Creative Finance Terminology PDF

A COMPLETE LIST OF ALL OF THE WORDS YOU’LL COME ACROSS IN CREATIVE FINANCE -​ Wholesaling Real Estate: You approach the owner of a property and ask them if they’re open to selling. They say yes and you sign a contract for $100,000. The contract states that you, an...

A COMPLETE LIST OF ALL OF THE WORDS YOU’LL COME ACROSS IN CREATIVE FINANCE -​ Wholesaling Real Estate: You approach the owner of a property and ask them if they’re open to selling. They say yes and you sign a contract for $100,000. The contract states that you, and or your “assignee” are going to be purchasing the property. Key word: “assignee.” You OR the person you pass the contract off to can purchase the property. You can assign your rights and obligations in the contract to a buyer for multi five figures of profit if not more. Think of this as flipping houses without buying them. -​ Creative Finance: A method of purchasing that doesn’t involve conventional financing. From property to companies, anything that’s for sale can be creatively financed. Creative finance deals typically involve creating or taking over a set of payments. The reason we use creative finance is to obtain financing that is not publicly available. For example: purchasing a property on a set of payments with the owner at $0.00 down and 0% interest. I’ve done over 20, 0% interest deals and I own a $0.00 down deal. I’ve had a 15 year old convince a seller to sell 5234 Cole Rd Memphis TN for $380k at 0% interest. We never know what sort of terms a home owner is willing to agree to, especially if you’re willing to offer over their asking price and they’ve been on market for 150+ days. -​ On market: For sale or “active” on the multiple listing service (MLS) -​ MLS: A realtor’s sword. The MLS is an exclusive website that realtors post their listings on. The MLS allows other realtors, specifically buyer’s agents to approach them with their buyer’s offer. It also allows realtors to filter and sort for various types of properties  and deals at a buyer’s request. You can leverage the MLS by getting yourself a competent buyer’s agent. However, competent buyer’s agents are VERY hard to find. -​ Wholesaling Creative Finance: A set of payments that you’ve agreed upon with a seller can be sold to another investor before you have to buy that set of payments. The way you profit in a creative finance wholesale deal is thought the down payment. You may agree upon $150,000, $13,500 down, and $500 / month with a homeowner. That agreement could be sold for $25,000 down instead of $13,500 down. The seller keeps $13,500, we keep the difference of $25,000 and $13,500. A perfect example of this is 1352 Devonshire Ln Montgomery, AL. $135,000, $13,500 down, $700 / month. This deal was solely acquired by Discord member Daniel Mathias in his first month of HMHW. The down payment we were able to secure from our buyer was $25,000 allowing for $11,500 profit. The key here was 0% interest. The realtor never asked for an interest rate because we gave them their asking price. This is just one example of how a creative finance deal can be wholesaled. In this case, Devonshire Ln was a seller finance deal. -​ Seller Finance: The owner of a property is letting you make payments on the amount they would have received if they were to have sold their property outright in cash. EX: If a house is worth $100,000 and the homeowner doesn’t have a mortgage, they could sell the house and pocket $100,000. Or, they could sell the house on “terms” meaning a set of payments for perhaps $130,000 instead of the $100,000 cash. We typically find people are willing to seller finance their property after 150+ days on market. -​ Subject to / Subto: Purchasing a property subject to the existing mortgage. This means buying a house while keeping the mortgage in place. Imagine a $300k house with a mortgage of $295k. Couldn’t you give the homeowner $5k for the title of the house and  just pay their mortgage for them? The answer is yes. MANY sellers elect to do this because of the realtor fee associated with selling conventionally. They’ll have to come out of pocket tens of thousands of dollars just to pay a realtor. We come in and save them by taking over their mortgage, catching up their back payments, paying their realtor, and then selling the agreement to an investor for a higher amount down. This is legal and has been written into all HUD statements nationwide. The HUD statement is a document prepared by the United Department of Housing & Urban Development. They wrote in this method of sale on line 203 and 503. Make sure to remind your realtor when they say “that’s illegal.” -​ Subject to Hybrid: A subject to deal that also contains a set of payments. A seller may have a house worth $300,000 and a mortgage of $150,000. If you offer to