Owner Finance Deal

[Michael King]

Hi everyone,

    Let's say there's an older gentleman who owns a multi-family property free and clear. Bought it back in '85 for $30K and is selling it because he lives a good distance away from the property, is older and looking to retire from being a landlord. I'm guessing he wouldn't want to carry back a 30 year mortgage considering he is older. Would a good approach be to see if he'll carry back a 5 to 7 year low interest mortgage with a balloon payment when the 5 to 7 years are over? If so, what are the benefits of doing this other than buying 5 to 7 years of owner financing.

    If I did this, what would be the best exit strategies to use? I would be looking to pass the property off rather quickly as opposed to holding onto it myself for a number of years. Retail buyer? Assign it to another investor?

    Thanks,

                  Mike

[Bill Gulley]

Let me clarify. My thinking I'd be wasting my time was before I clicked the link, when I got there and saw it was Michael's podcast, my interest peaked from knowing him here on BP.

I think Michael is great at marketing, I can tell those who have had "training" in sales presentations, nodding the head, hand gestures that "connect" you with positive body language and asking "yes" questions is trained and not natural for most people.

Companies like Met Life and Prudential Insurance, probably have the best one on one training and marketing on the planet, selling financial products is the hardest thing to sell to the average Joe. You're selling an intangible product with concepts and ideas, methods of planning the unknown. New insurance agents are trained using these techniques, the psychology  of the sale. Salesmanship is the manipulation of thinking, it works, but it cam also be over done, too much can kill any deal. Need to assess who you're talking to in a presentation.

 Having been through such sales training myself, long ago, I'm probably more sensitive to catching such techniques. If anyone has followed my posts, you'll see that I have spotted new posters leading into some guruish area before they ever make their pitch, it's from marketing experience.

I have found that a more sophisticated approach is better in financial marketing and real estate than sizzle, trying to pull on emotions rather than business senses. Going this route means you need to take command of the situation early on, you need to be seen as the expert in the room and demonstrate a bit of understanding, empathy and interest in the other party. One of the reasons I harp on learning RE basics, knowing that will make you the expert in the room.

Too much sizzle in RE can become illegal, unethical and just dangerous, it's called "fluffing" and/or "puffing" overstating facts, giving implications or misleading others. There is no "presentation cop" sitting at that kitchen table, but rarely do RE transactions go smoothly without any hiccups. Putting too much buzz or fluffing or puffing in a deal can backfire on you.

The thing about seller financing is that while the title transaction may have been accomplished, the aspects of how you put that financing deal together extends the liability and circumstances surrounding the transaction over the term of that loan, the entire deal is never finished until that note has been fully paid as agreed. Seller financing is an installment purchase transaction even though you may have taken title, title has not been paid for.

If I were to fluff the benefits of a life insurance policy, the insured can switch coverage or drop coverage, if they are to collect, they'll be dead! Every insurance policy will have a disclosure that the terms are contained in the contract, that no agent or others has the authority to change the terms made by the company. You don't have this in real estate, when you are a buyer or seller, representations matter, even with the statute of frauds (all agreements made to be in writing) how you structured that agreement always matters, who structured it, why, and it will be determined usually in favor of a seller, but also toward the more innocent party. How you justified giving 60% of the true value of any property can be snake's head rising later on, financing it lengthens that issue of concern.

I'm not saying you can't offer 60% or finance it, but how you justify that can be fluffing, puffing, misleading, unethical and even fraudulent. You'll see the gurus and wheeler dealer types totally ignore such aspects, it's all about the deal struck, that approach can be dangerous. The further you get away from the norm, the higher the risk becomes of losses.

The road to RE has wide shoulders, starting out driving on the shoulder just puts you closer to the ditch and there are some big drop offs along the way!

My visit to Michael's site, was worth it to me to better understand where he operates, not a waste of my time, I won't follow his technique, but it informed me as to the need to give more information on the technical side, I have no idea how Michael tackles that.

I'm more concerned about predatory issues, good faith dealing, if the bacon is cooked properly, not how much sizzle it makes frying. :)