In today’s market, it’s not as easy for sellers to sell their house and get their asking price. When their property sits on the market for months and doesn’t sell, they may become more flexible.

As investors, we are taught to make a low-priced “guaranteed cash offer,” which is typically around 60 cents on the dollar based on the ARV formula. But that won’t work for a seller who is not desperate or highly motivated to sell. It also won’t work when the property is in perfect condition and does not require any repairs.

Their logic is simple: Why should I sell my house at a discount if it’s in perfectly good condition?

When you present a low cash offer to these sellers, they may become offended or no longer be willing to talk to you.

You should always find out what their situation is, whether they have a mortgage and, if so, what the interest rate on that mortgage is. If they have a mortgage, there may be an opportunity for you to assume it. If they do not have a mortgage and have lived in the house for many years, they may own it free and clear.

Older people who have owned their house for many years often no longer have a mortgage. Roughly 40% of owner-occupied homes in America are owned free and clear.

When these homeowners choose to list their house and sell it, they are making a life decision. They are deciding that they would like to move from the house they have lived in for 30+ years. Usually, this is because they either want to downsize and move into something smaller, be closer to their grandkids, or both.

They are not desperate sellers because they own their house free and clear. Their house is not in bad shape, so it’s difficult to justify hitting them with a low cash offer.

However, they do have motivation to sell. They may be motivated because they want to be closer to their grandkids. The longer their house sits on the MLS, the more they lower their price the more motivated they may become.

They thought selling their house would be painless and easy, but it has turned into a headache. It is taking much longer than they expected, and the offers they are receiving are much lower than they expected.

This is where their motivation level starts going up and where they may become more open to other ideas, such as seller financing.

This is where offering seller financing can work really well. When you bring up the conversation with the seller, it is very important that you understand how to explain it properly.

Since interest rates have doubled from less than 3% to over 6%, your goal as an investor would be to get a low-interest-rate mortgage at, say, 3% interest. I like to start with a decent down payment, such as $50,000, but you could start with $10,000 or $20,000 as well.

As an example, say the seller had their house listed at $400,000 and then lowered it to $390,000 and later to $380,000, but they still are not receiving offers other than low ball offers.

Let’s say the ARV of the house is $400,000, and you know they would be willing to sell for $350,000 because they are very motivated. However, you cannot pay $350,000 cash for the house since that would not make sense.

You start with your guaranteed low cash offer at 70% of ARV. You offer $280,000, which is instantly rejected. They counter that they will not sell for less than $350,000.

You explain that, for a cash offer, you would need to be lower and could not pay that much. You then explain that the only way you could get “close” to their $350,000 number would be through seller financing.

You tell them, “The only way I could get up to $350,000 is with seller financing.”

They ask you to explain, and you tell them that you could give them $50,000 down and pay the remaining $300,000 through a mortgage over a period of 15 years.

It helps if you can illustrate this with a mortgage calculator on your iPad while explaining it to the seller. You could say, “Look, here’s what the monthly payment would be on a 15-year mortgage at 3%.”

Most sellers will not initially go for this. However, some will be open to the idea. The longer their house sits unsold on the MLS, the more open to the idea they may become. The key is to follow up with these sellers (over months).

The seller’s goal is to sell their house and be able to move closer to their grandkids. They just want out of the house, but they are not willing to give it away at a huge discount.

By offering seller financing, you solve their problem. They get rid of the house, and you get to buy a house at a $50,000 discount with 3% financing already in place at a low interest rate.

The key is to explain how selling with seller financing could give them cash up front and provide them with an income stream.

What is their biggest fear?

That you stop paying them.

You approach that fear head-on by explaining what would happen if you stopped paying. You show them that they have your large $50,000 down payment and that they have a mortgage and a note. You explain to them that if you stopped paying them, they would get to keep that $50,000 and take the house back through the foreclosure process.

If you want to get good at seller financing learn how to answer this question: “How do I know I’m going to get paid?

What’s the answer?

“You’ve got my $50,000. If I don’t pay you, you file foreclosure, take your house back and keep my $50,000. You should hope I don’t pay you—you just made $50,000.” I like to also add that they can use their own attorney to prepare the mortgage and note if they don’t want to use mine. That goes a long way in placating them. Your risk is their attorney likes the deal so much that he buys the house.

A substantial down payment gives the seller more security. Seller financing can provide dependable monthly income for the seller and help both parties structure a deal that works.

Many times, sellers will counter by saying, “I don’t want to wait 15 years. I need the money in 10 years or five years.” 

That’s when you counter with a lower down payment and a lower interest rate. For example, I can pay you over 10 years but then the interest rate goes down to 2.75% and the down payment goes to $20,000.  Your goal is to reach a number that works for both of you.

You can learn more strategies for purchasing properties in today’s market at my upcoming Buying Rentals And Building Wealth Boot Camp! Creative financing strategies are key in today’s market, and you can’t afford not to have them in your arsenal.

Book your call today to learn more about the Boot Camp and our Real Estate Training Programs: Book Your Call Here