take over their mortgage they’re going to ask where their other $150,000 is - rightfully so. We cannot justify giving them $150,000 up front or 50% of the value as a down payment, 10% down is usually our max. To combat this we can give them a set of payments for the $150,000 we owe them in addition to us taking over the mortgage. -​ PITI: Aka your mortgage payment. PITI stands for principal, interest, taxes, and insurance (defined below). These are the four parts that make up your monthly mortgage payment. You may have a 5th part of the payment known as an HOA fee. -​ Principal: The amount you owe the seller or bank in any financing situation. Your car payment has a principal, it’s just what you owe the lender. Same with your house, your boat, anything you owe debt on has a principal. The principal starts out as your purchase price minus the amount you put down. IE: $100k purchase, $10k down = $90k principal balance. -​ Interest: This is how we combat our loss of purchasing power any time we lend money. Chances are you already understand interest. Imagine it’s 1980. I ask you for a loan of $10,000 and I tell you I’ll pay you back $10,000 in the year 2020. Do you feel good about that deal? No. Back in 1980 the median housing price was $47k. You’re loaning me the value of a house and I’m returning to you the value of a car. Now what if every payment I made to you barely paid down what I owed you. Not that the payment is a lesser amount but when I give you money to pay down my debt, only 10% of that money actually pays down what I owe you. IE: I owe you $100k and I have payments of $1,000 and only $100 out of my $1k payment actually pays down the debt I owe you. Feels bad, huh? That’s interest. Welcome to the world of debt. When you buy a 350k house at today’s interest rates you end up paying $750k + to the bank over the course of your mortgage. This is why you’re in HMHW. We structure agreements that avoid market interest rates if not avoid interest all together as a 15 year old boy did for 5234 Cole Rd Memphis TN in his second month of HMHW. -​ Property Taxes: Pretty self explanatory. It costs money to own houses. This payment is typically wrapped into your monthly mortgage payment so you don’t owe a big lump sum at the end of the year. These taxes are the “T” in PITI. -​ Insurance: Much like your taxes, your insurance is part of your monthly mortgage payment. Insurance is a monthly payment that covers you in the event of a disaster. -​ Arrears: If you don’t pay your mortgage, taxes, or HOA it turns into an arrear or a back payment. You can ask agents if there are any arrears and that means “how far behind is your seller, how much money will I have to pay to make the loan current?” -​ Mortgage: French for “dead pledge.” Brutal huh? Remember when we talked about interest rates and paying $750k for a $300k house over the course of your mortgage? Yea. We create mortgages with subject to and seller finance because publicly available mortgages just make the banks rich. -​ Off market: Not publicly for sale or listed on the MLS. See MLS definition above. Off market deals are cool but I personally like to find my leads on market. On market sellers have already mentally prepared themselves to sell their property. Off market seller’s get cold feet as selling is a very emotional decision. You can go off market but I do not recommend it as the barrier to entry is much more expensive and labor intensive. -​ DOM: “Days on Market” are the amount of days that a property has been for sale. The best way to find this out is Propstream. Zillow and other outlets of the MLS lie about their days on market to increase the chances of a sale. With every price drop a realtor does, the DOM is reset. Propstream shows the true DOM. We have a 1 week free trial for y'all. -​ LTR: Long term rent / rental. This is the most common use for a property that you hold on to as an investment. It’s common, secure, and rapidly increasing nationwide. When you go on Zillow rental manager and look at the rent estimate it’s the long term rental estimate. Long term rent is typically in 12 month segments. Always analyze a deal as an LTR first and an STR / MTR last. -​ STR: Short term rental. Lame in most cases. Short term rentals or STR’s are code for AirBnB. AirBnB is going to die in the next decade. While there is a need for AirBnB, it’s become oversaturated and home owners are getting fed up. As a result of this, AirBnB is  being banned at a rapid rate by both legislation and HOAs. It’s a viable strategy for now but you better be on the beach or somewhere very desirable without STR restrictions. Beware: home owners love to lie about AirBnB income. Ask about their occupancy rate! -​ MTR: Mid term rental. Traveling nurses can stay at your property. They come from local hospitals that can pair