Creative Real Estate Financing With Chuck Sutherland


In the world of real estate financing, finding fresh ways to go about things gives you a good strong edge in the game. Creative real estate financing has the power to put you ahead of other people doing the same things you are. Chuck Sutherland, an award-winning real estate investor and developer, chats with Jen Du Plessis about some creative real estate financing techniques that you can pick up and begin incorporating into your practice. The real estate investment field tends to get crowded sometimes, but these techniques shared by Chuck can and will give you an advantage, and allow you to maximize the potential of your investments and protect you from and possible failures.

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I’m excited about our episode because I have a friend and colleague of mine, Chuck Sutherland. He is a master at creative financing for anything and everything to do with real estate from small residential all the way to multifamily, commercial and complex retail. You name it, he’s done it. He has a great career and reputation and he’s here to share with us some secrets. Welcome, Chuck.

Thank you. I’m glad to be here.

I’m glad to have you. Your career has been really long. You’ve been in the business for many years. You’ve been a real estate investor, a real estate developer and your families in construction. You’re a consultant for a lot of people. You’re also a private money investor. There are many things that you do that it’s almost impossible to say where to start. I want to start at the very beginning and let everybody know that you have a couple of books. It’s going to go in the order of what we’re going to talk about. The first is your book called Creative Down PaymentsThe second book you have is Creative Seller Financing and the third book is Advanced Creative Real Estate Financing. I want to talk about your passion because I also know that you had been very interactive with micro-business loans for women. I want to start there to see if we can dip into what your passion is and what has led you to this creativity that you have and why you feel like there’s such a need for it in our marketplace. There’s been a need for many years, nobody knew about it. You’ve been on the bandwagon for a long time.

Back in 1987, I heard about this organization called the Grameen Bank out of Bangladesh, which made loans to the poorest women in the country as small as $75 so that women could start their businesses. Women couldn’t borrow at the banks in Bangladesh. It was very difficult for them to even get into the business of any kind. Professor Yunus started making loans and he started getting other people to make loans. With five million borrowers, they had over a 95% repayment rate, which was higher than the commercial banks in Bangladesh.

He considered that women who wanted to work and have their businesses were extraordinary credit risks. He started working on that early in the ’70s. I learned about him in 1987. I became part of the international movement instead of countries giving grants to governments that they made loans to women to start their businesses. The United States got involved in that and other countries did. It wasn’t a handout. It was an opportunity for people to control their destiny. I was on the board of directors of the international organization we work with for years.

Muhammad Yunus, who was the founder of the bank and won the Nobel Peace Prize for that was on the board with us and many other people that were extraordinary people, but highly committed. In 1987, there were seven million women that had their loans for self-employment around the world, five of them in Bangladesh itself. Out of that movement, it’s an undiscovered, untalked about movement. We’re at about 150 million, primarily women. There are some men in different organizations not in Bangladesh but all around the world that get loans for their own business and the repayment rates are still as high as they were in Bangladesh.

What made you want to go in that direction to serve that particular community? Maybe given your background, I know you’re one of eight kids. I don’t know how many boys or girls or where you fit in. Had you seen someone in your life struggle with that type of situation that you felt compelled to help?

When I was growing up, we were poor. My dad worked extraordinarily hard to be able to get ahead. One of the things he had a hard time doing was borrowing money because we wanted to be in business for himself, but it took him a decade before he could turn his dream into a reality because he couldn’t finance anything. Loans remained on collateral only. I grew up poor. When I was working in the world of real estate, I put a little money on a deal when I was twenty years old. Financing property, when you don’t have money, take something. When you don’t have money, the bank will loan you money if you prove that you don’t need it typically. How do you do something if you have no collateral start with and you have no money to start with? I started working with creative approaches to rent ranging financing and that’s why I wrote those three books.

