The Scam of Subject-To Real Estate & "Creativity Financing" Deals.

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