Real Estate Investors Association of Greater Cincinnati

Why it’s Hard to Learn Creative Finance (or Anything Else You’re Struggling With)

When a topic (say, real estate, or creative real estate), or anything else) is brand-new to you, it's easy to hear, read, watch, whatever it is you do, something that strikes you as true and valuable...

But because your brain doesn't have anything to relate it to, it seems to store it in a place that's not accessible when you want it.

It's like there's a set of organized files for some things (I know how to quilt, or play the guitar, or drive to the grocery store) that if something else comes in that can be related to those "(I'm learning how to make collages, oh, hey, it's similar to making quilts. Here's a ukulele, oh, it feels like a tiny guitar, but oh, hey, the tuning is different this way. I need to go to my friend's house, oh, it's go to the grocery store and then turn left, right, left") it's easy to process and remember.

If there's nothing in there that the brain can relate to what you just learned, the new info seems to go into a junk drawer--or get misfiled.

"They're talking about options on houses. Those sound awesome. Apparently, you need some cash, which I have, and a seller who doesn't really want to sell, which I have in abundance. Ima do that".

[10 days later, when faced with a seller who wants money but doesn't want to sell] "..." (filed in a place you can't access)

Or: "They're talking about options on houses. I understand options. They're a short-term bet that the price of an investment will go up or down, and there's always a winner and a loser, and someone brokers them, and my financial advisor said they're risky and only for big players. That won't work on real estate!! Next..." (misfiled under "stock options")

The experience of "getting it" when you're immersed in it, when it's being broken down for you, and then losing it as soon as you're out of that environment is common--and it doesn't mean that you're stupid, or inept at that particular topic, and telling yourself either of those things is a bad strategy.

It just means your brain doesn't have enough of a fact set to start putting everything in one file, where it can be catalogued and accessed easily.

I'm having this same experience RIGHT NOW in learning something complex and non-real estate related. I learn something about this topic, it strikes me as a true and a good thing to consider or implement, and then it disappears until I hear it again, and I think, "How did I forget that? It's important!"

And I had it when I started to learn about subject to years ago.

First exposure: "That's a loan assumption [something i had a lot of experience with]. That idiot doesn't know that loans aren't assumable anymore. Next..."

Second exposure: "Ohhhhh...he's not telling the bank about the assumption. THAT seems risky. But maybe if the house were sold lease/option, there wouldn't be enough time for the bank to figure out what had happened and call the loan due. Maybe I can use it on houses I plan to lease/option. I'll think about that."

Third exposure: "Now that I've bought a lot of houses on land contract, which also violates the due on sale clause, I realize that banks pretty much never notice that the payment isn't coming from the borrower. And why would they call it due if they DID notice? rates are lower now than they were when this loan was originated. Why would they demand 8% money back when they could only loan it out again at 6.5%? Maybe I'll start asking for the deed, instead."

[scores of subject tos and studying how the finance market actually works later] "So the reason the bank doesn't notice is that the bank isn't the investor, it's the servicer. The loan is more than likely held in a huge, securitized pool owned by multiple individuals and institutions. Calling this particular loan due would only decrease, not increase, the return of those investors. The servicer doesn't care unless it's getting pressure from FNMA or someone to call the loan, and even FNMA doesn't own it anymore. Also, they notice maybe 1 time out of 50, and when they do, they're just confused based on my conversations with them. The bigger problem is the SELLER needing the buy another property while still obligated to their own loan, but I've figure that out...or the seller forgetting that he signed a document saying that he didn't get to write off interest that he wasn't paying, but I know how to deal with that now..."

And the most important thing about this overflowing, easily accessible file of (multi-disciplinary) knowledge and experience?

It now serves as a place to compare and contrast other strategies that come into my field of vision. How is a long-term lease option (something I did for the 1st time in 2020) like a subject to? how is it different? What are the pros and cons? Much easier to evaluate with sub tos in place already.

I've tried to describe many times to many people that it's not that I have some "knack" for complex creative structures--it's that I've been building a file in my brain about them for years, and each new one clicks in MUCH more easily than the first one did, and my brain can almost immediately access why a particular structure (or combination of structures) would be good or bad for a particular deal, even if it's "new".

