How to present a seller finance offer to seller? Please advise.

Question

Hello all- I need your advice. I found this great property and I'd like to pitch the idea to the owner for a Seller Finance situation. He's looking to put the home on the market in March, for a really good price. However, he is motivated to move sooner. He currently has a tenant in the space (which is why he wants to wait). I'd like to present to him an attractive Seller Finance deal, but I don't know where/how to begin. I'm also not able to go the conventional mortgage route so this option might be the best (unless I should be looking into something better?). Any advice would be immensely appreciated!

Blaine Alger · Answer

The trick with owner finance conversations is that you can't approach the seller with owner finance as your only option.

The reason you are looking for owner finance opportunities in the first place is  because you don't have access to bank financing (that is the scenario I am in). Once this comes up in the conversation with the Seller they will start to think, "if the bank won't lend money to you, then why should I?". So just make sure you make it a point that this is just one of the options that the seller has but not the only.

You have to tread lightly and be able to pitch it in the right approach.

-BA

Steve Morris · Answer

Well, if the tenant is the only issue, just sign an assign/assumption agreement on the lease and honor it from close until the lease ends.

As far as making seller financing attractive, if I was a seller I'd like to see:

1) Sizable down (which is why it may not be an advantage to a buyer)

2) Higher rate than market (another reason it may not appeal) since you're not closing at close

3) Some kind of default provision if you lay waste to the property or (if it's effective) you don't pay an existing mort or prop taxes and the prop goes into default with some penalties.

Ola Dantis · Answer

Please do sir. It's absolute pleasure to share it with anyone who wants it.

Dan Maciejewski · Answer

If you're already in conversation with him, and it sounds like you are, it's not a huge deal.  First, is it paid off?  If not, is the current loan assumable?  Then ask if he's ever thought about it.

My phrasing starts with, "Have you ever thought about seller financing, or do you need the cash out?"  They always say they need the cash.  Then you can get into motivation:  "What are you planning to buy?"  Often it's nothing, they just think they want the cash.

If they are a high earner, seller financing can be a way to spread out capital gains for tax purposes.  It's also a great way to keep the cash flow he was getting from the tenant but without the liability of owning a property -- he just owns a cash flowing note.

Go to calculatestuff . com and play with some terms to offer -- it's good to already have some options.  I linked to the interest-only calculator because that's the one I use most often but they have all sorts.

Basically you'll want to know all the benefits to him to finance you.

Dan Maciejewski · Answer

@Hanon Hines

I am a Realtor, so I use the Realtor contract for my state.  There's an addendum for seller financing.  Then an attorney draws up the actual note.  If that's your goal, you might want to look at interest-only with a balloon.  You pay the balloon payment (the purchase price) when you refinance. I always start with a 30-year amortization.  I would suggest giving yourself plenty of room / time to get the refinance.If this is your first time dealing with this do a lot of research.  Here is an intro article from Investopedia.  You can also search around here for previous threads and blog posts.

As an aside -- If you put your text below the quote, BP won't blur out your text.  It does that for long quotes, and anything above the quote is included in the blur.

Ola Dantis · Answer

I always say in business, language and persuasion are two very important ingredients needed to be really successful. If you have these two skills, you are absolutely dangerous.

These two things will definitely help convince this seller to go with you instead of getting the "top dollar" in March when he lists the property on the current hot market.

What we do is persuade the seller using numbers and the potential profits that he/she will get if they gave us the deal (see below screenshot). Plus, I then write a very personalized letter to go with the offer. Sometimes for larger deals, we will create an offering prospectus to the Seller in conjunction with the two documents aforementioned.

Screenshot showing Profits To OWner and the Different Downpayment options. (I can send the spreadsheet).

With these documents and you listening attentively for motivation cues every time you speak with the Seller, you can't go wrong!

Jonathan Greene · Answer

I agree with what everyone else said here, especially with the last point by @Blaine Alger. If seller financing is your only option, it's not attractive to a seller. He will ask just what was said there. Have they given any indication that they are open to it. How old are they? How many other assets do they have? What kind of capital gains are they looking at if they sell now? Capital gains is, in my opinion, the best strategy when they don't really need the money.

Dan Gustavson · Answer

@Ola Dantis - Would you mind if I shot you a DM for the spreadsheet as well?

Ola Dantis · Answer

Sure, DM me! It will be my pleasure to send it to you.

How to present a seller finance offer to seller? Please advise.

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