They’re all about some form of financing because I had to learn how to creatively finance transactions or I couldn’t do anything. There are lots of examples that are commercial. Some of them are residential, but the principles are all the same. I talked about it in my book. Every principal, every strategy has a residential example and a commercial example. I was very excited to write that because what I developed and learned from others many times over the years that helped me get going myself and finally I have found ways to get financing in transactions. It took me years to be able to get to the point where I was doing what I wanted to do in terms of buying and developing property. I knew how those women felt, not having an easy route to get out of poverty.

Create an edge to protect against the failure of a deal. Click To Tweet

It’s to realize their dreams too and not to have their dreams crushed.

Particularly women in the third world, in this country, who don’t have a ready way out to fulfill their dreams because they don’t have the financing resources to get there. That’s why I started doing that. I met my wife doing that. Years after we met, we talked on the phone. She was doing grad school paper interviewing me and we ended up getting married. She moved to Dallas, which I moved to Dallas and it was from Wichita and St. Louis, I’m traveling a lot. That’s where I got involved with the opportunity for people in poverty to have a step out that wasn’t a handout that trusted and that they could repay. There are ways that were done that women, small groups, guaranteed each other’s loans and worked with each other to make sure people are successful. It is a heartwarming true miracle in terms of what’s happened for self-employment for poor people throughout the world. One of these days it’ll be like, you got the Nobel Peace Prize and then people forgot about it.

That’s sad too, especially with the impact that everybody’s made. I took a dive into that. I wasn’t sure if that was where it was going to be perpetuated from, but I’m glad it sounds like it is. You own Creative Real Estate Network, which can be found all over the place on the internet and in your career you’ve done over $200 million or been involved in over $200 million worth of property exchanges. I know that you did a very impressive one across five states and four different people and the private money movement. Let’s start with the Creative Down Payments book that you have because many of our audience are residential lenders, a few commercial lenders, some commercial and real and residential loans or realtors, some title companies.

Obviously, entrepreneurs who may or may not want to be involved in investing have been in the business as a lender, if I wasn’t able to help anybody get a loan and I have lots of resources. I’m very resourceful. One of my specialties was investment properties, but it was all residential. It wasn’t commercial, it was multifamily, but it wasn’t the depth of everything. If I couldn’t find a source for them, I felt horrible because I couldn’t send them anywhere. I couldn’t do anything for the person. Can you give us an example of what a loan officer or a realtor might encounter on a daily basis that your systems and your pathway of creativity could maybe help them get the deal done?

The Creative Down Payments program, it was the strategy I used to be able to get into investment properties originally so that I could build my estate, build my own wealth over a period of time. I had certain things I could do in a transaction, especially in downtimes. We’re in a boom but it will not last. It goes up and down like a roller coaster. Once I had a house that was for sale. It’s not a tough neighborhood but it needs a lot of work. I had it for sale and I had a buyer come along who wanted to look at the house and he was a plumber. He and his wife had four kids and he worked a day job. With four kids, that takes up a lot of money. They never had any savings.

They couldn’t build up savings with their kids and medical bills. I had this property for sale and it did require some work. It’s going to require a special person, but it required cleaning up and painting, maybe a little plumbing work too. He said, “I don’t have any money for a down payment on it. I wanted to look at the house because it’s close to my job.” I said, “Why don’t we talk about this?” I’m going to preface what I’m going to tell you and say, “I tell all my people to do what I did,” which was a document in the contracts and disclose to everybody involved what’s happening in these transactions. You do not want to hide anything from a loan officer or from your bank because people do.

It’s not reputable and people would go to jail for that. Here’s what we did, I wrote a contract and disclosed it. I wrote a contract for him to buy my house that had for sale and $15,000 as a down payment and new financing because he had plenty of income. He needed a down payment. The contract was subject to him being able to sell some advanced payments to make services at or before closing. There’s a separate contract. I bought $15,000 worth of plumbing services to be used at nights on weekends when he wasn’t working. I’m being able to sell my house over here. The two contracts were right together. They had to close at the same time. I had a use for it for plumbing credits because I had a bunch of small houses, duplexes and units. We signed the contract, we found a local lender who would make that loan and we closed. I got my credits and use them on nights and weekends when I had plumbing problems. It’s a win-win situation.

