Overview of What to Know Before Structuring a Creative Finance Deal (Rookie Reply)
In this episode of Real Estate Rookie Reply, Ashley Kehr and Tony J. Robinson answer three beginner-focused investing questions: how to start house hacking as a college student, how to think about using a large inheritance to replace income, and what to do when a creative finance deal requires proof of funds fast. The common thread is slowing down just enough to choose the right strategy, financing, and next step instead of rushing into a deal that doesn’t fit your goals.
House Hacking as a First Investment
What house hacking is
House hacking means buying a primary residence and renting out part of it to offset your housing costs. Examples include:
- Renting out extra bedrooms in a single-family home
- Buying a duplex or small multifamily
- Using a basement, ADU, or other separate living space for rent
Why it’s a strong starter strategy
The hosts emphasize that house hacking is often one of the lowest-barrier ways to begin investing, especially for someone young and already used to living with roommates.
Key benefits:
- Lower down payment options may be available
- 5% down
- 3.5% down
- sometimes 0% down, depending on the loan
- It reduces your own living expenses
- You can begin building equity instead of paying pure rent
- In a high-cost market like New Jersey, it can make ownership more realistic
Important mindset shift
A “successful” house hack does not have to mean free housing. Even if your payment is similar to market rent, you may still come out ahead because you’re building:
- Equity
- Mortgage paydown
- Potential appreciation
- Tax benefits like depreciation once it becomes a rental
First step recommended
The first move should be talking to a lender to find out:
- What you can actually get pre-approved for
- How much rental income they’ll count
- What type of property and monthly payment is realistic
The hosts note that lenders often only count a percentage of projected rental income, not the full amount, so it’s important to understand that before shopping.
Using a $700K Inheritance to Replace Income
The question
A listener expects to inherit about $700,000 and wants to know whether that is enough to leave a job earning about $4,000/month net and go full-time into real estate in Los Angeles.
Main takeaway: yes, but strategy matters
The hosts agree that $700K can absolutely support a wealth-building plan, but they caution against assuming traditional long-term rentals in LA are the best use of the money.
Instead, they recommend:
- Choosing a strategy that fits the investor’s goals and personality
- Prioritizing cash flow if the goal is income replacement
- Considering higher-performing strategies such as:
- House hacking
- Short-term rentals
- Co-hosting
- Assisted living / sober living
- Other value-add or specialized real estate models
Why not put everything into one deal?
They suggest avoiding putting all the cash into one property or one market, especially in an expensive area like LA. A better approach may be to split capital across:
- A down payment for a house hack
- A brokerage or index fund account
- Future acquisition reserves
Suggested balanced approach
Ashley’s recommendation:
- Use part of the money to buy and house hack a primary residence
- Put the rest into a brokerage account or other liquid investment
- Continue acquiring one property per year if possible
- Keep working part-time or in a related real estate role to maintain lending flexibility
Extra consideration
Tony points out that the money might also allow the investor to shift into a real estate-adjacent career, such as working with a flipper or wholesaler, using some of the inheritance to bridge income while building experience.
Creative Finance Deal: Proof of Funds and Fast Timelines
The situation
A rookie investor has an accepted creative offer on a triplex in Winston-Salem, North Carolina, and needs proof of funds by Monday.
Deal structure:
- Purchase price: $445,000
- Cash needed at closing: $385,000
- Seller financing: $60,000
- Seller financing terms:
- 7% interest
- 30-year amortization
- 24-month balloon
- Seller contributes up to $5,000 toward closing costs
What proof of funds means
Proof of funds is documentation showing the seller that the buyer has access to the money needed to close. This can be:
- A bank statement
- A letter from a lender or private lender
- Documentation showing available capital from a funding source
Strategy depends on the business plan
Tony stresses that the best financing option depends on the end goal:
- Turnkey rental: Might need more traditional financing
- Value-add / rehab / repositioning deal: Hard money or private money may make more sense
- Wholesaling or assignment: Could be a fallback if the deal is strong but not financeable
Recommended options
The hosts discuss several possible paths:
1. Private money
Reach out to:
- Friends
- Family
- Network contacts
- BiggerPockets forums
- Anyone who may want to lend against the deal
If someone is willing to fund it, they can often provide the proof of funds letter or statement needed.
2. Hard money
This may work if the deal has value-add upside, but the hosts note that hard money lenders can be strict and may not like complicated second-lien structures.
3. Traditional financing
Tony suggests checking with:
- A local credit union
- A small regional bank
- A local lender in Winston-Salem
A more conventional loan may be cleaner than stacking multiple creative financing layers.
4. Wholesaler/partner route
If the investor can’t close, they may be able to:
- Partner with a wholesaler
- Assign the contract
- Receive a portion of the assignment fee
Important caution
Tony and Ashley caution that creative deals can create complexity fast, especially with a 24-month balloon and a need for large cash at closing. The investor should understand:
- How the deal gets paid off
- What the exit plan is
- Whether the financing structure actually works with the property’s income
Key Takeaways
- House hacking is one of the easiest ways for beginners to enter real estate, especially in expensive markets.
- A good house hack does not need to eliminate all housing costs; reducing them while building equity still counts.
- If you inherit a large sum of money, don’t rush to deploy it all into one strategy or one market.
- $700K may be enough to replace a modest income, but the best result depends on choosing the right strategy and staying diversified.
- When using creative finance, know your exit strategy before trying to prove funds or close fast.
- In many cases, the best next step is not “find money immediately,” but “find the right financing structure for the deal.”
Action Items Mentioned
- Talk to a lender and get pre-approved
- Ask how rental income will be counted
- Build a buy box based on your actual financing
- Compare real estate returns with stock market alternatives
- Separate your capital into reserves, down payments, and growth investments
- For creative deals, contact private lenders, banks, or potential partners immediately
- Confirm whether the deal is truly worth the complexity before rushing to close