If you want to level up your real estate business and build lasting wealth, then learning how to creatively leverage private money is a game-changer. In a recent episode of “Raising Private Money,” Jay Conner sat down with Derek Dombeck, an expert with decades of experience in private lending, creative deal structuring, and wealth-building through real estate. Together, they unpacked practical strategies and mindset shifts that have helped Derek successfully structure thousands of deals while helping investors and sellers alike.
Below, we’ll break down the top insights and actionable lessons from their conversation.
Creative Deal Structuring: More Than Just Financing
Derek emphasizes that creative deal structuring isn’t just about finding different ways to fund a property; it’s about using every tool at your disposal to solve people’s problems.
For instance, many think that approaches like “subject to” (taking over a property’s existing financing) or seller financing are inherently creative. For Derek, those are just the basics. True creativity comes from recognizing the unique needs of the seller, the condition of the property, or the investor’s goals, and then combining multiple strategies for a win-win outcome.
Real-World Example
Derek shares a deal where he purchased a property with existing bank debt (“subject to”), arranged for the seller to carry a second mortgage (sometimes at 0% interest), and leveraged private money in a third mortgage position to fund renovations. Each participant was protected and incentivized: the seller got steady principal paydowns, the private lender earned double-digit returns (including a share of profits through a “participating note”), and Derek maximized his leverage without overexposing anyone.
The Power of Participating Notes
A major gem from Derek’s toolbox is the “participating note.” Unlike traditional notes that just collect interest, participating notes allow private lenders to receive a share of the profits when a flip is complete or the property sells.
This approach has several benefits:
- Aligns interests. Lenders are invested in the success of the project.
- Boosts returns. Lenders can potentially earn more than a flat interest rate.
- Eases cash flow. With interest accruing and some payments deferred until exit, it helps investors better manage project costs during rehab.
The paperwork is straightforward: terms detailing profit splits and payout triggers are included in the promissory note—not buried in side agreements—ensuring transparency for all parties.
Multiple Offers: Meeting Sellers Where They’re At
Derek’s approach to negotiations is all about options. Rather than pushing a single offer, he sits with sellers and outlines a menu:
- All-cash, quick-close offers.
- Seller finance with interest at a higher purchase price.
- Full-price (or higher) offers with 0% interest, paid out over time.
- Lease options or creative “installment” arrangements.
This empowers sellers to choose what best meets their specific needs. In practice, many sellers are drawn to the financial advantages of terms deals—often netting more money over time, especially if they can take 0% interest and avoid a big tax hit.
Equity Cushion and Risk Management
No matter how creative the structure, Derek never skips prudent risk analysis. He focuses on maintaining a healthy equity cushion—typically borrowing no more than 65% of after-repair value for flips, and up to 80% for longer-term rentals. This ensures there’s enough margin for error, market shifts, or unexpected expenses, keeping both lenders and the project secure.
Building Relationships & Educating Private Lenders
At the core of Derek’s strategy is education and open communication with private lenders. Explaining unique deal structures, being transparent about risks and rewards, and showing how both sides benefit builds trust and long-term partnerships—a necessity for sustainable wealth-building.
Conclusion
Derek Dombeck’s expertise showcases that building generations of wealth in real estate is less about having unlimited funds and more about mastering creative deal structuring, forming solid relationships, and leveraging private money intelligently. By focusing on win-win strategies and solving sellers’ real problems, you can structure deals that create real value for everyone involved.
10 Discussion Questions from this Episode:
- Derek shared that creative deal structuring is about using various tools to solve the seller’s problem. What do you think are some essential skills or traits an investor needs to effectively “solve problems” in real estate negotiations?
- The episode explored “subject to” deals, where buyers take over sellers’ mortgage payments. What are some of the potential risks for both buyers and sellers in these transactions, and how can they be mitigated?
- Derek mentioned using multiple financing strategies—like combining subject to, seller carryback, and private money—in a single deal. How does this benefit both the investor and the seller compared to a straightforward cash offer?
- What are participating notes, and why does Derek prefer them in certain deals? What are the advantages and possible pitfalls of using participating notes for private lenders and investors?
- Derek provided a rule of thumb for loan-to-value ratios: 65% for flips and up to 80% for rentals. How does this conservative approach protect private lenders, and what would influence your comfort level with leverage?
- The episode touched on creating “multiple offers” for sellers, including cash, terms with interest, and terms with zero interest. What do you think is the psychological impact on sellers when presented with several choices?
- How does structuring a zero-interest seller-financed deal allow an investor to pay more than retail for a property, and still make a profit? Where is the true wealth-building opportunity in this scenario?
- Derek explained the importance of extension provisions in seller-financed deals. Why might this be a crucial element to negotiate upfront, and how does it add flexibility and security for both parties?
- The episode highlighted the use of options for property control without ownership. In what situations might an option agreement be more beneficial than a standard purchase, and how could private money play a role?
- Derek and Jay both emphasized the value of serving and helping others in their investing approach. How do you think this mindset impacts success in raising private money and long-term wealth building?
Fun facts that were revealed in the episode:
- Derek Dombeck doesn’t just structure creative real estate deals—he’s also an adrenaline junkie! Outside of his real estate ventures, Derek has raced stock cars and even gone skydiving.
- Derek favors “participating notes” to reward private lenders. Unlike traditional loan structures, participating notes allow his private lenders to earn a percentage of the property’s profit in addition to regular interest, giving them a share in the upside of each deal.
- He often solves sellers’ problems by combining multiple creative financing strategies. For example, Derek might buy a property “subject to” the existing mortgage, bring in a private lender with a second lien for renovations, and even offer the seller different ways to get paid—all in one transaction!
Timestamps:
00:01 Meet Derek Dombek: Real Estate Enthusiast
03:33 Creative Property Financing Explained
07:16 Creative Real Estate Deal Structuring
11:47 Real Estate Financing Strategies
15:04 Clear Seller Financing Agreement
16:38 Creative Deal Structuring Benefits Explained
20:52 Negotiating Debt and Renovation Terms
23:30 Creative Financing Proposal
28:00 Connect with Derek Dombeck
29:05 Share to Impact Lives
29:57 Free Real Estate Investing Guide
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