Financing and partnerships
Creative Equity: How to Fund Any Deal Without Money or Credit
How partner capital, credit, and experience can help complete a deal, with a plan for ownership, returns, and a potential partner buyout.
Today I want to show you a magic trick. By the end of this article you'll know how to fund any deal (creatively financed, bank financed, whatever it is) without any money, any credit, or any of the other things everyone promises you need.
But I'm not going to talk about creative finance. I want to talk about creative equity.
If you can structure the final money creatively, you can buy literally any deal. The banks can't stop you. The lenders can't stop you. The brokers and the sellers can't get in your way. It's the most powerful piece of the whole business, and almost nobody is talking about it. Everything online is finance, finance, finance, finance. Meanwhile the thing that actually gets deals across the finish line is the equity side.
Here's exactly how we use it, and how you can use it to buy a portfolio that ends with you holding all the real estate and no partners.
Why Listen to Me on This
I'm Christian. I've bought over 400 rental units in the last five and a half years, plus a seller financed resort that's hosting some epic events and a concert series right now as we speak. I also own a couple of property management companies and multiple other businesses. Over 31 transactions have gotten me to where I am today, so I have some idea what I'm doing in this particular space.
Related reading: How to Get Seller Financing Without Ever Asking For It
The first 17 out of 21 deals I did were seller financed. A lot of the money came in through creative finance. But here's the thing nobody tells you about creative finance: to close those deals, if you don't have any money, you still need to bring an equity partner. Seller financing solves the debt. It does not automatically solve the down payment.
So the real question becomes: what is it that partner wants, what does the deal bring, and how do you structure the two together?
Deal, Then Debt, Then Equity: In That Order
Of course I'm going to say it, because it's the order everything runs in around here. Deal, then debt, then equity.
First you find an opportunity. Then you find the debt product: the financing. And after that, you have a deal that either has a lot of cash flow or a lot of upside. If it has neither of those, it turns out you don't have a deal. You have a property.
But if you have an opportunity that actually makes money, your next job is to figure out how it makes money, and then ask: what type of investor would be attracted to this kind of deal, and how do I reward them?
That sequence matters because the equity conversation is much easier when you're standing on something real. You don't walk up to an investor and say "I want to buy apartments, will you fund me?" You walk up with a property under contract and a debt product lined up, and you say "here is the package, here is what we're selling."
What You're Actually Borrowing Isn't Just Money
This is where most new investors get stuck, and it's where the whole thing opens up.
When you go for the equity, you're allowed to borrow their cash and their liquidity. But you're also allowed to borrow everything else the lender is asking for.
Many banks will look at this deal and want to know that you have a net worth at least equal to the loan. They'll want to know what experience you have operating these kinds of properties. If you're new, you're sitting there going, "Hey, I am all in for this business. I'm going to buy rentals. I'm running the portfolio." But how do you get experience when you don't have experience?
It's a heck of a lot like trying to get your first job when every job requires three years of job experience. You have to grind it out, or you can borrow it.
You find someone who's already done the thing you want to do. They usually have more money than you. They usually have a higher credit score than you. And you add them to your team.
But we're not going to keep them there. We're going to temporarily put them on our team, and we're going to close the deal.
So now you've borrowed everything you were missing:
- The cash
- The liquidity
- The credit score
- The experience
You've built an ownership team, and you've assembled the total amount of money needed to close.
The Option Agreement: How You Get the Real Estate Back
Here's what you pair that partnership with, without exception: an option agreement.
Now, if you have a wonderful partnership and you want to extend it or do more deals with that person, guess what: option agreements are optional. You don't have to buy the partner out. But you are going to secure your position by agreeing with them up front on what a reasonable return looks like, and at what point they'd allow you to buy them out, within a fixed period of time.
Related reading: The Option Contract: Buy Multifamily With $0 Out of Pocket
For a lot of people, if you can double their money in less than five years, they are very happy to do that deal. And if a deal has a lot of cash flow, that future buyout number actually gets lower, because they're getting paid more while they hold the deal.
