big deal right? Because it's cash flowing. Oh But wait, it's cash flowing based on 2022 rents. So what happens when your tenants leave or they lose their jobs and all of a sudden, rents are actually starting to decline by 10 or 10 or so percent? Well, let's say rents go down 10. And now, instead of cash flowing 300 bucks, you're negative.

And now all of a sudden you're at a negative cash flow because rents declined and the property value is lower. Now you're like, okay, well, maybe I can sell out of the property, right? No, Because you have a contract that says you're paying a seller 500 Grand on a property that's worth 350 000 and now you're in a negative cash flow situation. Well, what happens if you lose your job and you can't afford that negative cash flow? Well now, or for whatever reason, you don't want to afford that negative cash flow? What if you're like, hey, seller, can you take the property back? Guess what the seller has the ability to do to you If the seller has to take the property back and dump it at 350k, Guess what? The seller was just the seller was damaged, The seller was damaged by a hundred and fifty thousand dollars. And guess what they can do Now they can sue you for the difference between what you promised you'd pay them and what they were actually able to get when they had to basically take the property back from you because you couldn't pay the payment anymore.

So now I know this is an extreme example, right? You could make you could. You could like make this less extreme. Let's say the property value didn't fall anymore. It's 450 and you're gonna pay the negative cash flow.

But what people are doing with these negative or creative financing deals is they're not realizing they're overpaying for the product product. You can do creative financing on anything in the world, but you're overpaying. It's that simple. And so people who generally get into creative financing they don't know how to call properties, they don't know what they're doing with real estate.

They don't know how to mitigate their risks because they're willing to overpay I Do Not overpay I Don't even like paying market value I Always get under market value deals. That's the way I Roll I Don't I Don't do overpay ever in real estate. It's way too risky. Uh, and they don't actually account for the fact that rents can actually go down and all of a sudden this like cash flow just overpaid for it.

That sounds like a great idea, actually is stupid and now you get you get screwed. You know. So real estate. You have to be so careful when you get into real estate when you get sold.

This bill of goods about creative financing and how you could get into real estate people. Most people don't even know what they're signing up for and then they get into the stuff and they end up getting screwed. Now how do most people actually make money pitching creative financing on the internet? I'll tell you how okay they they do the following: I'm going to put the word up on screen they wholesale. So what you basically do to really make money on creative financing is you.

You create a social network, you create some kind of following of of people who are really interested about creative financing, and then you find overvalued deals that you sell to that you basically shill to clueless. Real Estate Investors uh and uh. And then you take a commission for arranging that deal. basically.

so like you get a deal under contract, you sell it to someone, uh, at a 20 grand premium or whatever that you could sell the bill of goods on on on this creative financing. And now you're really making most of your money from wholesaling, really crappy deals. So I'd just like to be very like I Want to be very, very clear here as picking a penny says Kevin Tell us what you really think I want to be very, very clear. Creative financing usually comes with massive risks.

I'm not saying you can't do it. Look if somebody came to me on a wedge deal and it's like Kevin I'll let you take over the mortgage I'd be tempted. You have to be careful. In a state like California these are called all-inclusive Deeds of trust and you can get sued the crap out of in California on Aitd's in other states, these are a lot more common Arizona A lot easier to do this stuff.

The state actually in some some cases encourages it or local areas encourage this and some banks like it. You have to be careful and this idea a car for coin I Love your hero all the time. Appreciate it. Close down the LLC and run.

people think they can do that. People think they can do that I will promise you though in America the land of lawsuits I Don't care how many stupid Llc's you got if you're based in America you are going to get personally sued to crap if you screw up in real estate I don't care what kind of LLC you got because you're gonna have to sit I think it's uh, what is it a 3506 but I can't remember exactly what the section is. Uh, but there's basically a type of legal deposition where you have to prove uh, your income statement balance sheet, your corporate minutes. You have to prove all this yourself in corporate depositions and if there's any way they can Pierce that corporate veil which is very easy to do, especially when people are clueless about the law or LLCs and and cost segregations and and preventing co-mingling Oh my gosh.

LLC ain't gonna protect you from anything, so let me just make it very, very clear. if you hear creative financing and it sounds too good to be true, it's probably because there's a catch. Yeah, and it's because I I Really do want people to to build wealth and make money the traditional safer ways. in my opinion.

That's you buy a simple house that's slightly below market value and you build equity and you try to do it again and again and again and again with the creative financing stuff. My gosh, it's it's driven by people who don't want to work. That's what it is. You don't want to get a job.

and I'm serious. like you want to buy real estate. Get a damn job. Get a job where you get a W-2 and becomes really easy for you to qualify for Real Estate You can literally go to college for four years, graduate, get a job at I don't know Intel and uh and and uh.

the day you start your job, you could qualify for Real Estate with two years of work experience because as long as you get that job in the similar line of work of what you studied in college, they'll already give you two years of work experience. They make it so easy for you to get really good financing and you have to think about it. The only reason a seller would let you take their three percent mortgage is because they can't sell it on the open market. That is your clear as they tell you're overpaying.

When you do subject to financing, why would a seller give you their three percent mortgage? It's because they're way upside down. That's the only reason if they weren't upside down. If you weren't overpaying, they could just sell it on the regular market so you know you're overpaying. Oh God I don't know I don't know how much more blunt I could be.

I'm gonna stop now if I have a heart attack.