What is Creative Financing?

What is Creative Financing?

Creative Financing for Real Estate

Do you need financial backing for the next investment opportunity you pursue? You may be just getting started in the world of real estate investment, or maybe you've been doing it for a while, but the growth of your portfolio has stalled. In any case, if you are aware of the right places to seek, there are a variety of innovative methods of real estate financing that may launch your career in the real estate industry.

A hopeful homeowner starts the process by looking for a house they are interested in, then applies for a mortgage, and finally, after their application is granted, they close on the house. This is a typical real estate transaction. Despite its widespread use, this method does not conform to a template that can be used universally. Investors will almost always have to use their creative faculties when finding the most advantageous approach to funding a real estate transaction.

This may raise several questions: what kinds of real estate finance opportunities are available to newcomers? Which kind of finance is the most suitable for each available departure strategy? And how can you make sure you clear all of the common pitfalls investors face when it comes to creative financing real estate?

The following is a list of creative real estate financing approaches that can assist you in getting closer to the next investment venture that you pursue.

What Is Creative Financing For Real Estate?

When discussing real estate transactions, "creative financing" refers to unorthodox or unusual methods through which a person might acquire land or properties for sale. When an investor or purchaser wants to spend as little of their own money as possible, they will often employ one or more inventive financing techniques.

Suppose you've made the decision that you're ready to buy a home, but traditional banks have told you that you're not a good candidate for a mortgage (either because your credit score is low or because you don't have enough money saved up to afford a 20 per cent down payment). In that case, the following solutions are your answer.

Refinancing with Cash Out

Cash-out refinancing for real estate is a transaction in which you tap into the equity of your property. This means you borrow enough money to pay off your mortgage on your home, and then you pocket the difference. This may free up assets that can be invested in other areas. In addition, cash-out refinancing is considered one of the most advantageous real estate financing solutions available, provided that the borrower is aware of the potential pitfalls.

A real estate cash-out refinancing is not the same as a standard line of credit. With a line of credit, you simply add a second mortgage on your property to access the credit. Compared to the conditions of a standard home equity loan, the interest rates and terms associated with cash-out refinancing are much more beneficial. In addition, the interest paid on a cash-out refinancing is tax deductible, which is not the case when one borrows money from a hard money lender or a normal financial institution.

Personal Loan

Even though a personal loan does not provide the same significant tax advantages as refinancing or a home equity line of credit (HELOC), there are many compelling reasons to consider it along with other innovative methods of financing real estate.

To start, you won't have to risk losing your home by putting it up as security for the loan. There are other situations where you won't even be expected to put up any collateral at all. And since the repayment length is much shorter than that of a mortgage loan — five to seven years is a fair benchmark — you will wind up paying a lot less interest over the loan's lifetime.

However, a much higher monthly payment is required since the payback period is much shorter. If you want to be approved for a personal loan, you almost certainly need to have exceptional credit, or at the least, acceptable credit. Nevertheless, if you have excellent credit but very little equity in your property, this might be an efficient strategy for financing real estate transactions for you.

Instalment Agreements

Instalment contracts, also known as a contract for deed, instalment purchase contract, instalment land contract, or bond for deed, perform a function very similar to that of owner financing; however, the seller retains legal possession of the property until the debt is paid in full. Other names for this type of contract include bond for deed, contract for deed, instalment purchase contract, and instalment land contract.

You can also sign a lease-option arrangement that includes the right to sublease the property. You can lock in a future purchase price, yet at the same time, you can rent it out and begin earning cash immediately. The practice of signing a long-term lease agreement and then renting out a house on Airbnb for shorter periods is known as Airbnb arbitrage, and many investors use it.

Home Equity Loan

Taking out a loan against one's home's equity is one of the most frequent and popular methods to fund the down payment on an investment property. You may utilise the equity in your house as the source of financing for a new down payment or the whole loan if you take out a home equity loan, effectively the same as saying that your present investment in your home supports a loan.

A mortgage taken out against the equity in your present house is referred to as a home equity loan. This may be considered a second mortgage if you already have a mortgage on the property. Another option is a first mortgage, which is used when the borrower owns the property outright. Home equity loans might have a fixed interest rate just like any other mortgage, or they can be variable.


The real estate professionals at Hard Hat Real Estate will guide you through selecting the most suitable opportunity for your subsequent investment. They have assisted many clients, who are now their closest friends, in investing in the appropriate location and at the appropriate time. Take a wild guess at what comes next.

Back to blog

Leave a comment