Let me structure one as an example.
Say I need $100,000 to close. I selected a bank financed deal on this one (it wasn't seller financeable) but that $100,000 gets us an opportunity to make $500,000. I tell my partner: in year four, I will be able to return double your money. At that point I'm going to refinance the property and pull out, let's call it $250,000. Of that, I'll give you $200,000. You will double your money in four years or less.
So I put a four-year option contract in place. That gives me the exclusive right: only I can buy them out, at that fixed price, within that fixed period of time.
And if we outperform? I just got that much better of a deal. They still doubled their money. We made an agreement where they're happy, and they exit.
Look at what just happened. The refinance bought the real estate. I started with no money, and I'm now holding a property I didn't previously have. That property is still cash flowing on the new debt (otherwise the bank wouldn't have issued the loan) which means I have an income stream I didn't previously have. There's extra cash from the refi. And I get to hold that property in my portfolio indefinitely, with or without money, experience, or credit.
It is the simplest of all magic tricks.
Ethan and Eddie: 11 Units to 44 Units
Here's what this looks like in the real world.
Ethan and Eddie are some of my earliest mentees. They bought an 11-unit by themselves, 100% financed between the bank and the seller: 50% bank, 50% seller. They funded their own renovation out of working a nine-to-five and running their own company cleaning the floors of an airport. They started a cleaning business and used that money to fund the rental.
When they finished the project, they refinanced and pulled $750,000 in tax-free dollars out of their portfolio. They used that to go buy a 44-unit all by themselves.
Except the bank said no. You can't buy a deal this big: you don't have the experience, you don't have the net worth.
So they added one mentor to their team. It wasn't me. It was another local investor, a personal mentor of theirs, brought on for 10% of the deal with an option to buy him out in the future.
Today they own an 11-unit by themselves and a 44-unit they own 90% of, with an option to purchase the last 10% for a nominal amount. They got to borrow the experience. They got to borrow the credit score. All they had to do was build a team tailored to what the bank was asking for and get a yes.
Key Takeaways
- Creative finance solves the debt. Creative equity solves the down payment, and that's the piece that actually stops most people.
- Run it in order: deal, then debt, then equity. If the deal has neither strong cash flow nor real upside, you don't have a deal.
- You can borrow more than money. Liquidity, net worth, credit score and operating experience are all things a partner can contribute temporarily.
- Always pair the partnership with an option agreement: an exclusive right to buy them out at a fixed price within a fixed window.
- Structure the buyout so the partner wins on a defined timeline: doubling their money in under five years is a number a lot of investors will happily take.
- A refinance is what pays the partner out and leaves you holding the real estate, the cash flow, and the extra cash.
This is a short one, but it's one of the most important concepts in real estate, which is exactly why I wanted it on its own. Watch the full video for the walkthrough of how I frame the equity conversation and the buyout math out loud.
If you want to go deeper, you can learn about my mentorship at multifamilystrategy.com, or download our free course on getting started in multifamily investing. Our free community on Skool comes with a deal calculator you can use on your next analysis. And we go live every Wednesday at 5 Central, where I'll answer your questions on structuring equity and what these returns actually look like.
