Two days ago a Twitter follower asked me (@cleardaydavid), "Have you done any creative real estate deals lately?" As far as I'm concerned, Clear Day Capital ONLY does creative deals, but I responded with a deal that we are working on that will close on today (July 29, 2009.)
A borrower is purchasing a property to rehab and is concerned about a personal guarantee. At the some time, the officers of Clear Day Capital have a goal to control our own destiny more in case a loan goes bad (refusal to repay or cooperate) or gets "stuck" (unable to sell or refinance, but cooperating and wanting to do the right thing.)
We have come up with this model:
1. A company controlled by Clear Day Capital's owners purchases the property through an assignment of the purchase contract and acts as a holding company.
2. The holding company sells an option to the client to purchase the property by a future date at a pre-determined price equal equal to the holding company's loan payoff amount.
3. Option extensions can be purchased if needed.
Fairly simple and provides these benefits:
To the Client: They don't personally guarantee the loan, but still get to complete their project.
To Clear Day Capital: We control the property and do not have to forclose if the clients don't perform.
Some interesting notes:
1. The solution was inspired by our client, who was making a general suggestion about how Clear Day Capital can secure itself better, not realizing that he would be the beneficiary of the suggestion.
2. The deal was dead two weeks ago, but we had done successful deals before, we wanted to do more together, and we made a mutual commitment to figure out how to do more. We just needed to get more creative.
What do you think? What was your last created real estate deal?