What was the response to lenders in that type of situation given the fact that you’re the seller and you’re the person who’s involved in this side contract for doing that?

The first two-lenders we went to didn’t understand it. Another lender thought it was somehow a violation of some law, but we’re disclosing everything we’re doing. The fourth one local lender made the loan. Everybody in that situation was successful and won that transaction. I had another transaction very similar to this where I had a duplex in a pretty bad condition. It was old but inside the units were clean and it was very cheap. I had it for sale and I decided I was going to split the duplex in half and I could get a lot line split right down the middle of the duplex.

Real Estate Financing: You can negotiate to buy or sell property, and the downpayment is something other than real estate.

One of the tenants who had lived there, paid for the facility, that apartment duplex many times over with rent. I said, “If you paint the inside and outside, I’ll give you the paint. I’ll give you a $2,000 credit as a down payment on the purchase of this property and subject to you have been able to assume the loan and release the other side of the duplex.” The idea was if the loan payments that he would have were pretty much what the rent was at that time. The mortgage payment and the rent were about the same. They were happy to do that. I say he was a couple, but he made other decisions back then.

I took it to the lender and they were glad to release the other side because they converted a unit investment loan to a residence owner-occupied loan. They were happy to make that transition. We closed that and I have a free and clear half of a duplex. I sold it to that tenant on exactly the same terms and conditions, $2,000 down subject to a new loan. I went back to that same financial institution, they made a new loan to that tenant. That’s only one example of down payments. When you get in the commercial world, we’ve used the land as a down payment to buy a property and we bought a hotel.

Are they taking over payments of land or accepting free and clear land?

The one example I was telling you about is me and my partner we bought a hotel in North Dakota and part of what we did was we carved off a piece of the land that we bought from a neighbor. We sold that, they gave that property at closing to the seller of the property. We had financing to be able to finance the rest of the purchase. We used the land we were acquiring from a third party to give to the seller of the hotel as a down payment. We still had to have financing. We were able to get in with the lesser of a down payment, which was the key part.

The whole idea is being able to upgrade the down payments. There are a lot of things and assets people have as down payments and most real estate people don’t think of them as an asset. We’ve done RV’s as a down payment. We’ve given land as a down payment, received land as a down payment. I created a mortgage loan on a building I needed to refinance it when we get done. I had to expand it a couple of times before the tenant took possession. I created a note to a man who would make a loan, but I ended up buying his timeshare in Palm Springs for $25,000 for the deal to close.

He gave me his money and I bought him a property down in Palm Springs. I got $100,000 cash and the Palm Springs property. I took the $100,000 cash, put it in the building, finished it, sold it and pay him back. He went from $100,000 to $125,000 plus interest timeshared. I didn’t close it. I used it to buy another timeshare in San Francisco. I live in this world where if you can figure out a way to buy or sell a property when the market is not providing that access. There are properties that are marketable value but I have no market for that value. The properties are in real trouble.

The property is in foreclosure sometimes. We’ve done this with the banks to solve their problem when they foreclosed our property. It’s a unique way to do business. The idea behind this is simple, whether it was your buyer or seller. You can negotiate to buy a property or sell a property and the down payment is something other than real estate. It could be a personal property or it could be other real estates. The whole idea is that you do not have to be a victim of what the marketplace is if you can find a way to solve everybody’s problems. Everybody’s goals are in the transaction.

I was going to say that’s a win-win but I know that you tend to call it what goes around comes around. If you could help someone else out, then someone can help you in the future. Your connections must be pretty massive or expansive at people who have money. To me, I’m thinking a lot of spinning plates or he has this money and we have that and a lot of moving parts to it. How do you manage that?

One is I’m a member of a couple of national organizations where we worked with each other. We trust one another. We know what each other’s limitations are. Some people bring cash to a transaction. Some people bring work. I’ve done a lot of real estate development. Even as the worker be, you could say the person on the boots on the ground doing the work. The bottom line is that there are a lot of ways and a lot of people in the country that can help you. One of the things I tell people is that when you need to put together the resources to do it in any transaction, it’s not after you’ve found all the property that you’re going to do, you should put the resources way back here at the beginning before you even knew you had a transaction. That’s lenders, contractors, partners and title companies.