Read the episode transcript
0:00 Hello YouTube. Today I present to you a 0:02 magic trick. By the end of this video, 0:04 you will be able to fund any deal 0:06 creatally financed, bank financed, 0:08 without any money, any credit, any of 0:11 the things that everyone promises you. 0:12 But I'm not going to talk about creative 0:14 finance today. We're going to talk about 0:15 creative equity. If you can structure 0:17 the final money creatively, you can buy 0:19 literally any deal. The banks can't stop 0:21 you. The lenders can't stop you. The 0:23 brokers, the sellers, nothing can get in 0:26 your way. It's the most powerful piece. 0:27 It's not actually creative finance. It's 0:30 creative equity. And I'm going to share 0:31 exactly how we use it and how you can do 0:33 it to buy a portfolio that ends with you 0:37 having all the real estate and no 0:38 partners. Sound interesting? Enjoy. So, 0:41 by the way, why listen to me? Well, I'm 0:42 Christian. I've bought over 400 rental 0:44 units in the last 5 and a half years and 0:46 a seller finance resort, which is 0:48 hosting some epic events and concert 0:50 series right now as we speak. I also own 0:54 a couple property management companies, 0:55 multiple other businesses. I have an 0:57 idea about what I'm doing in this 0:58 particular space. Over 31 transactions 1:00 has got me to where I am today. And I'm 1:03 going to share the best of the best. 1:05 Now, deals can be structured with 1:06 multiple financial structures. So, I did 1:08 the first 17 out of 21 deals were seller 1:11 finance. That was a lot of the money 1:13 came in through creative finance. But to 1:15 close those, if you don't have any 1:17 money, you need to bring an equity 1:18 partner. So, you have to structure what 1:20 is it that they want? What does the deal 1:22 bring? Of course, I'm going to say it. 1:24 We follow the order of deal, then debt, 1:26 then equity. Find an opportunity, find 1:28 the debt product, which was the 1:29 financing, and then after that, you have 1:32 a deal that either has a lot of cash 1:34 flow or a lot of upside. If you have 1:36 neither of those, turns out you don't 1:37 have a deal. But if you have an 1:39 opportunity that makes money, you need 1:41 to find how does it make money and who, 1:44 what type of investor would be attracted 1:46 to this kind of deal. How do I reward 1:48 them? But more importantly, how does 1:50 this allow you to buy anything? How can 1:52 you bypass the banks? How can you beat 1:53 them at their own game? It's all about 1:55 building the team. So, first step, you 1:58 do the deal. You find the actual 2:00 opportunity. You get it under contract. 2:01 You line up the debt product. Okay, we 2:03 now have a package. We know what we're 2:05 selling. When we go for the equity, 2:07 you're allowed to borrow their cash, 2:10 their liquidity. Many banks will look at 2:12 this. They want to know you have the net 2:13 worth at least equal to the loan. 2:15 They'll want to know, hey, what 2:16 experience do you have operating these? 2:18 If you're new, you're like, "Hey, I am 2:20 allin for this business. I'm going to 2:22 buy rentals. I'm running the portfolio, 2:24 but how do you get experience when you 2:26 don't have experience?" It's a heck of a 2:27 lot like how do you get the first job 2:29 when every job requires three years of 2:30 job experience? You have to grind it 2:32 out. You get it. You can borrow the 2:35 experience. You find someone who's done 2:36 the thing that you want to do. They 2:38 usually have more money. They usually 2:40 have a higher credit score than you. And 2:42 you add them to your team. But we're not 2:44 going to keep them there. We're going to 2:45 temporarily put them on our team. and 2:47 we're going to close the deal. So, we've 2:49 borrowed anything that we're missing, 2:51 the cash flow, the liquidity, the credit 2:53 score, the experience. We have built an 2:55 ownership team, and the total amount of 2:57 money to close the deal. Here's what 3:00 you're going to pair that with. Without 3:01 exception, you're going to put an option 3:03 agreement in place. Now, if you have a 3:04 wonderful partnership and you want to 3:06 extend it or do more deals with them, 3:08 guess what? Option agreements are 3:10 optional. You don't have to buy out the 3:11 partner, but you are going to secure 3:13 your position by agreeing with them 3:15 upfront. what is a reasonable return 3:18 where you would allow me to buy you out 3:19 on this deal within a fixed period of 3:21 time. And so for many people, if you can 3:24 in less than 5 years double their money, 3:26 they're very happy to do that deal. If a 3:27 deal has a lot of cash flow, that future 3:29 buyout of course gets lower because they 3:31 get paid more while they hold the deal. 3:33 But I'll structure a deal. Say this is 3:36 as an example, in year four, I will be 3:39 able to return double your money. I need 3:41 $100,000 to close this deal. I selected 3:44 a bank finance deal. It wasn't seller 3:46 financable, but $100,000 gets us an 3:49 opportunity to make $500,000. 