Tapping Creative Financing
Tapping Creative Financing
Location: Shelby Township, Mich.
Square footage: 2,000
Lot size: 1/4 acre
Year built: 2006
Extras: Exterior brick veneer, two-car attached garage, and new construction.
THE CHALLENGE: In the early 1980s, sales practitioner Rick Rosen, CRS®, GRI, watched as interest rates hit double digits and buyer financing options dried up. Back then, Rosen used creative financing to help clients buy a home. Nearly 30 years later, he's finding that experience is coming in handy again.
"We had so many inquiries on this property, but 19 out of 20 had a credit score below 600," says Rosen, a cobroker-owner with Emporio Casa Real Estate in Shelby Township, Mich. "Many had been foreclosed on or had a bankruptcy in the past year. So we knew it would be nearly impossible to get financing for many of these people."
The prospective buyers for the property were in a lease situation and had been turned down for a loan after being 90 days late on a prior home payment, which they sold before going into a rental last year. Even though the late payment came as a result of a temporary layoff, Rosen says most lenders considered it a foreclosure in terms of qualifying for a mortgage.
"Little did I know that my new mission in life would be to save the financial lives of home owners," Rosen says.
How did you overcome the challenge?
ROSEN: I drew on my past. With credit rules tightening and FHA, VA, and conventional loans turning away my buyers, I returned to temporary seller-created financing. In the 1980s, I got so proficient at creative financing that my fellow associates now were hounding me to teach them.
So in 2008, I approached the state of Michigan and received approval to teach an "Alternate Financing Boot Camp" to real estate agents for continuing education credits through The Real Estate Education Professionals of Michigan Inc., which is sponsored by Land Contract One LLC, a company I cofounded in 2008 to teach real estate professionals about temporary seller-created financing.
In the case of the family with the 90-day late payment, I approached the builder on behalf of the buyer. The temporary seller-created note covered 90 percent of the home's purchase price. At the closing, I sold the note to a real estate investment trust for 85 percent of the face value.
Admittedly, the builder lost a good part of his profit. But he was willing to do this so that he could pay off his credit line with the bank. I now have all of the builder's business, and the buyer has a new home.
How did you get the listing? How long was it on the market?
ROSEN: I got the listing through an ongoing client relationship with the builder. The property was on the market with the builder for two years prior to it being listed with me.
How long did the sale take? What was the selling price?
ROSEN: It closed in early April for its asking price—$279,900. I got the listing in February 2009.
What was your local housing market like at the time?
ROSEN: The builder's market we once had in 2005 has since completely dried up.
What techniques did you use to market this property, and how much did you spend?
ROSEN: I spent next to nothing. When you get into tough economic times, you still have to advertise. But you have to find low- or no-cost forms of advertising to stay in business. So I did a lot of online marketing and used Craigslist.org and other free platforms. I used phrases like "Builder will finance new Shelby Township Ranch. Low down payment." This drew a lot of calls, and we had daily inquiries and showings.
How many times did you show the property?
ROSEN: We showed the property about 40 times.
Can you tell me about the buyer?
ROSEN: The buyer was a local family, a young couple in their 30s, who had been in a lease situation. They were both employed but had very little in savings.
What do you attribute to closing the deal?
ROSEN: Creative financing. In a changing market, opportunity abounds. In August, I had close to 30 sales pending to close. And we closed about 40 in September.
Our organization has a social mind aimed at educating real estate professionals and home owners about smart financing techniques. We've created an educational program in partnership with radio talk-show host Dave Ramsey's Financial Peace University to teach families about sustainable housing goals. Once they graduate from the 90-day program, families who start off in a rent-to-own situation while rebuilding credit can become eligible to purchase a new or rebuilt home. Since 2008, 300 graduate families have purchased homes this way, and more than 700 are in the process or on the waiting lists.
What lesson did you learn from this transaction?
ROSEN: There's a lot we can do to bring the foreclosure crisis to a manageable level if we use education to reduce risk and create sustained households. We need to explore and embrace new business models and educate home buyers and real estate practitioners about these models if we're going to move beyond the current crisis.
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