you with traveling nurses. This is just one example of a midterm rental. Usually MTR’s are 3-6 months long and could be traveling professionals, nurses, nuns, and more! -​ Land contract / executory contract / contract for deed: A creative finance deal where title isn’t transferred to the end buyer. This means they don’t get the tax benefits of owning real estate (depreciation). These deals sell for less money but can be a viable option for sellers that don’t trust you and want the ability to hold their own title. This is the exact same as seller finance or subject to but not to be confused with a lease option - you are the owner of the property and you can sell at any time without consulting the individual or company on title. So you’re the owner but the previous owner has protection in place, kind of like a leash that leaves you treading on thin ice with them when it comes to making your payments on time. This is typically another security for the seller. I don’t love this but we will sell a land contract. I’d rather just use a deed of trust to give the seller the same security while allowing us or our end buyer to hold the title. -​ Lease option: Unlike a land contract, you do not own the property. Rather, you are making payments that pay down a price that you have the option to pay. For example, you could enter into a lease option for $200,000 and your rental payments have interest attached to them and pay down your hypothetical purchase price of $200,000. However, -​ FHA Loan: A government backed loan that allows you to purchase a property for as little as 3.5% down. The FHA loan is designed for first time home buyers but you can use it more than once in some circumstances depending on your credit worthiness, income, how many FHA loans you’ve gotten or if you have one that is still unpaid. -​ VA Loan: A government backed loan granted to veterans. These loans are $0.00 down! Veterans are eligible for $726,000 on average across the United States. You can get multiple VA loans but it depends on your eligibility and entitlement. There’s a discharge form called a DD-214 that all veterans receive outlining their entitlement. -​ Conventional Loan: A common residential loan, not government backed, that you can get for as little as 5% down on some purchases. Other times you may put up to 10-20% down. These loans are offered by private lenders rather than government backed funding. -​ DSCR Loan: Another public loan but for investment properties. The DSCR loan requires a 20% down payment and is best used for section 8 rental properties. With interest rates being above 6% the only purchases that allow you to cash flow using a DSCR loan are going to be those under $150,000. This is a rule of thumb not a fact. -​ Private Money Lender (PML): If your grandma has cash and loans it to you she is now your PML. This is a private cash source without all of the qualifications. It’s largely relationship based lending. I have many PMLs that I can introduce you to if you bring me a good creative finance deal. Want to buy a house with me? I’m down, just show me your deal. My PML will buy it for us and you’ll get partial ownership for $0.00 invested. -​ Adjustable / Variable Interest: RUN. You only need to know what this is so that you can avoid it. Like a landmine. This means that the interest rate on your loan moves around. Remember 2008? Yea that was largely because of adjustable rate loans! We want fixed rate debt. -​ Reverse Mortgage: RUN PART 2. Brokering reverse mortgages is like selling meth; you are going to ruin the life of the person you grant this loan to. Reverse mortgages allow homeowners to swipe their credit card against the value of their house. This causes homeowners with $500k houses to owe $650k. It feels like unlimited money and it’s a slippery slope that ends in financial ruin and foreclosure. No, we cannot take over a reverse mortgage. -​ Section 8: Free government rent (if you qualify). A Sec 8. Voucher is very coveted amongst tenants. Typically a large city will have a 20 year wait list just to get a voucher. Even if you get a voucher as a tenant, finding a land lord that will accept a Sec. 8 voucher is hard. Some of the wealthiest landlords in the United States are Sec. 8 investors. The upside of Sec 8. Is guaranteed rent and much more of it. The government pays 30% higher than the market will to incentivize landlords to house these tenants. Florida, Tennessee, and Indianna have CRAZY high sec 8 rents. We sell to a lot of these investors. -​ Equity: The amount of money you can expect to profit after you sell your property and pay off all of your debts. EX: You have a $100k house and owe $40k on it. Your gross equity (before expenses like realtor fees) is $40k. -​ Close of Escrow (COE): This is when your deal closes and funds are wired to all