3:52 At this time, I'm going to refinance the 3:54 property. I'm going to pull out, let's 3:55 call it $250,000. 3:57 Of that, I'll give you 200. You will 4:00 double your money in four years or less. 4:02 So, I have a 4-year option contract, 4:04 which gives me the exclusive right. Only 4:07 I can buy them out at this fixed price 4:09 at a fixed period of time. Guess what? 4:11 If we outperform, I just got that much 4:13 of a better deal. They still doubled 4:15 their money. We've made an agreement 4:17 where they are happy. They now exit the 4:19 deal. The real estate, the refinance 4:21 bought the real estate. I now am holding 4:24 what? I started with no money. I am now 4:27 holding a property I didn't previously 4:28 have. That property is still cash 4:31 flowing on the new debt. Otherwise, the 4:33 bank would not have issued the loan, 4:35 which means I have got an income stream 4:37 I didn't previously have. I got cash out 4:39 of the refive. There's extra cash. And I 4:42 get to hold a property in my portfolio 4:43 indefinitely with or without money, 4:45 experience, credit. It is the simplest 4:47 of all magic tricks. And there are so 4:50 many videos online going creative 4:51 finance, finance, finance, finance. 4:54 Creative finance can open a lot of 4:55 awesome opportunities and it can make 4:57 deals work that wouldn't otherwise have 4:58 worked with the bank. But at the end of 5:00 the day, creative finance, bank finance, 5:03 hard money. If you have a down payment 5:05 or you're lacking credit or experience, 5:07 the easiest answer is a temporary 5:10 addition to your team. Put the members 5:14 on your team who have that experience. 5:15 This is why I think it's so important to 5:17 go out and meet the people who have 5:18 built the business you want to build. 5:20 Those are the people are going to help 5:21 you move forward. Practical example, 5:24 Ethan and Eddie, some of my earliest 5:26 mentees. They bought an 11 unit by 5:28 themselves. They bought it 100% financed 5:31 between the bank and the seller. 50% 5:34 bank, 50% seller. They funded their own 5:36 renovation out of working a nine-to-five 5:39 in their own company cleaning the floors 5:41 of an airport. They started a cleaning 5:43 business. They used the money to fund 5:44 the rental. When they finished this 5:46 project, they did a refinance of 5:48 $750,000 5:51 tax-free dollars, pulled out of their 5:53 portfolio, and they used that to buy a 5:55 44 unit all by themselves. They turned 5:57 11 units into 44 units. But the bank 6:00 said, "Hey, you can't buy a deal this 6:02 big. you don't have the experience, you 6:03 don't have the net worth. They added one 6:05 mentor to their team. It wasn't me. They 6:08 added another local investor, a personal 6:11 mentor of theirs was added to the team 6:12 for 10% of the deal with an option to 6:15 buy them out in the future. This has 6:18 allowed them to go to an 11 unit that 6:19 they own by themselves, a 44 that they 6:22 own 90% of with an option to purchase 6:24 the last 10 for a nominal amount. They 6:26 got to borrow the experience. They got 6:27 to borrow their credit score. and all 6:30 they had to do was just build a team to 6:33 tailor to what the bank's asking for and 6:35 get a yes. Short video today, but this 6:37 is one of the most important things in 6:38 real estate. If this helped, please like 6:40 and subscribe to the channel. It's 6:42 appreciated. We get this out to more 6:44 people, including you. If you actually 6:46 watch and engage in the video, you have 6:47 any questions on how to structure equity 6:49 or what these returns look like, let me 6:51 know in the comments. I'll answer every 6:53 single question. And if you want to join 6:55 us on our live Wednesday, we go live 6:57 every single Wednesday, 5 central. I'll 7:00 answer your questions there as well.
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