Some ways I make my seller financing deals simple. How do you?

Question

70% of the deals that I do have 50% or more seller financing.  I find them quite easy to find, structure and capitalize on.  There are a few keys though.  Here are a few for me in my deals:

1.  Seller financing is better for the seller than the buyer.  You just have to understand how.

2.  There are over 30 potential terms in a real estate purchase contract.  If you give most sellers the 2-3 that they want the most, they will almost always let you have your way with the other terms.

3.  I rarely write just one offer.  I write up to 4 offers on each deal that I do.  We use a spreadsheet to present these offers to the sellers so they can see the full outcome (payments, interest over time, delayed or avoided capital gains tax if funds are reinvested correctly when balloon payments come due, etc.)

4.  I've learned sellers don't typically want their money when they go to sell.  They want what their money can do for them.  If I can accomplish those goals better than they can, they seller finance.

5.  There are fantastic ways to help the seller feel leveraged with proper deal structure.

6.  Most sellers don't understand seller financing so when you broach the subject, especially with no presage or proper lead-in first.

7.  The more sophisticated a seller is, the more likely they are to seller finance.

There's more, but don't want to be too winded.  Seller financing is fantastic.

Mike Watson · Answer

@Troy Luster,  As I mentioned, there are about 30 different terms in a deal.  I refer to them as profit points.  A simple example or two:

Seller demands price, 30% down and sooner closing date.  Example..... 10-plex for $1,000,000 with $300,000 down, close in 21 days.  I usually only allows them 2-3 terms to ask for.  Deck seems stacked against me right?  That's why people don't consider these deals and you haven't heard about them.  However, what if I counter with:

1.  I will give you those things if I can have a 4% interest rate on the loan, 10 years of interest only payments and a simple assumption.  (I am happy doing a semi-qualified assumption for them or they issue me a loan with no due on sale clause.  You don't have to ask for that last one.  Rarely does anyone think to put a DOSC in their agreement.)  I close on the property and simply put the exact same property right back up for sale as $1,050,000, $350,000 down and an 8% interest rate.  How many people would love to find a seller-financed building?  So, I get my $300,000 back, with an addititional $50,000 in "thank you very much money" and a quick close.  Best part, I set a up a interest only payment for 10 years.  I was on the hook for 4% or $28,000 a year and the new buyer is paying 8% or $56,000 per year for 10 years.  That means the $28,000 goes to the seller every year and $28,000 goes to ME every year.

I make $50,000 up front and $280,000 over 10 years on a deal no one else would probably touch.  $330,000 total.  Anybody up for $28,000 of propertyless passive income?  Mailbox money.  Love me some mailbox money.

And there is another dozen ways I can make this same deal even more valuable to me too.  Funniest part of all, besides the fact that there is no competition for me on these properties, is the seller walks away thinking he got me.  And I let him because he's standing on a bigger playing field than he understands.

Filipe Pereira · Answer

What kind of deals are you taking down? I'm guessing they are commercial properties with more than 4 units?

Mike Watson · Answer

@Troy Luster,  You are welcome.  As I mentioned, there are about a dozen things I do to seller financing deals, that being just a single example.  There are a lot of terms to work with there.

I start marketing the property as soon as it is under contract.  I have a simple method of getting an assignment clause in every contract.  If I don't assign it, I would just close it and move it then.  I generally prefer to close it first as assignments are a little harder to do with buyers in this specific scenario.

The seller does not have to know if I've structured the contract or later ownership correctly with these pieces in place.

Mike Watson · Answer

@Michael Ablan, Isn't that the truth?  Sophistication helps a lot.  However, when they are less sophisticated, I try to ease them into it.  One of the ways I do this is to talk about the benefits of seller financing BEFORE I ever mention seller financing.  I've put properties under contract never having said, "Seller Financing." Pointed questions that are hard to say, "No" to help the process.  A few examples might be:

1.  How would you like a good chunk of cash now and lots of payments over time?

2.  How would you like to get more than you asking price?  (Paying somewhere near asking if the property is a good one, plus years of interest payments, plus a balloon payment some day at a refi or sale= More than the seller's original asking price.)

3.  Which one of these offers looks better to you?  We then present our 4-offer spreadsheet with 4 different offers for the seller.  Gives them so many more options than they thought possible and makes you look like a pro.

etc. etc. etc.

Mike Watson · Answer

@Filipe Pereira, most of the deals that I take down are multi-family units OR properties that can be turned into that.  The latest two I am working on.....

1.  I put a house on 1.08 acres under contract and we are currently entitling it to be a house with 5, count them 5, duplex lots.  Once we subdivide the house off and sell it, the remaining lots will have cost us next to nothing prior to development.  We can then sell them papered or develop and sell them improved or build the duplexes and sell them or keep them for a cash flow.  Decisions, decisions, decisions.....

2.  The property last week is a two-lot assemblage totaling .7 acres in a prime city with the top-end zoning of 25 units to the acre.  We are going to get started on a 17-unit condo association.  Great deal too.

3.  Looking at partnering on a 63-unit apartment complex with one of my students also.

Mike Watson · Answer

@Troy Luster, I always ask the seller, "If i can meet your most important needs, are you ok meeting some of mine too?" They all say yes. Their term requests are usually price, down payment,  earnest money and the closing date. After they pick two or three of those, then I get all the rest. Win/win deals.

Also, some of my deals produce Seller Financing AFTER the deal is under contract and buyer's due diligence. I go to them and talk about better ways to meet their needs than the current offer. They don't feel threatened or concerned because the deal is safe if they choose not to participate. Their wall is down at that time.

Michael Ablan · Answer

I find #7 very true.  I have a much harder time negotiating seller financing to the less finance savy owner.  It's usually the ones who are investors themselves that jump on the idea immediately.

Troy Luster · Answer

Trying to wrap my head around this a little better.  If you give them price, down payment, and earnest money, what's left?  Can you use an example of a deal?

Troy Luster · Answer

Great post!  Never considered some points like the most important terms.  It makes a lot of sense though.  What are some of the most popular terms you have seen?

Some ways I make my seller financing deals simple. How do you?

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