parties. -​ To see if a retail buyer can afford to buy a house: take the asking price - 3.5% and plug that figure into a mortgage calculator. Add taxes, add insurance, and multi this figure by 3.57. This is what you need to make per MONTh to buy this house according to chace bank. You should spend 28% of your monthly income on a mortgage. That's your mortgage multiplied by 3.57. Multiply this by 12 to get what y ou need to make per year to qualify. Check the zip code to see what people make in the area to see if it's feasible for a retail buyer to. buy this house. -​ EMD (Earnest Money): Also known as consideration, this is a fee that makes your contract valid. Don’t worry, we pay this fee for you. We ask that on all of your contracts EMD is submitted post inspection period so that we don’t have to spend any money upfront to wholesale houses! Our policy is that EMD is to be submitted after a 6 business day inspection period. -​ Title / Title Company: A business that closes real estate transactions. Some of them have specialties like creative finance. -​ Net Vs. Gross: Net is after expenses, gross is before. If a house rents for $1500 per month your gross income is $1500 per month. Knowing that you have 20% that comes off the top for expenses, and a $600 payment to the seller and $200 in taxes and insurance for that property your net income would be $400 / month. -​ Amortization: The amount of time it takes to pay off your loan. Ever wonder how we can pay $500,000 for a house over the course of 5 years? The logical assumption is that you take the amount of months in 5 years and make even payments over that time. BUT that would come out to $500,000 / 60 months or $8,333 / month. What $500k house rents for more than that? How are we supposed to make money? Easy. We amortize the loan over a 30 year period with a balloon on year 5. That means that my monthly payments are as if I were paying off the full amount in even payments over a 30 year period of time. So without interest included that looks like $500,000 / 360 months or $1,389 / month. The balloon states that the full amount is due on year 5. Over the course of 5 years of payments we pay $83,000, the remaining amount is due on the 5th year. Amortization is what allows us to cashflow. Standard loans are amortized over 30 years. -​ Monthly Payment: The amount you pay your seller per month in a seller finance deal. This is made up of principal and interest, not to be confused with the PITI of a loan or a mortgage payment. You may refer to your mortgage payment as a monthly payment but this term is most commonly used when talking about your principal and interest payment to a seller in a seller finance agreement. -​ Due on Sale Clause: Also known as an acceleration clause. This is when the mortgage company calls and says I want the full amount that I’m owed, right now. It’s rare but can happen if the title of a property is separated from the person whose name is on the mortgage. Meaning that if you purchase a property subject to the existing mortgage, there is a small chance that the due on sale clause could be called. We use a trust acquisition agreement to get around this. Sounds scary but we have many easy fixes. -​ Agent Commission: This is a realtor’s compensation for selling a property. Also referred to as their “comp.” Agent commission is most commonly 6% but can be 5-7% depending on the brokerage. It’s important to note that 1 realtor, the seller’s agent is not entitled the the full 5-6% commission. They will try to get it but really it’s intended to cover both the buyer’s agent commission and the seller’s agent commission. This fee can easily be negotiated but it’s important to note that the seller pays this fee. However, with the recent NAR settlement this is changing. At this time ( May, 2024) the agent commission is covered by the homeowner that signs that listing agreement with the seller. The only thing that can undo that is a buyer offering to cover this fee. -​ LOI: A professional and sometimes signed letter of intent often on letterhead. However an email will suffice when a realtor asks for an LOI. This is similar to an offer. -​ Low Equity: You’re not making anything if you sell your house. EX: You owe $95k on your house and are selling it for $100k. Your equity is $5k IF you get your asking price. This is an excellent type of on market lead for us to call and pitch subject to / trusts. -​ High Equity: You’re going to make a lot of money when you sell your house. EX: You are selling for $100k and you owe $20k. This is an excellent type of lead for you to go after on market and pitch seller finance to. Note that high equity alone is not a motivation factor but combined with 150+ days on market it can be an excellent type of seller to pitch seller finance to. -​ Middle Equity: The