The more edge you have, the more ability you have to close transactions that others wouldn't be able to. Click To Tweet

Even insurance, making sure that they can do what you need to do as well. I did find that a lot in my career and lately, I happened to because I don’t do traditional lending anymore. I’m not required to have a license, but I do a lot of investment lending. Fix and flips, buy and hold and those types of things. The market out there has a whole other world of no questions asked on income, but give me some collateral. Of course, they come to me after they’d been through six different traditional lenders and then I got the call saying, “I know you’re not doing money anymore, but do you do that quirky stuff? We need a deal. By the way, I needed it yesterday.” I’m like, “No, it’s not going to happen.” I’m going to pretend like we’re starting out. It’s going to take a good month for me to figure this out because I have to figure out what you’ve tried and what didn’t work. I have to pitch it. We’ve got to get appraised. We still have to do that.

That’s an underwriting.

It has to be underwritten, but it’s a very light underwrite. We didn’t end up pulling the deal together in time and the guy lost $20,000, but it wasn’t my fault. He had already lost the $20,000 a day he wrote the contract. Somebody should’ve known, so he didn’t have to lose his earnest money deposit.

There are ways to do transactions. The key message I want to leave people with is that whether you’re buying, selling or lending, you want to find, create and expand whatever edge that you can develop, not against anyone else, but edge against failing at any contract you come upon. An edge, for example, is having some money to be used as a down payment. An edge would be having people that are knowledgeable about the construction of the property you’re going to work on. An edge can include your mental edge of being prepared to do whatever it takes to find out whether a deal is a good deal or not a good deal. Even an edge can be the speed of making decisions. That’s going to be whatever partners that you can line up to put into a transaction with you if it’s too big for your resources.

One of the things is all these techniques that we’ve talked about and I’ve written about are all in this world of how do you create an edge? An edge against the failure of a deal. You got a huge tool belt of resources that you can reach and bring together. The focus is on resources all the time. You’re adding people that have money as a party resource. You had a property that you have your skill in terms of knowing what to do with this property. You have people that know how to work with other properties. You create an edge against failure.

Anybody can do that. There are lots of things that are edges against failure, but there’s a lot of things that take away from that edge. I was talking to a residential investor and he bought houses that needed some work and he’d do some white turnaround work with him, clean up. He would do that and he would put it back on the market. He got a call from an elderly woman and she said, “I have a house for sale. Would you be interested in buying it? Are you still buying houses?” She saw one of his advertisements.

He said, “Sure, what’s the address?” She gave him the address and he says, “I’ll be right over.” She said, “You’re going to come over?” He said, “Of course, I’m going to come over. I’ve got to look at the house and talk to you and see if we can put together a transaction.” She said, “I’ve talked to sixteen or seventeen different investors in the last two days. I even had one guy when I told him what I wanted for the house, he cursed me out and slammed the phone down on me. I didn’t think anybody would come out and look at my house.” He said, “I will.”

We went out and he sat down and talked with her. He found out what the most important things that she needed in a transaction. One of which was that she was going to move into a home with somebody else and she needed 60 days to be able to stay in the property. The person that I’m talking about, he said, “Sure, that’s no problem. You can stay here, but we may be doing some work around the house.” She said, “No problem. I wanted to stay.” What’s important to her was that she could stay in that property for 60 days. Nobody else was going out and talking to her.

They were all pushing her away saying, “We don’t want to talk with you if you’re not going to give us a price we want on the frontend.” An edge that you can lose at the edge of relationships with people. People close transactions and the property doesn’t have anything to do with who’s going to close it. The edge piece is that you can make or break your edge every day in the business you’re working in. The more edge you have, the more you can find ways to close transactions that normally would not close and other people couldn’t close.

Real Estate Financing: When you need to put together the resources for a transaction, it shouldn’t be after you’ve found property.

