Run the Numbers Twice on Creative Deals

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Key Takeaways:

1. Always verify that your written contract perfectly matches your verbal agreement to avoid servicing disputes.
2. Ensure your contract and promissory note are written in plain, easily understood language.
3. Use the right financial software to accurately calculate the four pillars of your deal: principal, term, interest rate, and monthly payment.

Creative financing opens doors to real estate transactions that traditional lenders might reject. The flexibility to structure terms that work for both the buyer and the seller is a massive advantage. However, the excitement of putting together a unique transaction can sometimes overshadow the basic math. Even the most innovative structures must remain financially viable to succeed.

Why “running the numbers twice” is essential

The most critical step in any transaction is ensuring the written documents reflect the actual discussions. We frequently see deals reach the servicing phase only for the buyer and seller to realize the signed contract terms do not match what they originally agreed upon. When this happens, parties get upset, trust breaks down, and everyone is forced to spend time creating and signing addendums.

Double-checking your numbers and contract terms prevents these costly misunderstandings. Running the numbers twice guarantees that everyone is on the exact same page before the ink dries and the servicing begins.

Balancing creativity with financial discipline

To maintain financial discipline, the person helping with your contract writeup must use the correct software to run the terms of your deal. Every financial agreement rests on four essential pillars:

• The principal amount being paid off
• The length (term) of the contract
• The interest rate
• The monthly principal and interest premium

As long as you know what you want for three of these pillars, the software will calculate the correct fourth pillar. For example, if you know the principal, the term, and exactly how much you want the borrower to pay monthly, the software will determine the required interest rate. Guesswork has no place in a legally binding financial document.

Common pitfalls in creative deal-making

A major pitfall in creative financing is relying on overly complex legal jargon. A complex contract often hides math errors and miscommunications. Your contract and promissory note must be written in plain language. If you read the terms and they do not immediately make sense, they need to be rewritten. Clarity protects both the buyer and the seller, ensuring that payment expectations are completely transparent from day one.

Securing your deal’s long-term success

Creative financing is a powerful strategy, provided the financial foundation is solid. Taking the time to verify your terms and clarify your language prevents painful disputes down the road.

If you need help reviewing your structure, we have extensive experience in the creative finance space. We offer a contract writeup consultation for $500. During this consult, we will review your numbers and structure to ensure everything is correct and matches your intentions. The final paperwork itself is still handled through your trusted Transaction Coordinator (TC) company. Protect your investment by making sure your creative deals always make perfect financial sense.