owner is expecting a check when they sell. IE: $250k asking price, $125k mortgage. They’re expecting $100k + from the sale. This can make it difficult to structure a set of payments that the homeowner would be interested in. We can hardly  make monthly payments because we have a mortgage but the mortgage isn’t high enough for us to offer to take it over. You can sometimes get deals like this after the seller has been on market for 125+ days. The way we do them is offering $75k over the asking price but with a balloon payment instead of monthly payments. IE: Offering $325k on the example I used about for the house listed at $250k. We take over mortgage of $125k, give a down payment of $25k. That leaves us owing $200k to the seller. We’d pay out that money on year 6. Make sure to adjust your down payment based on cashflow and interest rate. -​ Refundable EMD: An earnest money deposit that can be refunded during the inspection period. EMD is held by the title company, if you cancel your contract within the inspection period EMD is returned to you. I however don’t do this. I submit EMD after the inspection period has been completed. -​ Non refundable EMD: EMD that cannot be refunded once it’s sent to the title company. I do this every time BUT I submit non refundable EMD after the inspection period which allows my buyer to walk the property and make a decision before we have to spend any money up front. As a member of HMHW you will NEVER have to spend a dime on your deals while working with us. -​ Inspection Period: A 5-10 day window in your contract that allows you to back out for any reason. -​ Cash Flow: Net income on an investment. Revenue - all expenses = cashflow. Multiple all rental figures by.80 to get your rent after expenses. -​ Negative Cash Flow: If after multiplying your rental figure by.80 and subtracting your PITI there’s a “negative” number left over, your deal does not cashflow. -​ Equity Play: Sometimes, a deal doesn’t cashflow but is still a deal. Imagine a house listed for $400k and the seller owes $200k but the rent is $2000 and so is the mortgage payment. Sure, it doesn’t cashflow but you’re walking into the deal with $200k equity. This is an amazing deal but from a different view point. We call it an equity play and there’s multiple different exit strategies. -​ Cashflow Play: We see these A LOT. This is exact opposite of an equity play. Imagine a house listed for $400k with a $400k mortgage. You have ZERO if not negative equity in the deal. BUT you could have a 2.7% interest rate with $500 of net cashflow. This is a DEAL and we call it a cashflow play. -​ Depreciating Market: Markets like Cleveland OH or Montomerey AL that go up in value slower than the US loses value. You may have bought a property in 2015 for $90k but even if you sell that house for $110k in 2024, you still haven’t made any money. That’s because the value of the dollar declined faster than your property appreciated. Don’t get me wrong, this can still be a GREAT market but it’s usually a cashflow market rather than an appreciation market. -​ Double Close: Sometimes assigning or wholesaling a contract is not allowed. To get around this, we can have a lender buy the property in cash for us, take title briefly, and  immediately resell the property for a profit. It’s like wholesaling but we briefly own it using lender funds to avoid a “non-assignment clause.” -​ Federal Reserve: The United State’s regulator board for our economy. The Federal Reserve or “FED” lead by Jerome Powell (as of 2024) has the ability to impact real estate in the United States along with all other assets by controlling interest rates. It’s basic supply and demand: as the cost of money goes up, the value of the assets go down. All you need to know right now (2024) is that interest rates are higher than they’ve been in 25 years meaning that home owners can find buyers and buyer’s can’t qualify. This is the perfect storm for creative finance. -​ Entry fee: The cumulation of your down payment, closing costs, TC fee, and your assignment fee. We refer to our payment to the seller as a “down payment” but when we sell a creative finance deal to a buyer we refer to their total cost of acquisition as an entry fee. -​ Trust or TAA: For our purposes, trusts or a “TAA” (trust acquisition agreements) are an alternative to purchasing a property “subject to” the existing mortgage. If you go to the phone call recordings tab on the Discord you’ll find a number of examples in which I pitch subject to, the realtor declines it and I pivot to the trust method and they accept it. Both methods accomplish the same thing but the trust removes many of the perceived risks of selling subject to. One of those risks being the due on sale clause which is cannot be called for properties within a trust. Basically, instead