That’s probably the golden nugget and what we’ve been talking about too is to have that edge on it. We won’t have time to talk about it, but I know you do a lot of high-level deal makers. For those that are reading in that high-level area in the market, that’s something that you work with as well. I also know that you have a course that’s called Creative Real Estate Formula. Tell us about the course that you have.

I got two courses. The first one is on, How to Raise Money for Real Estate for Investments. How do you find money that you can use to invest in a property that you want to invest in, develop, buy and remodel? How do you find joint venture partners? I have another course and it’s called the Ultimate Money-Raising Formula. I also have a course called the Real Estate Deal Makers Program. In that, we look at how you develop the skills that you need to be able to be in the business of buying and selling, remodeling and picking a property. I’m talking about not the simple things like, what an escrow is? I’m talking about what it takes to make a business for yourself? Being involved in real estate rather than spending all the time that you’re looking for a $1 million return on the first transaction.

A house with positive cashflow. That always seemed to be the big thing. It has to have positive cashflow. I said, “Maybe not. It doesn’t necessarily have to have positive cashflow.” It cracks me up too because in Virginia where I live, people will pay $700, $800, $900 a month for a car payment, but they won’t have a $25 negative cashflow on a property that’s appreciated. I can’t understand it. I don’t know the psyche of it, but they’re not the right people for investing. You have to take the emotion out of what we’re talking about. This isn’t, “Yes, you may want that home.” You’ve got to take the emotion out in order to get over all the hurdles in getting to the property if that’s what you want is that pride of ownership. Obviously, if you’re an investor, you’d want to take the course, but as a realtor or a lender, you want to be taking these courses.

You don’t want to be blindsided by your clients saying, “I heard and I knew about this.” This up levels your credibility and it increases your professional growth when you learn new ways and things that are out there that you never even knew about. We think we know everything about lending, but we only know about lending as it’s written in a book. It’s a guideline that we have to live by. It behooves you to know as much as you possibly can about this industry to whatever capacity you want. Whether you want to go all the way to commercial or you want to be involved with the advanced creative things or if you want to take a nice first starter. A jumpstart course on, “I didn’t realize all this world is out there,” and you can start building that connection for yourself as well. I want to end by asking you two more questions. The first is who is your mentor? Who do you look up to?

That’s a big question. I have so many of them. When I got into the self-storage business, there’s a man out of Wichita, Kansas by the name of Colby Sandlian who was one of the founders of the self-storage business. We were talking one day and he offered me a partnership. This was in 1990. I was the boots on the ground. I developed and bought existing self-storage and turned it around. We built self-storage. He has in my small part of the world in Dallas, Fort Worth area, Oklahoma City and Shreveport, Louisiana. We did about fourteen self-storage projects.

We joint ventured a bunch of self-storage projects around the country. What we did was to supply expertise to the people that wanted to develop them. We ended up with small pieces of action, small pieces of ownership on a lot of different properties. He got me started and taught me the practicality of the self-storage industry as opposed to the theory of the self-storage industry. There’s a huge difference in terms of how do you figure out what a good location to build a property is. How do you figure that out? How do you manage the property so that you have the maximum return? Everybody thinks that you raise the rates, but frequently that’s not the case.

There are five different ways to increase income. Have you ever converted a mobile home park into a storage unit?

I have not.

The reason why I said that is one of my uncles did that in Michigan. I know you went to the University of Michigan. They bought a mobile home park that was falling apart. They eventually got everybody moved off and bought people off. The slabs, they then built storage on because it was already there. It’s another little creative way. Could you share with us what your thoughts are for the market that we’re about ready to approach in 2020?

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I’m very cautiously optimistic. The construction costs have gone through the roof. I’ve done a lot of new construction. I cannot honestly tell you what a project is going to cost. I would be building in a year after I get everything put together. I’ve got a self-storage project I was trying to put together down in Arizona simply because I couldn’t pin down the costs of labor, lumber and steel.

I heard that in New York at a conference I was speaking at. It’s the same thing. They have so many overruns on costs in New York City, yet we have a bad shortage of housing nationally for everybody. They’ve got us by these construction costs because we need more housing.