Your brain loves to learn new things--that's what it's built for. But your ego HATES it when you don't get them, or they don't stick, or you get hopelessly confused once you start tracing the thread of the information vis-a-vis a real-life situation.

But that's learning. If you see the value, you'll accept feeling like the dumbest person in the room (in fact, I predict you'll come to cherish that feeling, because it can be full of curiosity and wonder when you drop the rock of ego).

When I try to re-trace the steps from raw newbie to creative finance MASTAH, they look like this:

1. Seeing other investors make these deals that I didn't understand, but that involved little money, and no credit (which I had in abundance) and got them cash and cash flow (which I badly needed)
2. Going to classes and meetings where these things were laid out and understanding maybe 20% of what was being said there, and retaining maybe 5% of it
3. Talking to the other investors about what I'd learned and letting them fill in the blanks
4. Asking as many questions as i could think of about every creative deal I heard about
5. Focusing on and studying ONE strategy that seemed really complex to me (land contracts) and starting to offer those as an option to sellers
6. Getting a yes from a seller, then realizing I didn't really know how to do the practical part (the contracts, closing, payments etc)
7. Going back to my study materials and my experienced friends to work all that out
8. Getting through the first one and thinking I really got it now
9. Getting thrown curveballs in new deals ("I need to borrow money to fix this one, I'll call my favorite private lender, it'll be no problem. Wait, he said no, because he can't secure his money against a deed I don't have. Crap, what now???") and working my way through those
10. Listening to more "other people's deals" and more education with a new, more experienced, more discerning ear...[in retrospect, I wish I'd known then what I know now about the value of PARTNERING with those veterans, or even giving up whole deals to them to get their guidance and expertise for the next deal, but I didn't, and that's some precious water under the bridge right there}
11. Realizing, one day, that I was now able to actually THINK THROUGH structures, because I had so many filed and understood them at a level where I could mix and match, immediately see holes in particular techniques where it came to specific deals and either fix them or disregard that technique for that deal.

At that point, I wrote a course, started a creative finance focus group at my REIA, and settled into my role as the smartest creative finance savant in the world--a guru to the gurus.

And then I 12. Started hanging out with Pete Fortunato, Bill Cook, Dave Tilney, and a bunch of others you've never heard of, and realized, once again, that I only THOUGHT I understood creative deal structures.

So now I'm at step 13, which is

13. Repeat 1-12 as necessary.

The same thing applies to ANYTHING you really want to learn. There's a lot of mental and emotional struggle around grasping brand-new concepts with no frame of reference, and feeling dumb that you can't. There's a lot of repetition. There's time and money invested in research and development. There are a lot of points where it's easier to give up and do something else.

But if you want the results, the way through is THROUGH. There's no real way around it--in fact, short cuts in real estate, creative real estate, and lots of other things tend to lead to damage to you and to others, and to not just giving up, but giving up in a situation where you're worse off than you were before. You'll just have to be patient with (and maybe even learn to enjoy) the process.

Where it comes to CREATIVE real estate, the specific path is:

1. Educate yourself thoroughly on at least one (or better yet, 2--one where you get the deed and one where you don't) techniques
2. Get around and build relationships with people who are further along the path than you are. Bring deals, ask for help, keep your brain open, learn from their deals and triumphs and mistakes.
3. Put what you know into practice in the real world, with the help of a mentor or partner, if needed.
4. Get some experience
5. Persevere

Of course, we have endless chances for you to take steps 1-4 here at REIAGC.

The Creative Buying and Selling Focus Group on the 4^th Monday of each month, open to and free for all members.

The Friday Propswap call, where creative deals are put together right in front of you every single week.

All-day workshops—23 in 2022—that cover specific creative strategies like 0% owner financing, buying subject to, and also other in-depth skills and techniques like desktop lead evaluation.

And a TON of other members who know these things and are willing to answer your questions about them, and even partner with you about deals you’ve found, but can’t do yourself.

Don’t get discouraged with your poor brain. It’s overwhelmed and it’s being pushed to grow in ways that aren’t always comfortable for it. It’s not dumb, and neither are you. Stick with it, and you’ll get the results of growing your knowledge and your tribe.