of keeping the mortgage in place and buying / wholesaling the house subject to the existing mortgage, we put the property in a trust with the seller and purchase the trust from them. More specifically we buy 90% controlling interest of the trust from the seller. This allows the property to  quickly come off of their debt to income ratio and prevents the due on sale (DOS) clause from being called. TAA closing costs are less than normal closing costs. For proof of concept I purchased 12136 Thornridge Rd Oklahoma City, OK within a trust in April 2024. Total cost of acquisition was $6k! This is a POWERFUL method and is mainly used to solve realtor objections surrounding subject to deals! -​ Deed of trust / deed in lieu of foreclosure: A deed of trust or a deed in lieu of foreclosure is a document that allows a seller of an asset to reclaim said asset without having to go through the lengthy foreclosure process. I frequently refer to this as a “security instrument” for the seller. It’s important to recognize that some states do not allow this security instrument. The only state I know of at this time that doesn’t allow it is Florida but there are likely others. It’s totally fine if the state doesn’t allow it, we can use the trust method to create a similar security instrument for the seller. To be 100% honest, when I call in Florida I still pitch this security instrument because it can be written in to the contract regardless. The only issue is that if the seller would try to activate it, they would have to take the end buyer to court. But the thing is they have a pretty bullet proof case given that it’s in the contract. So it still works, it’s just not as seamless as it would be in a state like Georgia where they can quite literally get the property back within a week of the buyer’s default. It’s great to bring this security instrument up during your phone calls. -​ Foreclosure: Pretty self explanatory. Foreclosure is what happens when you don’t pay your HOA, taxes, or mortgage payment. Yes, the HOA will take your house if you don’t bring your trash cans in. How absurd. What I will say is that foreclosure typically happens when you are 8+ months behind on your payments. If you find a property that’s already in foreclosure a cash offer is going to be your only option. After a property has  been foreclosed on, it’s either owned by the state (sheriff sale / REO) or the lender / lien holder. These types of owners do not care about taking payments. They’d rather take a low cash offer just to get rid of it. I typically pass on foreclosures. HOWEVER… read the next definition. -​ Pre Foreclosure: This is the 8-12 month period of time before you go into foreclosure. If a seller misses payment they get a “notice of default” in the mail and if now they’re in pre-pre foreclosure but pretty much the pre foreclosure process has started. Even on the LAST day of pre foreclosure the foreclosure can be stopped with a call to the bank / a valid purchase and sale agreement! It’s rarely too late to stop these! However, when stopping a foreclosure find out how far behind your seller is. If the amount exceeds 10% of the value of the house, there’s little we can do. IE: $40k back payments on a $250k house: pass on this or try for a loan modification. -​ Auction date: This is when your house goes up for auction after missing payments. This auction date is what we’re looking to avoid. Fortunately it can take up to a year before the auction date occurs after the initial missed payment. -​ Notice of default: Mentioned above, a notice of default is the letter you get in the mail from the bank after you miss your 1st - 2nd mortgage payment. -​ Pro forma: A pro forma is a break down of a large property. It’s like your car fax but for multi family. It breaks down the property, rents, vacancy, and expenses. When I’m looking at a portfolio of single family houses above 10 units I ask for a proforma. If I’m looking at a multi family above 5 units I ask for a proforma. It’s just a pretty little break down -​ SFR: Single family! That’s all. Just single family residential. This type of house makes up 90% of the deals we do. -​ House Appraisals: This is what the bank thinks your house is worth. It’s a very accurate estimate based on a common methodology that gets taught to all appraisers. Appraised value is not the same as an internet estimate! -​ Loan Modification: Lets say you have a subject to deal where the seller has listed their property for $300k and they owe $290k. Lets also assume that this seller owes $30,000 in back payments. I actually see this pretty often. We don’t want to catch up $30k, pay the agent, and pay the seller. It’s a deal killer. Rather, we want to call the bank with the seller on the phone and ask if we can put the $30k in arrears on the back end of the loan