8 Properties, 52 Units, OWNER FINANCED! My strategy

[Sean Wilkinson]

I wanted to make this post because creative financing has been such a powerful tool for me. Of our portfolio of 117 doors, currently 39 of those are seller financed while 13 are in the pipeline to close before year end.

WHAT IS SELLER FINANCING?

Seller financing is when the owner of the property is willing to be the bank for you to buy their property -- Typically they own the property free and clear. Just like getting financing through a bank, you take ownership, start making payments to the seller every month for a set term. And just like a bank, if you stopped making those payments the "bank" (seller) can take back the property and foreclose. 

WHY WOULD A SELLER DO THIS FOR YOU?

Many sellers believe asking them to finance seems like a lose-win scenario for them and that they are doing you a huge favor. In most situations, this is completely false and there are so many reasons why they should want to do this, you just need to show them! 

**Tip: Make 2 offers; one being a full cash offer for a substantial discount that if you got it people would be lining up to supply you the cash, and a second with owner financing. This shows. so much more strength then simply asking for seller financing as that can come off as desperate. Showing you "have" cash to close gives lots of credibility. 

So why would they Seller Finance? 

1) Continue letting this asset be an investment for them through interest WITHOUT the stress or headache of managing it. Let it become truly passive for them! 

2) Capital Gains. Avoid massive capital gains tax from a lump sum of cash on a traditional sale. Spread the gain over 15-30 years. 

3) Avoid all realtor commissions 

4) No appraisal risk or inspection risk from the bank which also can make for a much quicker and painless closing. 

5) Fast Closing. You set just enough time for title to insure and for you to perform whatever due diligence you feel necessary. 

Most of these above reasons are also great from the buyers perspective. But to add to this list for positives for seller financing on the buyers side are the following: 

1) Less cash needed. One of the hardest parts to getting deals is having the cash to make them happen. When a seller lets me know that seller financing is an option, I like to ask them if they are needing a certain amount for a future investment up front or if the monthly income is more important. Typically they don't need the cash but just want you to show you have skin in the game. I have nearly always been able to negotiate 0%-10% down. 

2) The property never hits the market. In this current housing market, it is difficult to find deals, and when a deal hits the market most of the time there are bidding wars if they are decent deals. And when that happens, whoever gets it typically ends up paying too much (in my mind). When you are able to communicate all the reasons a seller should finance to you and they see their own benefit, it can make them not even interested in taking it to the market. This means you can negotiate a price that makes sense! And being that the seller is also an investor, they understand that the property needs to cashflow for you so that you can always make your payment TO THEM. So telling them that you want to pay as much as possible with it still slightly cash flowing so you never default should make sense to them! The cool part to this is that you can negotiate a price off of their current income. But often times, old time landlords can get pretty behind what market rents are. So once you close, you might only be cash flowing slightly but through getting the units to market rates, this can increase cashflow substantially.

3) Full amortized debt on commercial properties. Banks typically have shorter term debt on anything over 4 units meaning that you will need to refinance or sell after 5-12 years. Whereas with a seller that has the property paid off, you can set the loan up to be a fully amortized loan meaning you don't have to change a thing all the way until it is paid off.

Thanks for reading if you made it this far! Hope it was helpful. Please share your thoughts if you have any further insight on the positive aspects of seller financing or tips to getting sellers on board!