We needed it all across the country.

You’re somewhat bullish.

I’m optimistic that the economy in the middle run, two or three years. I taught macroeconomics for a college one time. I’m cautiously optimistic. What’s unpredictable is after two or three years and when we get to that point, we have tons of issues that are about ready to come back and bite us. I don’t know which way it’s going to turn. In Europe, they got negative interest rates. How do you make a deal on negative interest rates?

They have negative interest rates. Everybody’s like, “I want that.” It’s not what you think it is. We do have some oversupply in certain areas. In the commercial, we still have some oversupply. We see that here in Virginia, where a lot of commercial buildings are being converted into residential condos. For us, it’s housing those that are coming in and doing the building. I live in the richest county in the country. They can’t afford to come in here and work to build the things that need to be built and because they don’t have the housing.

There’s a lot to talk about that. Of course, there’s a talk about recession, which we’re already in and how that’s going to affect things. We’ve been so spoiled with rates being so low for so long that any tick up in interest rates puts the skids on pretty much most of the market, at least on the traditional side. It’s another election year, it doesn’t matter what side you fall on. Do you feel that’s going to have a major impact on the housing and economy or do you feel that regardless of who gets into office, there’ll be a trickling impact a couple of years later?

I don’t think they’ll have any significant impact. In every election I’ve ever seen over my lifetime, every time the other party was going to get an office, it was going to be the ruin of the country and that never happened. I don’t think it makes any difference in terms of the long-term, the short-term materials and the cost of labor and money. Over the long-term, it makes almost no difference who’s in power in any particular national office. Maybe in local offices, it may make a difference because of the ease or difficulty in getting building permits.

The last question relative to that is, are you buying or selling?

Real Estate Financing: You can negotiate to buy or sell property, and the downpayment is something other than real estate.

I’m not selling. We’re holding and I am looking for opportunity. This is another thing that’s an edge. When you don’t have to do a deal that you can choose because why choose to do a deal that’s going to for sure be uncertain and cost you money? I’m very cautious and I’m more of a long-term buyer and developer as opposed to a short-term flip person.

For me, I don’t like to fix and flips.

I’m cautiously optimistic over the short-term. I’m cautiously optimistic over the middle-term. If it’s a middle-term, meaning 2 to 3 years. After that, I have no clue. There’s an old saying, “If you’re in a firefight, keep your powder dry,” because you might need that powder in order to deal with the enemy. In our case, the enemy is the recession or extreme economic dislocation.

Thank you so much, Chuck, for spending time with us. If you want to learn more about Chuck, you can reach out to him directly. If he doesn’t respond for whatever reason, you can give me a call and I’ll get him on the phone because I see him all the time. Thank you so much for shedding some new light on some more opportunities that are out there for people to expand and grow their personal growth and their professional growth, their finances. I look forward to continuing our relationship.

Thank you. It’s my privilege and my pleasure.

Thank you again for spending your time with us. We hope that you took a nugget or two away from this conversation that can change your business and change your life. Please continue to pay it forward by sharing this show with as many people as you feel could benefit from it. We’ll talk to you next time on Mortgage Lending Mastery.

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About Chuck Sutherland

Chuck Sutherland has been in the real estate investment business for over 40 years. He has been involved in the development of single and multi-family residential, commercial, retail, industrial, hospitality, and mini-storage projects. As either an investor/developer or consultant, Mr. Sutherland has participated in the completion of over $200 million in real estate transactions and developments. Mr. Sutherland has also been a development consultant, conducting feasibility and market studies for industrial, commercial, hospitality, retail, min-storage, mobile home, and housing properties throughout the United States.
From 1980-1990, Chuck performed market studies and feasibility studies for self-storage projects throughout the United States. Between 1990 and 1998, he joint-ventured the development of self-storage projects in Texas, Oklahoma, and Louisiana. Since 1998, Mr. Sutherland has developed and/or re-developed hotel projects in Kansas, Texas, and North Dakota.

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