Hey Reader,

Last week, the City of St. Louis filed a lawsuit against a real estate investor over a strategy called the “slow flip.”

The idea sounds simple.

Buy inexpensive homes.

Sell them to buyers using a contract for deed (Check out an article I wrote about this).

Let the buyer make monthly payments toward ownership.

In theory, this can create a path to homeownership for people who may not qualify for a traditional mortgage.

But according to the lawsuit, there was a major problem.

The City alleges buyers were placed into distressed properties, required to handle repairs, and could lose the home if they fell behind on payments or failed to maintain the property.

And depending on the contract, they could also lose the money they had already paid and the improvements they had made.

That’s the wrong way to do this business.

Not because seller financing is bad.

Not because contracts for deed are automatically bad.

The problem is the incentive.

If you're creating a pathway to homeownership, your deal should be structured for the buyer to actually become the homeowner.

That means:

✔️ A property they can safely live in
✔️ A payment they can realistically afford
✔️ Clear terms they understand
✔️ Proper underwriting before the deal is made
✔️ A realistic path to getting the deed

Creative financing can solve a real problem.

There are people who can afford a home but don't fit neatly into a bank's lending box.

Self-employed borrowers.

People rebuilding their credit.

Families without perfect financial histories.

Seller financing can give those people another path.

But here's the test I think every investor should use:

What has to happen for you to win?

If you win when the buyer makes their payments, takes care of the property, and eventually owns the home, your incentives are aligned.

If your business works even better when buyers repeatedly default, and you can sell the same property again, something is wrong with the model.

Good creative finance should create two winners.

The investor gets a performing note and dependable cash flow.

The buyer gets a real path to ownership.

The goal isn't to see how many times you can sell the same house.

The goal is for the person buying it to eventually own it.

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If this story has you wondering what responsible note investing actually looks like, that’s the next thing to understand.

I created a free guide that breaks down how notes work, where they come from, and how investors make money from them.

Check out the guide below 👇🏽

Sierra

Educational content only. Personal investment examples are shared for illustration and do not constitute investment, tax, legal, or financial advice, or an offer to sell securities.