Creativity Part 3 | Banks

Hey, guys. It's Mike with House Flipping School. Welcome to the House Flipping School whiteboard. You just heard me talk about the art of the deal, and how we structured a deal to make some money before we sold the property and cashed out with our profit.

I left out some important information, and quite honestly, I forgot about it because this deal happened about a year ago. I want you to pay attention because it's kind of funny in a way, and I stumbled across it when I presented the loan package to the bank in trying to borrow some money.

You heard me talk about the purchase price of $81,000. The house roughly needed about $50,000 in repairs. I put together this deal with a contractor, and I didn't need any of the repair cost money because he was going to fund it all, and we were going to pay him at the end of the project, or actually, when we sold the property.

All I did was go to the bank and say, "Listen. I want to borrow $81,000. I want 100% financing, but I don't need any of the construction money," for a property that when we were done, it is going to be worth about $175,000 to $180,000.

For me, it was a no-brainer. Why wouldn't the bank fund $81,000 for the end value of $175,000 to $180,000 when I was funding over $50,000 on the construction side? They didn't know about my arrangement with my contractor, but they really didn't need to know about that.

The funny thing was is that they said no to that. It made no sense to me. What they did come back and say to me was, "We're not going to lend you $81,000, we're going to lend you $107,000, or we're not going to do the deal." I kind of had to laugh because I went and asked them for $81,000 and they came back to me and said, "No. We're going to give you $107,000 because we want to fund the construction."

This is how that whole deal unfolded, where I was able to get $107,000,  and receive the construction money-which I didn't have to pay off to my contractor until we sold the property. The only kicker on this was I didn't get 100% financing on the purchase price because I had to come up with $24,500, until we got our first draw on our construction.

I wanted to mention that to you because sometimes bankers don't think like us; they're not all bad guys. We do a lot of business with the banks; it's just the way they do business sometimes. If you have a banker that's not going to lend you what you asked for, but end up giving you $26,000 more, I would say that's a good day.

I wanted to let you know about that, because again, it put a smile on my face. I wanted to share with you that exact strategy which honestly kind of happened by accident. At the end of the day, it's just another real estate deal that got done creatively, and you can do the same thing.

This is Mike, with House Flipping School. We'll talk to you soon.