and pay it back over time with an additional interest rate. You may need to do this eventually. It’s pretty easy though! -​ Multi family: Anything above single family houses. Duplex’s, triplex’s, and up. One important thing to note is that multi family real estate loses its “residential” classification after 4 units. Anything above 4 units is known as “commercial multi family.” -​ Commercial: Commercial real estate is real estate that you don’t typically live in. This could be a store front, storage units, or a warehouse. However, there is an exception. Multi family properties are considered commercial real estate above 4 units. That’s right. Anything above a quadraplex is considered commercial real estate. I don’t do a whole lot of commercial but it’s definitely a profitable avenue. One thing to note is that seller financing is much more common in commercial real estate due to the high capital gains taxes we see from high price point listings.  -​ ADU / Additional Living Units: An additional building that’s added on to a property. If you see a detached garage that you can live in, it’s considered an ADU. This can increase the value and rent of a property! -​ Cash on cash return:A property for sale at $100,000 and you offer $125,000, $15,000 down + $3,000 in closing costs, with $700 / month in payments. What is your cash on cash return assuming your taxes and insurance are $200 / month? ​ Answer: If I use the standard rental income formula and take 20% off the top of my gross rent for expenses ($1,500 x.80) I know that my $1,500 becomes $1,200. If my taxes and insurance are another $200 per month + $700 for my payment to the seller, I have a total operating expense of $900 / month. If I subtract $900 from my adjusted rental income of $1200 per month I am netting $300 per month. 1 calendar year after purchasing the property I will have netted $3,600 off of my $18,000 total investment. If I divide my net yearly income / acquisition cost I get my cash on cash return. In other words, I spent $18k and I got $3,600 of passive income back on my investment in year one. That’s a 20% cash on cash return! (The stock market returns 10% on average without any tax benefits or ability to leverage) -​ ROI: The umbrella term for the way that you measure how much money you make. ROI doesn’t have an exact equation. It could be your cash on cash return, gross yield, cap rate, and more. Keep in mind that general business definitions of ROI refer to measuring the performance of companies. In real estate there are a number of different ways to measure your return on investment. -​ NOI: This is what you make you less expenses. Take your rent, multiply it to.80, subtract your PITI and you have your NOI. Nobody talks about NOI for single family property unless its a portfolio. This is largely a metric for multi family with is something you should definitely go after. (Free and clear, 100 days on market, $1-2M pricepoint, 4-12 units, 10% down, $50k over ask, 4.5% interest, minimum 6 year balloon. -​ Assignment Fee: Your profit. This is what you are chasing. This is what title companies refer to as “your profit.” BONUS: Struggling to close seller finance deals / interest sellers with your offer?!? Here are two cutting edge solutions that were discussed in today's livestream that'll switch up your luck if used correctly. 1. Small multi family price at $1M and above. 4-12 unit buildings owned free and clear. If a seller of a $1M multi family sells for $1M they have to pay $200,000 in capital gains taxes. They have a HUGE incentive to seller finance because it's likely how they acquired the property AND they'll save hundreds of thousands! Call them, they're just sitting on Zillow waiting for you. I made one call during today's livestream and got an interested owner to review my offer! 2. Seller finance offers on properties below $140,000 can be made with HIGH interest rate offers - just don't offer more than $5-10k above their asking price. Here's what I mean: 3521 Poe Ave, Cleveland, OH 44109 (As of May 28th 2024) has been for sale on Zillow for NINETY SEVEN days and it's in beautiful condition. There's no mortgage on the property and the owner is a savvy investor who put the property in a trust, just like we teach! I can't imagine what the owner of that property might say if you call them up and offer them 5k over their asking price with 6.5% interest and $15,000 down + closing costs with a 5 year balloon secured by a deed of trust. We don't typically talk about adding interest to our offers, but WHY NOT? Try it but make sure you are professional in your approach - building a business relationship with the agent while not over selling yourself. 🍼-start-here-creative section. I had the Listen to my call in the # agent disqualify any other method of sale BUT seller financing!