Last week we looked at some reasons I believe residential real estate is one of the best investments available. The scenario we will look at today is fairly simple to grasp.

Let's start with a young couple, John and Mary, who have been married a couple of years and have no down payment. They pay $1,395 a month for their apartment. Both have terrible credit.

John works as a plumber's apprentice and earns about $15 an hour; Mary is a bookkeeper at a clinic. She makes about $12 an hour. Together they earned just under $50,000 in 2003. After taxes, they spend almost exactly what is left every month.

Because of their credit problem, it is unlikely that either will qualify for a conventional loan from a mortgage lender. Instead, they will look for a creative financing solution.

John hears about a house inherited by Mr. Smith, one of the company's owners. The house has been in the family for many years and needs a fair amount of work. It isin a good neighborhood with a good school district.

The house has been empty since the owner died several years ago. It cannot be occupied because there is no heat and the plumbing needs to be replaced. Fortunately, the house is structurally sound and the roof was replaced three years ago. The wiring is adequate.

The house is full of moldy old furniture and needs painting inside and out. The gutters are hanging down at all angles. The yard is overgrown with weeds and bushes, and the house can barely be seen from the street.

Mr. Smith knows that if he were to invest in new systems and have the house decorated, he could sell it for a substantial profit. But he is so busy with his plumbing company that he hasn't gotten around to the house project. He is reminded of the house every six months, when he mails in a property tax payment, then forgets about it.

Homes in the neighborhood are selling for $125,000, but when Mr. Smith inherited his two years ago, it was appraised at only $75,000 due to its poor condition. Since then, the property has gone downhill.

John approaches Mr. Smith with this proposal:

1. John and some of his friends from work will replace the plumbing on weekends, using parts paid for by Mr. Smith. In addition, John thinks he can get the furnace working if Mr. Smith will pay for a new blower.

2. John and Mary will move into the house and begin fixing it up in their spare time. John and Mary will pay no rent for the first three months because they are spending money on paint, gutters, clippers and trips to the dump.

3. Once the house is livable, John and Mary will buy it from Mr. Smith for $100,000 with owner financing at 8 percent interest, and payments will be set at $1,000 a month.

The loan must be paid off or replaced within seven years because Mr. Smith plans to retire then.

This arrangement benefits John and Mary because it gets them out of their apartment and into a house with essentially no down payment and no conventional loan approval needed.

It benefits Mr. Smith because he can unload the old house that needs so much work. It is a project he has put off for two years, and the situation is getting worse.

Now he can get the home fixed up at minimal cost and will have a guaranteed buyer who will can pay him a premium interest rate on an inherited asset. If John and Mary fail to pay, he can easily take the house back.

In addition, John is a valuable employee, and this arrangement will encourage him to stay with the company.

With the deal complete, John and Mary make the house their first project and own it for two full years. When they sell, the house is a showplace. It brings top dollar in the neighborhood and sells for $185,000.

Amazingly, their profit of $85,000 over what they paid is tax free, and they are not required to reinvest in anything. The money is theirs to do with as they please. Mary figures they made more from the house in two years than from their full-time jobs after taxes.

This is an example of win-win owner financing and happens more often than you might think. Next week we will look at how other forms of creative financing can help investors in real estate.

As I mentioned last week, the Georgia Real Estate Investors Association offers their free "Guide to Real Estate Investing in Georgia" if you call 770-988-1040. It provides an overview of real estate investing.- John Adams is a broker and investor. He hosts the "John Adams Radio Show," a call-in program dealing with homeownership and real estate, from 1 to 3 p.m. Saturdays on NewsRadio 640 (WGST). For more real estate information or to make a comment, visit www.money99.com.